This is the fourth in a <a href="https://cfi-blog.org/tag/smart-100-blog-series/">series of blog posts</a> exploring the impact of Smart Certification on the financial inclusion industry.

Since launching <a href="http://smartcampaign.org/certification/all-about-certification">Smart Certification</a> in 2013, we’ve witnessed rapid changes in the financial inclusion space driven by digitization of financial services and fragmentation of traditional business models. Nearly <a href="https://newsroom.accenture.com/news/global-venture-capital-investment-in-fintech-industry-set-record-in-2017-driven-by-surge-in-india-us-and-uk-accenture-analysis-finds.htm">$100 billion in investment</a> has flown into the global fintech market since 2010, creating an explosion of digital innovations and provider models. Our <a href="https://cfi-blog.org/2018/05/31/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results/">analysis of the Global Findex data</a> shows that recent gains in inclusion have been largely driven by the rise of mobile money and digital payments.

Digital financial technology is central to making financial products more accessible to underserved people around the world. This is an exciting moment for digital finance, and an equally important for time for client protection. The industry has the opportunity to marry the client-centric approach embraced by so many fintechs and the industry-accepted <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">consumer protection standards</a> to develop quality products, build trust, and encourage usage. The Smart Campaign will leverage its experience to help lead the charge on this.

As we <a href="https://www.youtube.com/watch?v=-gKZ7YIHWHQ&amp;feature=youtu.be">celebrate 100 Smart Certifications</a>, we look forward to the next 100. Looking to the future requires defining responsible practices and standards given the technological advances that allow nearly instant access to credit, payments, savings, and insurance. The standards and the certification program must become more agile, mirroring the fast pace of change. We envision an adaptable approach that takes into consideration the product and client delivery mechanism, as well as the provider’s function in the value chain. The flexibility of this framework could eventually allow any type of provider to seek certification, but the process will begin with a focus on digital lenders and expand to encompass additional business models on a demand-driven basis.

Let’s take a look at credit products to see how both access and the customer experience are changing. Just a few years ago, when a client sought a loan from a financial service provider, the provider would be responsible for all of the functions needed to deliver that loan, starting with design and pricing of credit products, to the determination of creditworthiness, disbursement, collection, and continuing customer service. The model relied heavily on in-person client interactions. Today, a client can take out a micro-loan with a few clicks on a phone, without any human interaction, and without knowing what companies – other than the one they are interfacing with – are involved in making the transaction possible. In some cases, the provider may rely on another company to handle key functions, such as assessing creditworthiness or loan underwriting.

[caption id="attachment_25643" align="aligncenter" width="799"]<img class="aligncenter size-full wp-image-25643" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/charactersitics-of-aanalog-vs-digital-credit.png" alt="Charactersitics of Aanalog vs Digital Credit" width="799" height="530" /> Image credit: Center for Financial Inclusion at Accion[/caption]

As the Smart Campaign identified in <a href="http://smartcampaign.org/tools-a-resources/1136">Tiny Loans, Big Questions</a>, new models present new potential consumer risks. Mobile loans may unintentionally encourage reckless borrowing due to their near instantaneous speed. And when there are multiple firms involved in the value chain, there can be a lack of clarity over which company is responsible for addressing client complaints. By no means are these the only risks, but a closer look at new lending models in the digital age illustrates that client protection is as important as ever.

The Smart Campaign is conducting targeted research with digital financial service providers to adapt Smart standards in light of the new business models. Before launching Smart Certification five years ago, we collaborated closely with the industry to understand the risks and develop consensus about benchmarks for client protection. We’re replicating this process with digital finance providers, and our engagement with the <a href="http://smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a> will similarly incorporate the industry perspective into more adaptive client protection guidelines and standards.

We have already had a <a href="https://cfi-blog.org/2016/10/25/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">chance to confirm</a> that the Client Protection Principles continue to offer a relevant framework for Smart Certification, whether working with fintechs or MFIs. Consumers have the same interest in transparency, prevention of over-indebtedness, and availability of complaint resolution for a digital provider as they would have for a credit union. Yet, best practices and benchmarks for digital services will differ, just as their product details and client interactions differ from analog financial services.

Many fintechs already adopt a client-centric approach in their business models, but as we’ve seen from working with socially-driven financial institutions over the years, <a href="https://cfi-blog.org/2018/05/30/the-business-case-for-smart-certification/">formalizing client protection practices in an organization’s business operations</a> cements trust between a provider and its customers, and can lead to higher retention and more sustainable portfolios. The path for building trust in this evolving financial services ecosystem is collaborating with digital providers to determine appropriate standards and best practices that protect clients while enabling the industry’s growth. The Smart Campaign invites more of this collaboration with providers as we work together to extend the impact of digital financial services for financial inclusion.

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The Next 100 Smart Certifications

This is the third in <a href="https://cfi-blog.org/tag/smart-100-blog-series/">a series of blog posts</a> exploring the impact of Smart Certification on the financial inclusion industry.

When financial service providers approach <a href="http://smartcampaign.org/">Smart Certification</a>, they often have a number of questions. Many want to know if certification is worth the investment in terms of their financial bottom line. The answer we’ve heard from Smart Certified institutions is an unequivocal “yes.” As the Smart Campaign celebrates the recent milestone of 100 Smart Certifications, we’d like to explore the value of certification as <a href="http://smartcampaign.org/certification/certified-organizations">Smart Certified financial service providers</a> see it.

In partnership with Deutsche Bank, the Smart Campaign recently conducted a survey of certified institutions to understand how they view their experience with Smart Certification. (You can find the full survey findings in the <a href="https://www.smartcampaign.org/tools-a-resources/1172-consumer-protection-resource-kit">Consumer Protection Resources Kit</a>.) In an affirmation of Smart Certification’s value, 82 percent of institutions surveyed believe the cost of certification (in terms of both the servicing fee and internal staff time) was compensated by the value the institution received in return. This finding aligns with <a href="http://www.e-mfp.eu/resources/does-good-client-protection-impact-financial-performance-brief-no4">research</a> from the European Microfinance Platform, which determined that consumer protection practices, such as price transparency, respectful collection practices and effective complaint resolution, are linked to higher financial returns and have a positive impact on the provider’s bottom line.

We heard a similar story, and <a href="http://smartcampaign.org/tools-a-resources/1144">much more</a>, in our interviews with Smart Certified providers. Yes, they saw evidence of a positive impact on their bottom line, but they also reported a host of other benefits, including adherence to their social mission and a more positive internal culture. More specifically, here are some of the benefits certified institutions shared with us:
<ul>
 	<li>Client Retention and Loyalty: Certification improves complaints resolution, leading to better customer service practices, strengthened client engagement and retention.</li>
 	<li>Portfolio Quality: Certification strengthens the integrity of the loan approval process, contributing to the prevention of over-indebtedness and better portfolio quality.</li>
 	<li>Employee Retention and Culture: Certification strengthens employment practices and enhances institutional culture, contributing to staff retention and better employee morale. Staff take pride in being part of a Smart Certified institution.</li>
 	<li>Competitive Advantage: Certification increases brand recognition, and differentiates a provider from competitors in the eyes of potential clients, investors, and regulators.</li>
</ul>
<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/value-of-certification-final-cropped.png"><img class="wp-image-25617" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/value-of-certification-final-cropped.png" alt="" width="310" height="579" /></a>

To see evidence of the impact that certification has on client retention, look to <a href="https://www.smartcampaign.org/certification/certified-organizations/certified-profiles-grooming-centre-nigeria">Grooming Centre</a> in Lagos, Nigeria, where the staff like to say, “The client is queen!” After becoming Smart Certified in 2016, Grooming Centre reported that certification helped them forge even stronger relationships with clients, leading to an increase in customer loyalty and improved sustainability of their portfolio. According to Maureen Abumere, Deputy Head of Training, Research, Documentation, and Customer Care at Grooming Centre, good customer service and timely complaints resolution have been key factors in fostering trusting relationships with their client and a sustainable business: “Smart Certification has really helped to balance the relationship between the institution and the customer. Now the customer understands that they have responsibilities as a client, and the institution knows about their responsibilities to the client.”

<a href="https://www.smartcampaign.org/certification/certified-organizations/certified-profiles-pro-mujer-mexico">Pro Mujer</a>, the first Smart Certified institution in Mexico, described that prior to certification it used a simple loan approval process with very few requirements. As it attempted to meet the certification standards, Pro Mujer developed a more formal policy for loan approval. Today the institution screens its clients through the national credit bureau, which helps control the amount of debt a client can carry. As a result, their bottom line is healthier and clients are happier. “Pro Mujer teaches us how to be more productive with our money,” said Laura Liliana Ortiz Brizuela, a Pro Mujer customer and owner of a textile company. “They explain to us how much interest we have to pay and they tell us how we can reduce that interest rate. Any questions we might have, we can call them on the phone and they provide answers.” Highly trained staff and knowledgeable loan officers are crucial to developing responsible clients – and to meeting Smart Certification standards. Improvements in staff training are another benefit of the institutional practices formalization encouraged through Smart Certification.

Providers also described how Smart Certification helped solidify their institutional culture. Pro Mujer has always prided itself on building supportive client relationships. While client protection was always part of the institution’s culture, certification helped Pro Mujer align mission with practices. Formal policies empower their employees and ensure that clients will still be protected even if leadership changes. Ninety-three percent of certified providers agreed that certification helped them reshape their corporate culture and enhanced the connection with social mission in that culture.

Institutions also noted that Smart Certification differentiates them from competitors in the eyes of regulators and investors. Samit Ghosh, Managing Director and CEO of <a href="https://www.smartcampaign.org/certification/certified-organizations/certified-profiles-ujjivan">Ujjivan</a>, a certified provider in India, remarked: “Smart Certification helped us raise capital and transform into a bank. Among regulators, people feel Ujjivan is one of the better institutions, with ethical value and good governance. Smart Campaign helped in building this very important part of Ujjivan’s image.” More than 75 percent of certified institutions have received formal or informal commendation from the supervisory authority in their country, and many institutions reported that Smart Certification increased their international visibility, attracting new investment opportunities. According to a manager at FINCA Kyrgyzstan: “Certification separates us from our competitors when we speak to investors. They immediately know we’re a legitimate organization and that we play by international rules.”

The 100 Smart Certified institutions serve different markets, offer unique products, and have their own brand identities, but one thing they have in common is the understanding that protecting their clients’ interests strengthens their business and differentiates them from other financial service providers. They understand that building client protection into their operating model is not only the right thing to do—it’s the smart thing to do.

Have you read?

<a href="https://cfi-blog.org/2018/05/16/100-smart-certifications-a-milestone-for-responsible-financial-inclusion/">100 Smart Certifications - A Milestone for Responsible Financial Inclusion</a>

<a href="https://cfi-blog.org/2016/09/28/fintechprotects-prioritizing-responsible-agent-management-at-oxigen/">#FintechProtects: Prioritizing Responsible Agent Management at Oxigen</a>

<a href="https://cfi-blog.org/2015/03/26/smart-certification-kashf-foundation-takes-the-lead-in-pakistan/">Smart Certification: Kashf Foundation Takes the Lead in Pakistan</a>

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&nbsp;

The Business Case for Smart Certification

This is the second in <a href="https://cfi-blog.org/tag/smart-100-blog-series/">a series of blog posts</a> exploring the impact of Smart Certification on the financial inclusion industry.

Smart Certification recently reached the milestone of 100 certified financial institutions, which collectively serve 42 million clients around the world. Among our lessons learned along the way: consumer protection starts with listening.

When the demonetization crisis struck India in 2016, many clients were left with currency that was no longer valid and had no means to repay their loans. They worried that their financial institutions would treat them harshly. Sulthana, who owns a small shop in India, had a different experience with <a href="http://smartcampaign.org/certification/certified-organizations/certified-profiles-ujjivan">Ujjivan</a>, a Smart-Certified small finance bank: “When demonetization happened…we told Ujjivan that we needed a few more days to repay it. They were very considerate and understanding, spoke politely and gave us a few more days [to repay the loan].”

While demonetization was a unique shock for clients and lenders in India, the empathy described by Sulthana reflects the importance that Ujjivan places on respectful communication and customer service. As it has done for many of the certified providers, the certification process helped Ujjivan formalize its client-centric approach. Ujjivan has established a separate service quality department with dedicated customer care representatives at all branches, with the responsibility of proactively seeking customer feedback and resolving complaints.

By promoting <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">principles</a> such as fair and respectful treatment of clients, transparency, and mechanisms for complaint resolution at financial institutions around the world, the Smart Certification program works to ensure that clients are heard and kept at the center of the financial inclusion industry. The Smart Campaign conducts research to determine what people really care about and identify risks that disproportionately affect low-income clients. Through projects like the <a href="http://smartcampaign.org/tools-a-resources/1089">Client Voice</a> and <a href="http://www.smartcampaign.org/tools-a-resources/1030">What Happens to Clients Who Default</a>, the Campaign studies what risks and challenges clients face as they gain access to fast-changing financial services. This knowledge informs the design of the Smart Certification standards and industry best practices for responsible financial inclusion.

In its Client Voice research to-date, the Smart Campaign asked clients in four countries (<a href="http://smartcampaign.org/tools-a-resources/1087">Peru</a>, <a href="http://smartcampaign.org/tools-a-resources/1076">Benin</a>, <a href="http://smartcampaign.org/tools-a-resources/1088">Georgia</a> and <a href="http://smartcampaign.org/tools-a-resources/1077">Pakistan</a>) to describe their experiences with financial providers. The results showed that clients shared similar complaints across geographies:
<ul>
 	<li>Clients had an inadequate understanding of the basic attributes of their products, such as loan terms and conditions.</li>
 	<li>Clients said they had unpleasant experiences with financial institution staff members, who often treated them poorly and with disrespect. One client from Pakistan said, “They don’t think that we can genuinely have problems… They don’t try to understand.”</li>
 	<li>Mechanisms for filing a complaint at the studied institutions were lacking.</li>
 	<li>Clients were making unreasonably large sacrifices to repay their loans. For instance, borrowers in Ghana reportedly skipped meals, sold their possessions, or took their children out of school when they were about to default. Clients who actually default are often pushed into taking more desperate measures, like some in Uganda who fled town or changed their names.</li>
</ul>
These findings demonstrate that when financial service providers do not prioritize client protection their customers can suffer, which jeopardizes the sustainability of their business. Smart Certification aims to mitigate client harms by listening to clients and supporting institutions to create good communication channels with their clients.

Hearing directly from clients provides information that enables policy makers and product designers to improve their offerings. The findings of the Client Voice research in Peru had a major impact on the Superintendency of Banking, Insurance and Private Pension Funds of Peru (SBS), the country’s primary financial regulator SBS, leading them to <a href="https://cfi-blog.org/2017/11/13/how-smart-campaign-research-is-influencing-client-protection-policy-in-peru/">adapt the market’s regulatory framework</a> to better meet the needs of clients:
<ul>
 	<li>Clients told us that they didn’t understand how credit bureaus or credit reporting worked; SBS worked with the credit bureau system to develop a simplified credit report that motivated users to look up their credit information.</li>
 	<li>We found that 40 percent of respondents in Peru didn’t understand their loan terms; SBS started testing ways to clarify the information on loan terms and conditions, and required insurance companies to explain the scope and characteristics of product coverage to potential clients.</li>
 	<li>A quarter of clients in Peru reported that microfinance providers discriminated against those of lower socioeconomic status. SBS implemented new regulations on market conduct, incorporating detailed responsibilities and obligations for financial institutions to improve their business practices and advance equal treatment of clients.</li>
</ul>
Smart Certification raises the client voice within financial institutions by promoting timely and responsive mechanisms for client complaints and problem resolution. In this way, clients’ concerns are better heard and institutions get the feedback they need to improve their products and services. Smart Certified institutions affirmed the benefits of this feedback loop <a href="http://smartcampaign.org/tools-a-resources/1149">in a recent survey</a> with 86 percent attesting that achieving certification helped them better understand client risks and allowed them to better serve their clients. This is sorely needed when access to financial services worldwide is growing, but <a href="https://qz.com/1260139/india-has-the-highest-number-of-inactive-bank-accounts-in-the-world/">usage is stagnant</a>.

Empathy matters. In the Smart Campaign’s direct conversations with clients, they tell us that they value transparent and respectful service above all else. Empathy and compassion for a borrower who is struggling to make a payment, like Ujjivan client Sulthana, go a long way in increasing client retention and loyalty. So as we celebrate what 100 Smart Certifications means for the industry, let’s not forget what it means to the clients the industry serves.

Have you read?

<a href="https://cfi-blog.org/2018/05/16/100-smart-certifications-a-milestone-for-responsible-financial-inclusion/">100 Smart Certifications - A Milestone for Responsible Financial Inclusion</a>

<a href="https://cfi-blog.org/2016/09/28/fintechprotects-prioritizing-responsible-agent-management-at-oxigen/">#FintechProtects: Prioritizing Responsible Agent Management at Oxigen</a>

<a href="https://cfi-blog.org/2015/03/26/smart-certification-kashf-foundation-takes-the-lead-in-pakistan/">Smart Certification: Kashf Foundation Takes the Lead in Pakistan</a>

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Where Does Consumer Protection Begin? Start with Listening

The Smart Campaign is thrilled to announce that 100 financial service providers have been <a href="http://www.smartcampaign.org/certification/">Smart Certified</a>, extending fair treatment and respect to more than 42 million low-income financial clients around the world. One hundred Smart Certifications marks a major milestone for the advancement of pro-client practices in the financial inclusion industry. These 100 financial service providers have worked to achieve and demonstrate their commitment to protecting clients from harm and delivering responsible financial services.

The journey to 100 certifications began with the launch of the Smart Campaign in 2008, at a time when microfinance sector leaders recognized the need to ensure that consumers remained front and center to their operations as the sector underwent a period of rapid growth. The Smart Campaign went on to become an umbrella for financial inclusion sector cooperation, through the endorsement of thousands of stakeholders of the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> (CPPs) and accompanying standards. The CPPs offer a common framework for understanding client risks and improving practices, and form the bedrock of the Campaign’s Smart Certification program. The certification program was launched in 2013 as a tool to support and reward financial service providers that offer appropriate products and services and deliver them in a fair and respectful way.

<img class="alignright wp-image-25557" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/quote-box.png" alt="" width="330" height="242" />

At this milestone, we reflect upon what 100 certifications means for the industry. In the five years of Smart Certification, the number of certifications, combined with the validating feedback from certified institutions, demonstrate that certification is both achievable and valuable. “The client is the ultimate beneficiary of everything we do,” according to Florin Lila, Eurasia Regional Director at FINCA International, which operates several certified institutions around the world. “If we put clients’ interests first, it ultimately helps us reach financial sustainability and our goals.” For these reasons, financial service providers are going beyond just endorsing the Campaign and Client Protection Principles; they are doing the hard work of examining and improving their practices to ensure that client protection is embedded into their DNA.

Certification drives better practices.

Smart Certification is not merely a “check-the-box” exercise. It is a probing examination of an institution’s policies and practices, and a process of making improvements that bring benefits for both the client and the provider. It is also a way for financial service providers to distinguish themselves as having sound client protection practices, a standard that regulators and investors <a href="https://www.smartcampaign.org/tools-a-resources/1172-consumer-protection-resource-kit">recognize</a>. In a <a href="http://www.smartcampaign.org/tools-a-resources/1149">recent survey</a>, 86 percent of certified financial service providers reported that certification better helped them to better understand client risks, and 82 percent also agreed that the cost of certification was worth the value received.

Since launching the Smart Campaign in 2008, we have learned a lot about the implementation of consumer protection practices and witnessed measurable industry improvement. We have worked hand-in-hand with financial service providers to understand the risks their clients face, and to develop solutions to mitigate these. Close to 100 <a href="https://www.smartcampaign.org/tools-a-resources">tools</a> are available in multiple languages on our Smart Campaign website to address a wide range of issues, from what a transparent contract looks like, to the elements of an effective complaints mechanism. These tools have been developed by and for the industry, with many created by financial institutions, associations, and other industry actors. In addition to a pool of Smart <a href="http://www.smartcampaign.org/certification/4-demonstrate/accrediting-certification-bodies">accredited experts</a> who can support institutions that are preparing for certification, these tools help support the implementation of the certification standards.

As the inclusive finance industry has evolved, we have learned more about what matters in judging the practices of financial institutions.
<ul>
 	<li>We recognize the need to listen closely to client voices and use what they say to inform the certification standards. Learnings from our <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voice</a> research in Benin, Georgia, Pakistan, and Peru have helped inform the evolution of certification standards and <a href="https://cfi-blog.org/2017/11/13/how-smart-campaign-research-is-influencing-client-protection-policy-in-peru/">spur regulatory action</a>.</li>
 	<li>We have also been working to ensure that certification complements consumer protection regulation and investor due diligence. The Smart Certification standards are now embedded in the common due diligence guidelines abided by the coalition of investors <a href="http://www.cerise-spi4.org/alinus/">ALINUS</a>, and integrated into the forthcoming Responsible Finance Forum’s <a href="https://responsiblefinanceforum.org/investor-guidelines/">Investor Guidelines</a>.</li>
 	<li>We are exploring how certification can evolve to fit new types of products, providers, and channels. The Campaign’s scope has grown along with that of the financial inclusion industry to encompass a broader range of financial service providers and channels, such as fintechs, <a href="http://smartcampaign.org/tools-a-resources/1105">agent networks</a>, and <a href="http://smartcampaign.org/tools-a-resources/1136">digital products</a>.</li>
</ul>
The mission of the Campaign remains the same: to keep clients as the driving force of the industry. Everyone has a role to play to ensure that clients are protected, from financial service providers, to funders and regulators, and even the clients themselves.

We want to pause at this moment to thank our partners and congratulate all of the financial service providers that have worked hard to achieve certification. The financial inclusion industry is in a state of constant change. As we look to the next 100 Smart Certifications, we are committed to continuing our collaboration with the ever-expanding range of providers leveraging new technologies to provide more – and better – financial services to low income people.

Have you read?

<a href="https://cfi-blog.org/2016/12/05/client-centricity-at-scale-the-brac-smart-certification-journey/">Client-Centricity at Scale: The BRAC Smart Certification Journey</a>

<a href="https://cfi-blog.org/2016/09/28/fintechprotects-prioritizing-responsible-agent-management-at-oxigen/">#FintechProtects: Prioritizing Responsible Agent Management at Oxigen</a>

<a href="https://cfi-blog.org/2015/03/26/smart-certification-kashf-foundation-takes-the-lead-in-pakistan/">Smart Certification: Kashf Foundation Takes the Lead in Pakistan</a>

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Smart 100 Certifications

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The Next 100 Smart Certifications

The Business Case for Smart Certification

Where Does Consumer Protection Begin? Start with Listening

100 Smart Certifications – A Milestone for Responsible Financial Inclusion