As the pandemic threatens the survival of many financial institutions, the temptation to trade client well-being for the financial health of the institution is ever present. While profit maximization and predatory lending behaviors might lead to bigger market shares and profits in the short run, they will ultimately destroy value in the long run. Even more so during these challenging times, financial institutions should make a conscious choice to put client protection at the center of their response by taking a long-term view that will ensure future customer loyalty and a faster recovery.

Just as a board of directors looks out for shareholders, at <a href="https://mahamfi.com/" target="_blank" rel="noopener noreferrer">Maha</a> we believe it is our obligation to look out for the interests of the clients. The process of Smart Campaign certification (we are now proud to be Smart certified) has encouraged every staff member across Maha to champion consumer protection so that it becomes instinctive for us when making decisions or interacting with clients.

The current situation in Myanmar has been a test of this approach. We are an agri-focused institution; 90 percent of our clients are smallholder farmers. Last spring, we wrote about how we had to <a href="https://centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis/" target="_blank" rel="noopener noreferrer">adapt to regulatory and government directives</a> during the pandemic’s early stages. Here we present several measures we’ve taken over the last few months to keep the well-being of our clients and the organization at the center of our decision-making process.
<h2>Cash Discount</h2>
One of the first measures we took was to offer a cash discount to customers. This achieved a two-fold purpose of not only encouraging repayments but also of providing financial support to our clients during these difficult times. This, at a time when many lending institutions were slowing down disbursements, was received positively by our clients as there were no strings attached. Moreover, we maintained our loan amount, which is the second highest in the country for long-term customers. This served as a source of relief and allowed our farmers to continue with their cropping cycle as usual.
<h2>Fair and Respectful Treatment of Clients</h2>
This principle became our North Star as we have seen delinquency go up and the need to maintain optimal collections to continue operations also becomes paramount. To ensure that we all adhere to our code of ethics, we undertook additional modules of training with specific guidelines on client interaction during the pandemic. This involved awareness of verbal and non-verbal cues that may be perceived as pressure to repay by our clients.
However, this alone was not enough. We also had to make sure that we were not incentivizing aggressive collections in any way. We addressed this by altering our incentive scheme to place a greater emphasis on preventing over-indebtedness and keeping our portfolio healthy. We also modified the incentive scheme eligibility criteria by increasing the portfolio quality threshold so that it reflects the reality of increased delinquency.
<blockquote class="pullquote--right">Maha made sure it was not incentivizing aggressive collections in any way.</blockquote>
Finally, we have put together a special delinquency management process with a designated task force to address the dynamic situation created by COVID-19. Our efforts in this direction were further affirmed by the Financial Regulatory Department (FRD), our regulator has issued a directive (No. AA – 1/6 [785/2020] dated 13 October 2020) and guidelines to ensure that institutions do not engage in forced collections. As a customer-centric, triple-bottom-line institution, we welcome these measures and are committed to finding solutions to address the needs of our clients during these challenging times.
<h2>Customer-Centricity</h2>
Our customer-centric approach during this pandemic has taken a two-fold approach of establishing a strong and effective feedback loop with clients, coupled with education on pressing issues. Soon after the onset of the pandemic, we conducted a client satisfaction survey which was followed by a COVID-19 impact survey, both of which allowed us to stay attuned to the evolving circumstances and needs of our clients.

We addressed a variety of concerns from income to food security and mental health. We learned that clients expressed greater concern about the economic impact of the crisis compared to health issues, and some began to eat less to save more to cope with the uncertainty. These surveys have provided us with actionable intelligence to ramp up digital services to overcome movement restrictions, provide faster turnaround times, and reschedule where applicable. We are now working on rescheduling on a case-by-case basis and are about to launch cashless repayments using mobile money agents.

Our second approach, which included education, was linked to a growing concern about multiple lending and over-indebtedness. The inclination to borrow as much as possible in times of uncertainty is hardly a surprising phenomenon when those we serve are unlikely to have savings that they can rely on. Through a combination of SMS alerts and pamphlets, we have educated our clients on the dangers of over-indebtedness and have given them advice on how they can optimally manage their finances.
<blockquote>Surveys have provided us with actionable intelligence to ramp up digital services to overcome movement restrictions, provide faster turnaround times, and reschedule where applicable.</blockquote>
Finally, we undertook a COVID-19 awareness campaign to help clients protect themselves, be apprised of symptoms they should look out for, and be informed by guidelines on how to proceed in case of a suspected infection. Through a combination of feedback and education, our aim has been not only to protect our clients, but to empower them to make the right decisions that will allow that to preserve their physical and financial health until the end of the crisis.

A medley of these measures has allowed us to stay true to our mission to create a long-term sustainable impact on the lives of our rural farming communities.

How Consumer Protection Has Driven Maha’s COVID-19 Response

When CFI <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">launched</a> the Smart Campaign in 2009, global financial upheaval had revealed huge cracks in financial consumer protections around the world, including <a href="https://www.centerforfinancialinclusion.org/2009-microfinance-banana-skins-report" target="_blank" rel="noopener noreferrer">new challenges</a> for the inclusive finance sector. A lack of comprehensive consumer protection regulation covering microfinance institutions across the globe put vulnerable clients at risk. The industry faced inconsistent regulations at the country level and did not have a globally accepted framework describing appropriate consumer protection from the provider perspective. Steeped in an <a href="https://www.huffpost.com/entry/on-microfinance-whos-to-b_b_777911" target="_blank" rel="noopener noreferrer">over-indebtedness crisis</a> that threatened both the operations and reputations of microfinance institutions, the industry had an imperative to accelerate and amplify its individual consumer protection actions.

The <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a> emerged as a shared set of responsible financial inclusion guidelines that would become the bedrock of the Client Protection Standards and <a href="https://centerforfinancialinclusion.org/about/what-we-do/certified-organizations/" target="_blank" rel="noopener noreferrer">Smart Certification</a>, and the infrastructure needed to support the implementation of good consumer protection practices: technical know-how through a community of experts and tools, access to funding through support facilities, and evaluations and capacity building for both providers and regulators. Since 2013, when CFI began certifying financial service providers (FSPs) that met adequate standards in their treatment of clients, 135 institutions in over 40 countries have earned Smart Certification, collectively serving over 62 million people. We also conducted over 120 trainings and 300 assessments, produced hundreds of tools for FSPs, and hosted convenings for thousands of financial inclusion professionals around the world, all part of a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">multi-pronged strategy</a> to raise awareness about the importance of consumer protection and improve providers’ practices.
<blockquote>Smart Certification has been awarded to 135 institutions serving 62 million people in 40 countries.</blockquote>
A cohesive landscape of investors and providers facilitated collaboration, enabled the uptake of certification, and created conditions in which clients could better access a range of financial services with confidence. Providers were <a href="http://smartcampaign.org/tools-a-resources/1172-consumer-protection-resource-kit" target="_blank" rel="noopener noreferrer">motivated</a> to undergo evaluations and seek certification in order to differentiate themselves as responsible actors, strengthen internal processes, attract investors, and improve relationships with regulators. <a href="https://responsiblefinanceforum.org/investor-guidelines/" target="_blank" rel="noopener noreferrer">Investors</a> adopted components of the standards into their due diligence and social impact assessments. Regulators have relied on our <a href="https://blogs.worldbank.org/psd/model-law-best-practice-financial-consumer-protection-important-driver-universal-financial-access" target="_blank" rel="noopener noreferrer">Model Legal Framework</a> (now known as the <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">Handbook on Consumer Protection for Inclusive Finance</a>), which was recently updated for digital financial services. Regulators also used CFI’s <a href="https://centerforfinancialinclusion.org/client-protection-in-peru/" target="_blank" rel="noopener noreferrer">research</a> to design policies that balance client risk and market sustainability while taking the voices of both providers and clients into account. (For more resources and past consumer protection knowledge products, visit the Smart Campaign <a href="https://centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/" target="_blank" rel="noopener noreferrer">project page</a> on the CFI website.)
<h2>Changing Times Raise New Concerns for Client Protection</h2>
New actors, fintechs, and their investors are launching ventures aimed at serving unbanked and underbanked customers, hoping to use technology to scale their offerings beyond the reach of physical branches. Fintechs have entered the ecosystem at a rapid rate, particularly in growing markets, such as <a href="http://www.nairobibusinessmonthly.com/impact-of-fintech-on-kenyas-financial-services-industry/" target="_blank" rel="noopener noreferrer">Kenya</a> and <a href="https://www.techinasia.com/talk/state-fintech-cambodia" target="_blank" rel="noopener noreferrer">Cambodia</a>. Some of these companies have emerged under a loose banner of “inclusive fintech,” but many new entrants have different motivations and experiences than the providers that have traditionally sought to provide financial services to low-income customers. Fintechs that aim to serve this vulnerable segment may have good intentions, but many are also driven by different forces, including pressure to scale quickly in competitive markets, and commercial investors that are motivated more by returns than by development goals. As financial inclusion slogans increasingly appear in the <a href="https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans" target="_blank" rel="noopener noreferrer">lexicons of fintechs</a>, these companies are largely unaccountable for their claims and, as non-bank entities, do not fall under existing consumer protection regulations.

Of course, many fintechs have genuine ambitions to advance inclusive finance and want to do everything in their power to prevent harm to their clients. Yet they face limits in what they can control due to fragmentation of the financial product delivery value chain. For instance, one credit product might involve an array of different companies: one that designs the credit model, another company contracted for collections, a bank that provides the capital, and the mobile network operator (MNO) that controls the digital rails. Because of this fragmentation, FSPs can find themselves as deal takers with limited influence over the practices of some partners.
<blockquote>Fintechs face limits in what they can control due to value chain fragmentation.</blockquote>
The new landscape compounds the challenges faced by regulators to improve consumer protection measures. Consumer protection is higher on the agenda than ever, as evidenced by findings of the annual <a href="https://centerforfinancialinclusion.org/global-microscope-2019/" target="_blank" rel="noopener noreferrer">Global Microscope</a>, an index that assesses the enabling environment for financial access in 55 countries across the globe, and the agenda set by the <a href="https://www.afi-global.org/" target="_blank" rel="noopener noreferrer">Alliance for Financial Inclusion</a> (AFI). Nonetheless, the progress that many countries have made to bolster consumer protection regulations and enforcement does not apply to new digital business models – either because these non-bank, non-microfinance entities fall outside current frameworks or because regulation has not yet addressed risks unique to digital financial services.
<h2>Building a Responsible Digital Ecosystem</h2>
As the inclusive finance ecosystem fragments and becomes more complex, CFI will shift its approach from codes of conduct and provider certification to focus on regulation, market conduct, and consumer research. With the <a href="https://centerforfinancialinclusion.org/cfi-celebrates-smart-campaigns-advancement-of-consumer-protection-announces-plans-to-transition-resources-to-industry-partners/" target="_blank" rel="noopener noreferrer">closure of the Smart Campaign</a>, our partners, SPTF and CERISE, will manage the Client Protection Standards going forward as a part of the Universal Standards for Social Performance. CFI will continue to manage the Client Protection Principles, which we believe can form the base of a shared language to understand consumer risks across the range of inclusive finance providers. CFI will continue to collaborate by engaging in research and learning that can be translated by our partners into practical tools for FSPs.
<blockquote>CFI will continue to collaborate by engaging in research and learning that can be translated into practical tools for FSPs.</blockquote>
To begin addressing the digitalization of financial services for the poor and the increasing complexity of the sector, CFI conducted <a href="https://centerforfinancialinclusion.org/a-framework-for-responsible-digital-credit/" target="_blank" rel="noopener noreferrer">research on digital credit</a> (including the <a href="https://centerforfinancialinclusion.org/client-protection-standards-for-digital-credit/" target="_blank" rel="noopener noreferrer">Client Protection Standards for Digital Credit</a>) to provide digital lenders with a shared set of criteria to assess their practices. CFI convened researchers, investors, and providers to discuss and debate good practices. These consultations revealed the following lessons:
<ul>
 	<li>The relative importance of the Client Protection Principles are shifting in a digital world. Principle Six (Privacy of Client Data) has become a key consideration, while Principle Five (Fair and Respectful Treatment of Clients) may look vastly different when a business model leans toward tech over touch.</li>
 	<li>Protection by design better aligns with fintech's faster product development and deployment cycles. Previously, the CPPs looked at established products and institutions, but the pace at which fintech products are brought to market and refined based on customer use shifts attention to the product development cycle as a crucial opportunity to embed client protection.</li>
 	<li>Consumer protection needs an awareness boost. The Smart Campaign put consumer protection on the radar of FSPs by raising awareness of unintended consequences and convening stakeholders to identify practical solutions. It’s time to open this conversation to new investors and providers that are concerned about alarming trends in markets like <a href="https://centerforfinancialinclusion.org/red-flags-in-kenyas-nano-credit-market/" target="_blank" rel="noopener noreferrer">Kenya</a>, for example, to raise awareness again. In a rapidly evolving digital financial system, it is more important than ever to anticipate, understand, and catalog risks to consumers -- activities that will form the basis of CFI’s consumer protection agenda going forward.</li>
</ul>
We’d like to thank the <a href="https://mastercardfdn.org/">Mastercard Foundation</a> for partnering with us on this journey.

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FSPs Adopt Client Protection: A Look Back, A Look Ahead

The <a href="https://content.centerforfinancialinclusion.org/" target="_blank" rel="noopener noreferrer">Center for Financial Inclusion</a> (CFI), an independent think tank housed at Accion, launched the Smart Campaign over a decade ago to advance consumer protection for low-income customers. Over the span of the program, CFI played a catalytic role in advancing knowledge of consumer protection by conducting research, establishing the Client Protection Principles, and rolling out a certification program under which 135 institutions attained Smart Certification, expanding protection for more than 62 million clients globally. Building on this success, CFI will transfer the wealth of implementation resources created by the Smart Campaign to trusted industry partners, enabling CFI to continue playing a catalytic role focused on the risks to low-income customers in the rapidly changing inclusive finance landscape.

CFI and our partners are proud of what the Smart Campaign has achieved over the past ten years by bringing heightened attention to consumer protection and creating a common language for the inclusive finance community. In order for CFI to focus on identifying, understanding, and catalyzing the conversation on an evolving range of critical topics, CFI will shift ownership of the Smart Campaign implementation resources to <a href="https://sptf.info/" target="_blank" rel="noopener noreferrer">SPTF</a> and <a href="https://cerise-spm.org/en/" target="_blank" rel="noopener noreferrer">CERISE</a> and sunset the Smart Campaign brand. These partners were instrumental in the creation of many of these resources, and their focus on implementation and direct engagement with financial service providers (FSPs) make them well-suited to the ongoing management of these resources. With this handoff, CFI will remain focused on consumer protection through its research on emerging risks in the increasingly complex inclusive finance landscape, such as risks concerning data privacy, algorithmic decision-making, and sup-tech solutions.

Longtime partners to the Smart Campaign, SPTF and CERISE, will become the stewards of the Campaign’s community of experts, implementation tools, and Client Protection Standards. The Smart Campaign’s standards have always been fully integrated in the SPTF’s <a href="https://sptf.info/universal-standards-for-spm/start-here" target="_blank" rel="noopener noreferrer">Universal Standards for Social Performance Management</a> (USSPM), and SPTF will maintain and update the consumer protection portion of the Universal Standards in the future.

Providers and others will continue to be able to access the Smart Campaign tools through SPTF’s Resource Center and will access implementation support through the SPTF-managed Responsible Inclusive Finance Facilities. The active consumer protection assessors and trainers that the Smart Campaign accredited over the years will also move into the larger community of social performance management experts managed by SPTF and CERISE, creating increased efficiency.

CFI will also gradually retire the Smart Certification brand. New Smart Certification seals will continue to be awarded until April 30, 2021. All four-year certifications will be valid for the full length of the accreditation and CFI will continue to display a list of <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/certified-organizations">certified FSPs</a>. We believe that a global client protection recognition scheme remains an important tool to incentivize and recognize FSPs that are committed to consumer protection and are collaborating closely with the Smart Campaign’s highly experienced <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign" target="_blank" rel="noopener noreferrer">Certification Bodies</a> to provide continuity in the market beyond April 2021. The licensed Certification Bodies are well positioned to continue offering products under their own branding that recognize FSPs for their consumer protection performance at the global level.

CFI remains committed to consumer protection as a core part of our mission and will continue to work with the industry to produce new research and maintain the Client Protection Principles and Guidance. We will also work closely with our partners, SPTF and CERISE, along with the Certification Bodies and others to translate CFI’s research into practical tools for FSPs. CFI is grateful to all those who have supported the Smart Campaign over the years - donors, investors, FSPs, regulators, consultants, and other partner organizations - and looks forward to ongoing partnership as we collectively work to improve consumer protection for low-income customers.

CFI Celebrates Smart Campaign’s Advancement of Consumer Protection, Announces Plans to Transition Resources to Industry Partners

In the past few months, questions have been raised about the quality of microfinance debt collection practices in Cambodia. A damning recent <a href="http://www.licadho-cambodia.org/reports.php?perm=228">report</a> by LICADHO, a Cambodian human rights organization, concluded that MFIs in Cambodia have relied on “inadequate government regulation and the widespread complicity of local authorities” to unethically and illegally force indebted Cambodian borrowers to sell their land titles in order to secure repayment. Borrowers, unaware that land seizures are illegal, are intimidated into doing so. Interviewees in the report also indicated other lender abuses, including child labor, debt-driven migration and food insecurity – all because they couldn’t pay loans on time. The report, which the Center for Financial Inclusion recommends reading, raises serious concerns about human rights and consumer protection.

CFI has been an advocate of consumer protection in Cambodia for <a href="https://www.cgap.org/blog/supporting-client-protection-cambodia">many years</a>, working with a variety of stakeholders in the country, including donors, financial service providers, clients and the government. We believe that using threats as a means to extract repayment is unacceptable, and the allegations from LICADHO should be taken seriously and further investigated. Responsible practices should be reinforced by providers as needed.
<blockquote>We believe that using threats as a means to extract repayment is unacceptable.</blockquote>
However, as the report itself and the Cambodia Microfinance Association (CMA) <a href="https://www.construction-property.com/lichado-report-selective-and-misleading-says-cma/">point out</a>, the results need contextualization. The sample size is very small – only 28 interviews were conducted in four provinces and Phnom Penh – and is not meant to be statistically representative of Cambodia or all MFI clients. All interviews were conducted in a very short timeframe: spring 2019. Are a small number of providers concerned, or is the report surfacing issues that indicate an existing (and possibly increasing) general crisis amongst MFI providers? While the issues raised in the report merit attention, even if they affect a proportionally small number of clients, it is important to understand the scope of the problem in order to determine how to adequately address it.

The <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Consumer Protection Principles</a> contain strict guidelines that deter providers from violating borrowers’ human rights. Consumer Protection Principle 5, which concerns the fair and respectful treatment of clients, strictly prohibits Smart-certified financial service providers from using abusive language, using physical force, limiting physical freedom, shouting at the client, entering the client’s home uninvited, publicly humiliating the client, violating the client’s right to privacy, mistreating a client based on any protected groups, using intimidation or threats, sexual or moral harassment. Guideline 5.3.3 explicitly states that “the provider staff may not force clients to sell their own collateral to pay off their debt.”

But it’s not about just setting principles and hoping providers abide by them. The <a href="http://smartcampaign.org/certification">Smart Certification</a> process requires financial service providers to demonstrate their adherence to the Client Protection Principles and corresponding standards. It represents a rigorous analysis of an institution’s policies, systems and practices, carried out by licensed third-party organizations. Recognizing that organizations, regulations and product offerings evolve, our 115 certified-organizations worldwide are required to be recertified every four years, with a two-year check-in, and a required recertification if the organization goes through material change. Certification is a measure of whether an institution has adequate systems in place to prevent client harm, ensuring that harm isn’t occurring, and mitigate it if it is. The Cambodian microfinance sector, with support from CMA, has worked hard over the years to improve practices in order to meet the rigorous bar set by Smart Certification. Eight Cambodian institutions are currently Smart-certified: LOLC, Acleda Bank Plc, AMK, Hattha Kaksekar Ltd., Amret Microfinance, Sathapana Bank, VisionFund Cambodia, and Thaneakea Phum.

Through the assessment and certification process, widespread client abuses come to light and the institution is given recommendations on how to address them. On the other hand, one-off poor and abusive decisions on the part of selected individuals may not surface. This is why complementary research of alleged abuse, and the presence of well-functioning recourse mechanisms for clients are critical.
<h2>CFI's Role in Cambodian Consumer Protection</h2>
CFI started its engagement with the microfinance sector in Cambodia in 2012, a time when the Cambodian market, a victim of its own success, was growing at a pace seen by many as unsustainable: between 2004 and 2014 the growth in the average household loan size <a href="https://cma-network.org/files/OIDWORKSHOP/MIMOSA Circular Cambodia Jun 2016.pdf">outpaced growth</a> in average client income by a factor of four. CFI convened key funders of the main MFIs and encouraged them to embrace Smart certification as part of their screening and due diligence process to ensure that providers had adequate policies and practices in place to prevent over indebtedness and poor client treatment. In the years that followed, and with generous support from the Agence Francaise de Développement (AFD), CFI supported an ambitious consumer protection program aimed at developing the country’s credit bureau, strengthening the capacity of the Cambodia Microfinance Association (CMA) and improving practices of the main financial service providers (FSPs) to the poor in the country.

FSP practices drastically improved as part of this work. Collectively, the eight Smart Certified institutions in Cambodia serve 1.6 million clients. This is an incredible achievement for the sector, as these clients are served by institutions that have committed (and demonstrated) that they have put in place systems and processes to protect their rights and treatment. Preventing over indebtedness is complex, especially in the context of fast-growing markets and an environment where lenders are not always required to report to the credit bureau.
<blockquote>The eight Smart Certified institutions in Cambodia serve 1.6 million clients.</blockquote>
<h2>Lending Guidelines</h2>
As concerns of over indebtedness have continued to <a href="https://mimosaindex.org/inexorable-growth-in-cambodia-like-a-rolling-stone-2/">rise over the years</a>, concerned players decided to go a step further and understand better the underpinnings of growth in the Cambodian market, as well as ways to ensure a responsible growth. Since 2016, the <a href="https://cma-network.org/">CMA</a>, <a href="http://www.incofin.com">Incofin</a>, <a href="https://mimosaindex.org/">MIMOSA</a>, the Credit Bureau of Cambodia, the Smart Campaign at CFI, and several other stakeholders have been developing and refining the CMA Lending Guidelines. The <a href="https://www.microcapital.org/special-report-a-model-from-cambodia-for-preventing-overheating-not-just-multiple-lending-to-be-presented-at-european-microfinance-week-november-14-16-2018/">project</a> was funded by Incofin, <a href="https://www.proparco.fr/en">PROPARCO</a>, BIO, <a href="https://www.fmo.nl/">FMO</a> and <a href="https://www.ada-microfinance.org/en">ADA</a>.

The Lending Guidelines, published in 2016 (overview <a href="http://www.e-mfp.eu/sites/default/files/resources/2018/11/Preventing overindebtedness in Cambodia_all speakers.pdf">here</a>), were developed because the industry in 2015 was growing at an average of 25 percent per year, even as the number of loans remained unchanged at 2.3 million. This meant that the same clients were taking more debt when their loans were renewed, even though their economic activities did not justify it. The average loan size had almost doubled, growing from close to $1,700 to a little over $3,000 with loan maturity of four to five years (the GDP per capita in 2017 stood at around $1,400). The Lending Guidelines have identified excessive and reckless refinancing as a key concern area for the lending sector, and recommend maximum thresholds for refinancing, above which lenders are bound to more scrutiny. They include a mix of indicators highly correlated to over indebtedness, such as multiple borrowing, loan to income ratio, and refinancing rates.
<blockquote>The Lending Guidelines have identified excessive and reckless refinancing as a key concern area for the lending sector.</blockquote>
The FSPs that have endorsed the lending guidelines have adapted their credit their underwriting policies and enhancing their risk management practices. The National Bank of Cambodia (NBC) has been supportive of the Lending Guidelines and has made public statements on calling FSPs to adopt them. The Central Bank of Cambodia issues a monthly dashboard that shows the FSPs level of compliance with the Lending Guidelines. The Lending Guidelines have been fully integrated into the Smart Certification process and not abiding to the Lending Guidelines can be one of the causes for not having a Certification renewal. The Lending Guidelines are reviewed to ensure that they are meaningful in curbing the risk of over-indebtedness. The Lending Guidelines are an example of a market defining precise recommendations to address a specific issue occurring in a market (here, excessive refinancing). As other issues surface and are demonstrated (i.e., intimidation and illegal land seizure), additional monitoring and mitigation strategies can be put in place at the market level to address systemic issues and complement the individual work of responsible providers.
<h2>Next Steps: Improving Regulation and Learning From Clients</h2>
I recently traveled to Phnom Penh to attend a closed meeting of regulators, hosted by the NBC and supported by Asian Development Bank, to discuss how authorities can improve oversight. There were a few key takeaways from this. Even though the NBC is actively working on draft consumer protection regulation, current financial consumer protection regulations are weak. The National Bank of Cambodia is dependent on the CMA to mitigate the risks that are looming over the sector. There is, however, an initiative in an initial phase to create a registry of collaterals, assets, and fixed values. Overall, it’s encouraging to see that there’s consensus on the necessity for more sensitization of regulators on consumer protection, as the national financial inclusion strategy is more heavily focused on credit report sharing. The CFI is excited to work with the NBC, drawing from the <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">Handbook on Consumer Protection for Financial Inclusion</a> (recently updated to reflect the risks to consumers in a digital financial world) to improve the Cambodian regulatory framework.
<blockquote>It’s encouraging to see that there’s consensus on the necessity for more sensitization of regulators on consumer protection.</blockquote>
In addition to improving the regulatory framework, we must have better and more frequent ways to hear from clients directly.

With this in mind, we ask: is collateralized debt seizures a troubling and growing trend, or was the LICADHO study reflecting isolated incidences of mistreatment? We hope that a new study initiated by CFI will help shed light on the issue. The study, known as Client Voice, uses an interactive voice response (IVR) approach. Three Smart Certified FSPs – AMK, Maxima and HKL – will participate, and 500 to 1,000 clients from each institution will be surveyed. Institutions that are at the stage of transforming to digital product offerings – such as AMK – are looking to adopt new and better ways to gather ongoing feedback from clients to improve their product design and delivery and are keen to test the IVR system to that effect. The study will be completed by December 2019, and the results will be published by January 2020.

Land Seizures and Reported Abuses in Cambodia: CFI Responds

Hema Bansal, Senior Director, The Smart Campaign, is presenting on responsible pricing, complaint resolution, privacy and Smart Certification through a client-first and consumer empowerment lens.

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Asia Pacific Microfinance Forum

The <a href="http://www.smartcampaign.org/">Smart Campaign</a> recently released a paper by digital financial inclusion expert and CFI Fellow John Owens: <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/1036-responsible-digital-credit">Responsible Digital Credit: What does it look like?</a> The paper lays out the variety of digital credit models and, using the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> (CPPs) as a framework, enumerates emerging risks and suggests good practices and mitigating steps that providers, regulators and even clients can take.

The paper is a helpful addition to the Smart Campaign’s work on a number of fronts. First, it has sharpened our ability to distinguish various digital credit models. “Digital credit” has become a hot topic in financial inclusion, but the term is often used without understanding the diversity of credit providers. The paper defines digital credit as “loans that are accessed via a digital channel either online, via a mobile device or via a third-party agent that facilitates digital credit processing remotely.” John provides a helpful taxonomy of the types of providers, ranging from non-bank marketplace P2P lenders, to fintechs that provide tiny mobile loans; to tech giants leveraging their massive data streams to offer consumer loans; and platforms that support SME financing through purchase orders, invoices, receivables, and processes between buyers and sellers along the supply chain. The paper presents the client protection risks inherent in all these digital credit products.

It is important to understand the differences among the business models to be able to identify the best ways for providers to mitigate the risks. For example, responsible underwriting might need to look very different at an e-commerce tech giant like Alibaba versus a mobile loan provider like M-Shwari. The two businesses use different kinds of customer data, have different pre-existing relationships with customers, interface with customers differently, and operate in markets with different levels of development (for example, whether credit bureaus can be relied on). As the Smart Campaign seeks to develop practical guidance for digital credit, this diversity presents a challenge.

The paper was also helpful in validating the seven CPPs as a framework for identifying and pin-pointing client protection risks in a digital world. John proposes one significant change. He writes, “To this list, however, we add an eighth concept: security and fraud protection, which is especially salient for digital financial services.” While on the one hand, the concepts of security and fraud could be housed under the existing Principles “Privacy of Client Data” and “Fair and Respectful Treatment,” given the importance of data security and fraud protection in a digital world, the Smart Campaign will consider it as a potential addition.

The paper takes the conversation about responsible digital credit an important step forward. So far, much of industry discussion has been about enumerating risks through research. Now the time is ripe for recommending practices that can be applied in real time by providers, regulators, industry and even clients. Moving from risk identification to practical guidance is an absolutely necessary next step in making responsible digital credit a reality. Actually, this process has already begun, in various places. John cites examples of guidance from existing industry associations and regulator groups, as well as the many <a href="http://www.cgap.org/sites/default/files/Focus-Note-Consumer-Protection-in-digital-Credit-Aug-2017.pdf">solutions proposed by CGAP</a>. For example, the Online Lenders Association in the United States has requirements for its members in the areas of advertising and marketing. One such requirement is for disclosure of conditions whenever “trigger” terms such as down payment, APR, variable interest rate, and the like appear. Overall, however John’s paper notes that implementation is still at a nascent stage.

At the end of the paper, John makes recommendations, including a few specific ones for the Smart Campaign. He strongly endorses the development and implementation of standards of practice that adapt the Client Protection Principles for digital credit. Through the <a href="http://smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>, the Smart Campaign and a group of enthusiastic digital lenders are working towards that end. The community of practice includes both mobile credit providers and tech-enabled financial institutions.

John also notes the value of recognition and certification programs for digital credit providers that meet these standards. The Smart Campaign’s <a href="http://smartcampaign.org/certification/all-about-certification">Certification Program</a>, which has certified over 100 financial service providers serving more than 42 million clients worldwide, is being extended to recognize client protection achievement for mobile credit providers, with an expected debut in 2019.

John is personally excited about the potential of new communications technologies such as chatbots to improve consumer protection in digital settings where face-to-face interactions with customers are infrequent or non-existent. He recommends this approach in the paper, and he is developing opportunities to apply digital communication tools. This is promising not only for providers, but also for regulators wishing to strengthen complaint resolution procedures or monitor a market.

As John writes, it will take a village to ensure that digital credit clients are protected with providers, consumer advocates, regulators, donors and investors all working together. The Smart Campaign is delighted to contribute to this effort.

Alex and John led a <a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">webinar</a> in July 2018 about responsible digital credit and what providers need to do to ensure that their customers are protected and empowered—<a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">check it out</a>.  

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Roadmap for Responsible Digital Credit—What We're Doing at the Smart Campaign

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

<img class="size-medium wp-image-30325 alignright" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/100-smart-certified-seal-final-ibarres-4-24-2018-300x258.png" alt="" width="300" height="258" />The Smart Campaign is thrilled to announce 100 financial service providers have attained Smart Certification, a landmark event for consumer protection in the financial inclusion industry. These institutions, collectively serving over 42 million clients, have done the hard work of examining and improving their own practices to embed client protection into their DNA. The momentum for certification signals that the industry increasingly values client protection not only for the sake of their client base, but also because certification improves their business.

Celebrating 100 Smart Certified Financial Institutions

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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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

Pallavi Hariharan

Matteo  Marinelli

Chiara Pescatori

Alex Kessler

Laura Schroeder

Hema Bansal

Alexandra (Alex) Rizzi

Sarah Samuels

Robin Brazier

Isabelle Barrès

Sonja Kelly

Carmen Paraison

Daniel Balson

Isabel Whisson

Haset Solomon

East Asia and Pacific

Myanmar

Cambodia

Singapore

Iran, Islamic Rep.

Nigeria

Bangladesh

Morocco

Benin

Sub-Saharan Africa

Togo

Challenges and Crises

Client Treatment

Consumer Protection

Enabling Environment

Over-indebtedness

Smart Certification

Responsible Digital Finance

Social Performance

Financial Inclusion Strategy

Policy, Regulation and Government Initiatives

Credit

Digital Credit

Mobile Banking

Delivery Channels

Digital Financial Services

Financial Service Providers

Credit Provision

Default

Trends

Customer Centricity

Agent Banking

Microfinance Institutions

Blog Post

Announcement

Event

Video

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>

&nbsp;

&nbsp;

&nbsp;

100 Smart Certifications – A Milestone for Responsible Financial Inclusion

Over the last few weeks more than a dozen people have been killed and thousands have been arrested in demonstrations across the country. These demonstrations have involved tens of thousands of people in the most significant public display of opposition that the government has seen in a decade. The magnitude of this unrest is significant, and global concern is growing.

Last weekend, The Washington Post <a href="https://www.washingtonpost.com/world/behind-irans-protests-anger-over-lost-life-savings-and-tightfisted-budgets/2018/01/06/64993a66-f23f-11e7-95e3-eff284e71c8d_story.html?utm_term=.9f754e22c0c5">highlighted</a> a solitary and representative video that has been fueling protests. In the video, sent over the popular messaging app Telegram, an older woman sits in her hospital bed and describes the loss of her entire savings and her inability to pay her medical expenses. She explains that three years ago, a poorly-regulated financial institution closed and she never recovered all the funds she had been keeping safe there. "Why has no one given my money back?" she cries.

Amid the protests, access to Telegram was suspended, with government officials suggesting the platform had bolstered civil unrest. But the stories still continued.

Massive numbers of Iranians say their savings have been lost because of the collapse of poorly regulated or fraudulent institutions. <a href="https://www.washingtonpost.com/world/behind-irans-protests-anger-over-lost-life-savings-and-tightfisted-budgets/2018/01/06/64993a66-f23f-11e7-95e3-eff284e71c8d_story.html?utm_term=.9f754e22c0c5">According to Suzanne Maloney</a> of the Brookings Institution, "Banks are shutting down without any kind of notice, and it’s creating a huge political and economic backlash at a local level.”

The backdrop to these protests is notable. The Iranian President's recent budget proposal decreases subsidies to the poor at a time when the spending power of Iranians is also declining. In the city where the protests began, Mashhad, eggs increased in price by <a href="https://www.nytimes.com/2017/12/28/world/middleeast/iranians-protest-rising-food-prices.html?_r=0">40 percent</a>, and other basic goods increased in cost as well. Poor <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/807-beyond-financial-inclusion-financial-health-as-a-global-framework">financial health</a> – not being able to meet day-to-day expenses, respond to emergencies, or take advantage of opportunities – has been shown to be a significant source of stress. It is no wonder that such strain has translated into anger and unrest in the country.

While we do not assess Iran as part of our publication, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">The Global Microscope</a>, the methodology does recognize that clear regulation and the capacity to enforce such regulation are clear drivers of financial inclusion. If fraudulent or poorly regulated institutions are able to open and close without protecting and safeguarding consumer funds, how can customers trust the financial system? How can well-meaning and legitimate institutions hope to gain customers willing to engage with them?

The <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">client protection principles</a>, <a href="http://smartcampaign.org/certification">Smart Certification</a>, and the many tools developed by the <a href="http://smartcampaign.org/">Smart Campaign</a> offer a wealth of resources for inclusive finance stakeholders in any country, including Iran, to ensure that financial clients are being treated responsibly, which of course supports the long-term sustainability of financial institutions and markets.

While situations like these are complex and often have many causes, we hope that those working toward peace and understanding will consider the strength of the financial sector regulator and the framework for client protection in the country in addition to assessing buying power and price inflation.

We also hope that this might serve as an important case example for the importance of emphasizing quality financial products as a part of broader financial sector, economic, and social development.

Have you read?

<a href="https://cfi-blog.org/2016/10/26/new-report-highlights-gains-in-financial-inclusion-led-by-india-digitization-on-the-rise/">2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India; Digitization on the Rise</a>

<a href="https://cfi-blog.org/2016/03/14/financial-inclusion-amid-haitis-political-crisis/">Financial Inclusion Amid Haiti's Political Crisis</a>

<a href="https://cfi-blog.org/2015/05/11/financial-stability-and-financial-inclusion-two-faces-of-the-same-coin/">Financial Stability and Financial Inclusion - Two Faces of the Same Coin</a>

&nbsp;

What Does Responsible Finance Have To Do With What Is Happening in Iran?

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

Nigeria has an ambitious target of <a href="http://www.chronicpovertynetwork.org/resources/2015/7/8/financial-inclusion-in-nigeria-policy-brief">including 70 percent of its population</a> in the formal financial services fold by 2020, from a baseline of <a href="http://datatopics.worldbank.org/financialinclusion/country/nigeria">44 percent with access to an account in 2014</a>. But financial inclusion involves a lot more than account access. The Center for Financial Inclusion <a href="http://www.centerforfinancialinclusion.org/about/who-we-are">defines</a> financial inclusion as a state in which all people who can use them have access to a full suite of quality financial services at affordable prices delivered by a range of providers in a competitive market with convenience, dignity and consumer protections, to financially capable clients. Protection for consumers is an important part of that definition, and I recently had the opportunity to visit Lagos to learn more about consumer protection challenges in the country. In particular, I wanted to see how <a href="http://smartcampaign.org/">Smart Certification</a> can help Nigeria reach its financial inclusion goals in a way that provides benefits to customers.

For those who aren’t familiar, Smart Certification is an independent, third-party evaluation to publicly recognize financial institutions that meet adequate standards of care in how they treat clients. In Lagos, I interviewed staff members and clients of Grooming People for Better Livelihood Centre, or Grooming Centre. Don’t be misled by the name – Grooming Center is one of Nigeria’s most established microfinance institutions. Founded in 2006 in Lagos, Grooming Centre has an impressive network of 530 branches in 23 of the country’s 36 states. To date, it has served over 5.3 million clients. The institution was awarded Smart Certification in February 2016, following a certification mission from MicroRate, one of the Smart Campaign’s licensed certfiers. Grooming Center, along with Fortis Bank, are the two financial institutions in Nigeria that have so far qualified as Smart Certified.

As I interviewed the staff close to the institution’s certification process, I learned that although client-centricity was already a core value for Grooming Centre, it sought certification to go a step further in ensuring the wellbeing of its clients. Grooming Centre described Smart Certification as eye-opening and humbling. Practices the institution had originally described as aligned with the <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">client protection principles</a> and standards turned out to need improvement.

Since inception, the Smart Campaign has noted that most inclusive finance institutions operate under the impression that they are already carrying out superb client protection practices. However, the Smart Certification process typically reveals that an institution’s practices need to be strengthened in one way or another to ensure that it is treating clients fairly.

One of Grooming Centre’s governing council members, Noel Ihebuzor, emphasized the paradigm shift in staff mentality that resulted from Smart Certification. The certification process required the institution to assess in detail how its policies and operations affected clients at every step of the credit process. He noted that the certification exercise improved Grooming Centre’s conception of client protection in areas including complete disclosure and clients’ understanding of product terms and conditions. The institution had originally assumed that these product aspects were self-evident to clients.

The main beneficiary of Smart Certification and improved client-centric practices, of course, is the client. My interviews with three clients revealed their satisfaction with their interactions with Grooming Centre. The entrepreneurs favored Grooming’s interest rates compared to competitors, and they liked that their savings are reliably available, and how the staff don’t ‘stress’ clients if they fell behind on loan payments.

To make the Smart Certification process work well for an institution, Grooming Centre’s staff stressed the need to secure widespread buy-in, from management to lower-level staff. Most importantly, Grooming Centre’s staff emphasized that any institution considering certification should pursue it for the right reasons, and should recognize that working to strengthen client-related practices shouldn’t end upon obtaining certification.

Government-led plans like those of Nigeria to include a large swath of the population into the formal financial sector stir a feeling of aspiration in a nation. And they should. However special attention must not only be made to increasing the number of accounts at financial institutions, but also the quality of financial services. The Smart Campaign looks forward to continuing to work with actors in Nigeria’s financial services ecosystem to bolster consumer protection, through Smart Certification and other means.

Click the video above or <a href="https://youtu.be/F4ZZwdcp2y8">here</a> to watch Grooming Centre’s certification journey. See <a href="http://www.smartcampaign.org">www.smartcampaign.org</a> for more information on Smart Certification, including the full list of Smart Certified financial institutions.

Have you read?

<a href="https://cfi-blog.org/2017/06/05/the-smart-campaign-promotes-stronger-client-protection-and-sector-collaboration-in-uganda/">The Smart Campaign Promotes Stronger Client Protection and Sector Collaboration in Uganda</a>

<a href="https://cfi-blog.org/2017/02/21/whats-the-value-of-smart-certification/">What's the Value of Smart Certification?</a>

<a href="https://cfi-blog.org/2017/05/18/protecting-consumers-in-the-digital-currency-economy/">Protecting Consumers in the Digital Currency Economy</a>

&nbsp;

Nigeria Needs to Include Consumer Protection in Its Ambitious Financial Inclusion Plans

&gt; Posted by the Microfinance CEO Working Group

[caption id="attachment_23928" align="alignright" width="305"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/2016-by-the-numbers.png"><img class="wp-image-23928" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/2016-by-the-numbers.png?w=490" alt="" width="305" height="390" /></a> (click to enlarge)[/caption]

What’s been happening with the Microfinance CEO Working Group (MCWG)? We’re glad you asked. Fresh-off-the-press is a <a href="http://bit.ly/MCWG2016">new annual report</a> from the MCWG, detailing the Working Group’s key accomplishments and activities of the past year. Consumer protection is among the standout areas for the MCWG for 2016. Over the course of the year, 14 local partners belonging to the MCWG network achieved <a href="http://smartcampaign.org/certification">Smart Certification</a>, including BRAC Bangladesh, the first microfinance provider in the country and the largest in the world to reach the consumer protection milestone. In total, 21.9 million clients are served by 39 MCWG network Smart Certified institutions.

The MCWG is comprised of the leaders of 10 global microfinance organizations: Accion; Aga Khan Agency for Microfinance; BRAC; CARE; FINCA; Grameen Foundation; Opportunity International; Pro Mujer; VisionFund International; and Women’s World Banking. The newest member, added in 2016, is the Aga Khan Agency for Microfinance and its General Manager Jesse Fripp. The MCWG also harnesses the expertise of more than 40 senior staffers across the member organizations, who meet regularly across seven Peer Groups focused on specific areas of microfinance, from digital financial services, to social performance, to communications, taxation, and others. Members and local partners work with more than 89 million clients in 87 countries, providing them with financial services as well as other support to help them succeed and lift their families out of poverty.

The MCWG provides a forum for members to advocate on behalf of the microfinance sector, develop common industry standards, and share best practices in an effort to help organizations improve their services and expand their reach. The Working Group seeks to expand financial inclusion by leveraging longstanding expertise in the delivery of microfinance services and collaborating with those best positioned to scale quality financial services.

On consumer protection, a priority for the group, the MCWG advocates to the industry for the development and adoption of best consumer practices, and it also leads by example, encouraging the financial institutions in its network to take up these standards themselves. Along with the Smart Campaign and Smart Certification, the MCWG supports the Social Performance Task Force (SPTF). The results of the group’s testing of SPTF’s social performance management standards were incorporated into CERISE’s Social Performance Indicators Tool (SPI4), which is one of the most widely used assessment tools for double bottom line microfinance institutions. Over the past three years, 74 local partner institutions have conducted a SPI4.

The MCWG works with central banks to strengthen client protection regulations. The MCWG, in collaboration with Accion, New Perimeter (law firm DLA Piper’s global pro bono initiative), and the Smart Campaign, developed the <a href="https://issuu.com/microfinanceceoworkinggroup/docs/model_legislation_-_english">Model Legal Framework for Financial Consumer Protection</a> (MLF). In 2016, the MLF team particiapted in 12 events across seven countries, training more than 270 financial inclusion stakeholders, including more than 100 regulators and bank supervisors, on the MLF and the Smart Campaign’s underlying Client Protection Principles. Many of these regulators are using the MLF as a reference or even incorporating some of its suggestions directly as they develop their consumer protection regulations.

In March of 2016, the MCWG joined several industry voices to discourage interest rate caps being considered by the Central Bank of Nigera (CBN). It endorsed the creation of client protection regulations and provided suggestions on how transparency and responsible lending measures could help achieve some of the objectives of interest rate caps without the reduction of service to small borrowers that interest rate caps often cause. These efforts ultimately contributed to the CBN’s decision not to impose interest rate caps and instead work on a body of consumer protection regulations.

These are just some of the ways that the MCWG is working to strengthen the financial inclsuion industry and ensure the consumer is treated fairly.

The MCWG's annual report also spotlights how the network is harnessing fintech and innovation. For example, in Bangladesh, BRAC's app-based cash collection system has provided 8,500 tablets to credit officers, enabling them to do cash collection in the field. This paperless process will save time and money - an estimated $1 million per year - and allow credit officers to serve clients better by having information readily available.

For more, read the MCWG’s annual report, <a href="http://bit.ly/MCWG2016">here</a>.

Have you read?

<a href="https://cfi-blog.org/2014/05/19/new-microfinance-ceo-working-group-papers-examine-causes-and-potential-remedies-for-over-indebtedness/" target="_blank" rel="noopener">New Microfinance CEO Working Group Papers Examine Causes and Potential Remedies for Over-Indebtedness</a>

<a href="https://cfi-blog.org/2015/07/07/model-law-for-best-practice-in-financial-consumer-protection-an-important-driver-for-universal-financial-access/">'Model Law for Best Practice in Financial Consumer Protection': An Important Driver for Universal Financial Access</a>

<a href="https://cfi-blog.org/2017/06/05/the-smart-campaign-promotes-stronger-client-protection-and-sector-collaboration-in-uganda/">The Smart Campaign Promotes Stronger Client Protection and Sector Collaboration in Uganda</a>

The Microfinance CEO Working Group Reports Out: Consumer Protection by the Millions and Other Updates

&gt; Posted by Center Staff

<a href="http://bit.ly/CPPjourneyEn"><img class="aligncenter wp-image-23116" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/time-line.png" width="614" height="295" /></a>

What’s better than blog posts? As a blogger, I’m inclined to assert that nothing is in fact better than blog posts. Alas, with self-awareness, I think we can all agree that interactive websites are cool. And that interactive websites about client protection in microfinance are especially cool!

Created by Nathalie Assouline of Alia Développement, a new interactive website offers users a media-rich experience for learning about the development of the microfinance industries in Cambodia and Morocco, with a special focus on client protection.

Users navigate dynamic world maps and timelines, embedded with information about market size, specific market players, financial inclusion, regulation, funding, and more. The site also includes a trove of video interviews, showcasing clients and financial institution staff talking about how they see client protection.

A number of <a href="http://smartcampaign.org/certification/all-about-certification">Smart Certified</a> financial institutions are featured in videos discussing their client protection practices, including:
<ul>
 	<li>KREDIT Microfinance (Cambodia)</li>
 	<li>ATTAWFIQ Microfinance (Morocco)</li>
 	<li>Al Amana (Morocco)</li>
 	<li>Hattha Kaksekar Limited (HKL) (Cambodia)</li>
 	<li>LOLC Micro Credit Ltd. (Cambodia)</li>
 	<li>Sathapana Bank (Cambodia)</li>
 	<li>Amret Microfinance (Cambodia)</li>
</ul>
Hosted on the Smart Campaign website, the interactive microsite is provided in English and French, accessible <a href="http://bit.ly/CPPjourneyEn">here</a> and <a href="http://bit.ly/CPPjourneyFR">here</a>.

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>

New Interactive Website: Exploring the Client Protection Journey in Cambodia and Morocco

&gt; Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, the Smart Campaign

[caption id="attachment_23097" align="alignright" width="240"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/db-survey.png"><img class="wp-image-23097" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/db-survey.png" width="240" height="600" /></a> (click to enlarge)[/caption]

<a href="http://smartcampaign.org/certification">Smart Certification</a> requires a substantial commitment from the financial institutions that choose to seek it. These institutions face a thorough audit by an independent third-party and may be required to improve client-related policies and practices at multiple levels, drawing in staff from the executive suite to the field offices.

In short, is it worth it? Why would a financial institution elect to participate in such a program – especially if the institution is operating smoothly?

A new survey conducted by Deutsche Bank and the Smart Campaign captures the perspectives and experiences of over 24 Smart Certified institutions and yields insights on why <a href="http://smartcampaign.org/certification/certified-organizations">nearly 80 financial institutions</a> around the world have achieved Smart Certification, with many more on the path to be certified.

The surprising result is that in addition to the benefit of publicly affirming that financial institutions treat their clients well, Smart Certification helps energize corporate culture and shift it toward client-centricity.

First off, Smart Certification allows financial service providers to distinguish themselves from the competition by demonstrating to their market and the industry that they provide a higher level of service to their clientele. Smart Certified institutions have to exhibit to independent auditors that at every stage from product design through customer acquisition and service delivery, they are governed by standards that ensure clients are treated fairly. Financial institutions have found a wide audience for their newly certified status. Half of all certified institutions reported that their regulators took positive and formal notice of their certification. Additionally, the majority reported positive media attention.

Respondents agreed that the biggest benefit of Smart Certification was in helping them see the world from their clients’ perspective and infuse client protection into the DNA of their operations. Over 90 percent of certified financial institutions agreed that Smart Certification has helped them prioritize their clients’ rights and reshape their institutional culture around client protection.

Sixty percent of the surveyed financial institutions found that their clients took positive notice of their Smart Certification. Indeed, clients can have a reasonable expectation that the products they receive from Smart Certified financial institutions are useful, responsibly priced and transparent, and that their data is protected and their voice is heard should they have a complaint.

Lastly, 80 percent of certified financial institutions reported that Smart Certification was not overly expensive and that its cost was duly recompensed by its benefits.

The survey is part of a new yearlong project supported by Deutsche Bank to better understand and expand the value of certification. The project seeks to cast the spotlight on Smart Certification from the perspective of the financial institution, and provide insight on certification’s value. The project seeks to enable the Smart Campaign to multiply the benefits of certification for institutions that have completed the process and for those who are looking to undergo it. In total, over 36.5 million clients around the world are served by institutions that fully adhere to Smart’s <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> and have been certified to demonstrate their adherence.

For more details from the survey, check out the infographic above. And to share the infographic, download it by clicking it and right-clicking Save As. Here's sample tweet text for those who would like to share it on Twitter: "Why are financial institutions seeking out Smart Certification? The @SmartCampaign_ asked them directly. Here's what they said."

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>

What’s the Value of Smart Certification?

&gt; Posted by Isabel Whisson, Deputy Manager, Microfinance Programme and Ultra Poor Graduation Initiative, and Onindita Islam, Management Professional Staff, Microfinance Programme

<img class="aligncenter wp-image-22503" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/12/mg_1506.jpg" width="615" height="410" />This year BRAC in Bangladesh became the largest microfinance institution, in terms of number of clients, to be <a href="http://smartcampaign.org/certification">Smart Certified</a>, signifying to our country market and to the industry writ large that we treat our clients with adequate care.

As a non-profit dedicated to poverty reduction, client welfare has been central to BRAC’s mission since its inception in 1972. In Bangladesh in general, almost all microfinance institutions are non-profits, and so microfinance has always been seen as a tool for alleviating poverty in the country.

Why, then, did BRAC feel the need for Smart Certification? BRAC has always been a vocal advocate of financial services as a key tool to empower the poor. But in making this promise we wanted to be absolutely certain that we were doing everything we could for our own products to live up to this standard. Furthermore by ensuring that we are putting the client protection principles that we have long endorsed into practice, BRAC would guard against any risks in advance to both clients and the institution’s bottom lines.

Any preconceptions we at BRAC may have had about our ability to sail through the certification process, which required complying with each of Smart’s 93 indicators, were swiftly thrown out the window once the process began. According to our pre-assessment, BRAC’s microfinance program was doing fairly well, but quite a few changes needed to be made in order to be Smart Certified.

One thing was clear from the outset: As a 40-year-old organization with over 2,000 branches nationwide, rapidly rolling out new client protection measures was not going to be easy. The bigger and older you are, the more ingrained your systems and processes. BRAC has staff and clients that have been part of the organization’s fabric for decades. As we reflect on our two-year process toward Smart Certification, here are three challenges we encountered and overcame:

Challenge: Getting staff buy-in

Among BRAC’s 18,000 microfinance staff, there were naturally some sceptics who felt we were making things unnecessarily complicated. The sheer size of staff to encourage and on-board was a barrier to swift progress because we had to make sure that all staff, from operations, accounting, administration, and ICT to central management were involved, supportive, and understood the revised procedures. This was both a lateral process, across our branches, and vertical, down various lines of management.

Solution: Ensure training and reinforcement for all involved

Orientation sessions were held at different layers of the central and field-level management structures for weeks to make sure that all staff were on-board with the same information at the same time. The sessions, led by professional trainers and BRAC’s centralized clients team, were attended by operations staff and all necessary support units. Supervisors of respective regions were in charge to execute the programs in their region which helped the staff to take ownership of the new tasks and responsibilities. The trainings were then followed with discussions at monthly and quarterly operational management meetings, which gave staff the opportunity to share experiences, learning, and any issues they were facing. In this regard, scale proved beneficial, as we were able to draw on the experiences of thousands of staff to troubleshoot any issues quickly. In the end, the complexity of instituting changes across our operations also added significant value to the program as it quickly developed the skills of field-level management staff at instituting new measures at different levels.

Challenge: Client hesitance 

A few of the new procedures were confusing and at times, frustrating for established clients. This was the case, for example, when instituting a more rigorous system for cash flow analysis to be conducted during loan appraisal. We revised BRAC’s original loan appraisal system and asked staff to collect additional information from clients. Some, however, were either reluctant or struggled to provide details of their income and expenses. Some were even offended, thinking their commitment to repayment was being doubted, while others felt that their privacy was being compromised.

<img class="aligncenter wp-image-22505" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/12/sumon-yusuf_microfinance_brac-31.jpg" width="615" height="410" />Solution: Engage clients as part of the change process 

BRAC tried to be consistent in how it communicated with clients about the changes. In anticipation of some resistance, BRAC field staff oriented clients in advance, explaining the rationale behind various new measures including the additional information needed for cash flow analysis to ensure that loans would not put clients in jeopardy of debt stress. In so doing, field staff were able to spend more time having casual discussions with clients that collected more accurate information about their household income and expenses which in turn deepened customer relationships. Once they were brought in to BRAC’s reasoning, most clients understood the need to give BRAC more information. Several even came to appreciate the additional demands as it compelled them to think more carefully about how they were managing their income and expenditures. In other cases clients’ reactions were positive from the outset, in part because client protection measures were developed through iterative processes that took their specific needs and desires into account. For example, they appreciated being provided with loan contracts, and felt reassured about being given direct access to branch managers or customer service call centres in case they faced problems or had a complaint. Overall it meant clients could feel comfortable knowing that their institution did have their best interests at heart.

Challenge: Implementing multiple changes across a diverse portfolio

When it came to implementation of the revised processes and added services, the sheer size and variation within BRAC’s portfolio of products was a key challenge. BRAC operates over 2,000 branches in all 64 districts of Bangladesh, and delivers a range of products, including microloans, savings, and microinsurance, with different product features according to different segment groups. The changes to operations would therefore affect each product and each customer’s experience differently. They needed to be tested for effectiveness before being scaled nationally.

Solution: Pilot first, then tweak

To deal with the complexities of implementing several new processes together, BRAC set up a separate project called Sheba (‘service’) that implemented changes in three phases. We piloted each process, collecting feedback from clients and staff as we went along. Later we piloted the improved versions in selected areas and once deemed both effective and compliant with the Smart Campaign’s standard, we scaled up. For example, there was a lot of experimentation with the content and delivery of BRAC’s financial education modules, which are taught before disbursement or during longer formal trainings for clients in need of more comprehensive support. After piloting, BRAC incorporated more gender-sensitive components into the teaching content and materials. BRAC also experimented between having customer service assistants deliver financial education training at the offices, and in clients’ communities near their homes.

One of the most important tools in BRAC’s arsenal throughout the process was the commitment and support of the Smart Campaign and the rating agency Micro Finanza Rating. Having worked with multiples institutions worldwide, both had a rich bank of knowledge and examples that provided useful guidance for improving each of the Smart Campaign standards.

Achieving Smart Certification, no matter your size, may seem like an insurmountable task. It is not. By demonstrating the value of your work to clients, engaging your own committed staff, instituting changes gradually, and using the support networks available to you, you may be surprised to find that you can tick off those 93 indicators faster than you thought.

Finally, it is worth it. Smart Certification is not an end in itself. It means having confidence as an institution that your financial and social bottom lines are strong. And it means clients having confidence in your institution to put their financial needs first. That’s an unbeatable combination if you ask us.

Image credits: BRAC

Have you read?

<a href="https://cfi-blog.org/2015/02/26/customer-service-at-brac-empowering-women-through-empowered-women/">Customer Service at BRAC: Empowering Women Through Empowered Women</a>

<a href="https://cfi-blog.org/2016/10/20/her-hands-trembled-when-she-borrowed-her-first-64-now-shes-giving-advice-to-brac/">'Her Hands Trembled' When She Borrowed Her First $64; Now She's Giving Advice to BRAC</a>

<a href="https://cfi-blog.org/2014/07/11/brac-microfinance-director-shameran-abed-on-client-protection-balancing-credit-and-savings-and-the-evolving-financial-inclusion-landscape/" target="_blank">BRAC Microfinance Director Shameran Abed on Client Protection, Balancing Credit and Savings, and the Evolving Financial Inclusion Landscape</a>

Client-Centricity at Scale: The BRAC Smart Certification Journey

&gt; Posted by Haset Solomon, Communications and Operations Associate, the Smart Campaign

<a href="https://www.flickr.com/photos/worldbank/14144220893/in/album-72157626083471432/"><img class="alignright wp-image-21702" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/08/14144220893_893ef4b548_z.jpg" width="331" height="220" /></a>La Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the common central bank of eight West African countries (Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo) <a href="https://www.cgap.org/blog/20-years-financial-inclusion-progress-waemu-more-come">has prioritized</a> financial inclusion in the region. A recently announced financial inclusion strategy led by BCEAO in partnership with the several national Ministries of Finance aims to include 70 percent of the adult population by the year 2020. Financial access rates range from 7 to 34 percent across the region, according to the Global Findex.

BCEAO is expanding its financial inclusion efforts, including in <a href="https://www.cgap.org/blog/20-years-financial-inclusion-progress-waemu-more-come">mobile and e-money</a>, and financial inclusion is slowly <a href="https://www.cgap.org/blog/20-years-financial-inclusion-progress-waemu-more-come">progressing</a> in the region, but the opportunities and challenges of the member countries vary significantly, and serious client protection issues remain, particularly among unregulated institutions and in countries with weak national supervision and enforcement. A recent <a href="https://www.imf.org/external/pubs/ft/scr/2016/cr16148.pdf">IMF spotlight</a> on Senegal calls for steps to strengthen the sector’s governance through technical assistance to improve supervisory capacities and training to improve reporting standards and practices.

Weak supervision can lead to problems like those the Smart Campaign uncovered during its <a href="http://smartcampaign.org/tools-a-resources/1076">Client Voice</a> research in Benin, where illegal microfinance institutions collected and disappeared with clients’ savings.

To support a healthy consumer protection ecosystem throughout the region, both top-down supervision and bottom-up efforts are critical. As an example of the latter, the Smart Campaign often supports upgrade projects that offer tailored technical and financial support to financial institutions, and recently, with funding from MasterCard Foundation, two institutions in BCEAO member countries were awarded upgrade projects, COMUBA in Togo and Assilassimé Solidarité in Benin.

Although the Smart Campaign has developed numerous tools and resources (available on <a href="http://smartcampaign.org/tools-a-resources">our website</a>) for institutions to improve their client protection practices, upgrade projects tackle specific challenges as identified in collaboration with the institutions themselves.

To be eligible for an upgrade project, institutions first undergo a <a href="http://smartcampaign.org/certification/2-assess">Smart Assessment</a>, a comprehensive strengths and gaps analysis of the MFI’s consumer protection practices. Following the assessment, they outline the institution’s desired objectives and plan for moving forward.

<a href="http://www.comubasfd.com/">La Coopérative Des Membres Unis Bethel Actions</a> (COMUBA) is a Beninois microfinance institution formed in 2000 that almost exclusively serves women. Through the upgrade project, COMUBA adapted several Smart Campaign tools for its own use, including those on: <a href="http://smartcampaign.org/tools-a-resources/976-mechanisms-for-complaints-resolution">Mechanisms from Complaints Resolution</a>; <a href="http://smartcampaign.org/tools-a-resources/1023-training-tool-data-privacy">Data Privacy</a>; and <a href="http://smartcampaign.org/tools-a-resources/544-codes-of-conduct-and-the-role-of-microfinance-associations-in-client-protection">Codes of Conduct and the Role of Microfinance Associations in Client Protection</a>. COMUBA was seeking to address three core challenges: loan management, internal audit, and human capital concerns. The new tools include a manual on savings and lending procedures (for example, it outlines improved collateral management procedures), and a new system for client complaint resolution. With the completion of the project, COMUBA is working to integrate the tools throughout the institution.

<a href="http://www.entrepreneursdumonde.org/nos-actions/nos-partenaires-locaux/assilassime/">Assilassimé Solidarité</a> is a microfinance institution in Togo formed in 2012 that aims to reach vulnerable Togolese in the peri-urban area of Lome, particularly focusing on unbanked individuals, persons with disabilities, and single mothers. Assilassimé applied for an upgrade support to ensure and strengthen the fair and equal treatment of its clients. Accordingly, its approach included not only new policies and procedures but also staff training on those procedures capped by training for clients and assessments of client well-being. One outcome of the project was the computerization and streamlining of Assilassimé’s assessment of clients’ levels of poverty. Interviews conducted with group loan clients a few weeks after trainings indicated that they had increased knowledge of their client rights, and strengthened understanding of the institution’s client complaints system. Assilassimé continues to improve its processes and procedures to achieve international best practices, with the goal of Smart Campaign <a href="http://smartcampaign.org/certification/all-about-certification">Certification</a> in mind.

To learn more about upgrade projects, and all the ways the Smart Campaign works with institutions to improve their practices, visit <a href="http://smartcampaign.org/">the Smart Campaign website</a>.

Image credit: <a href="https://www.flickr.com/photos/worldbank/14144220893/in/album-72157626083471432/">World Bank</a>

Have you read?

<a href="https://cfi-blog.org/2016/01/27/the-impact-investing-landscape-in-west-africa/">The Impact Investing Landscape in West Africa</a>

<a href="https://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="https://cfi-blog.org/2016/05/23/why-not-africa/">Why Not Africa?</a>