Washington, DC, November 8, 2011 — The Smart Campaign, a global initiative to implement strong client protection standards and practices throughout the microfinance industry, today released "Implementing Client Protection in Microfinance: State of the Practice, 2011," its first annual report focused on implementation of the Campaign’s core Client Protection Principles.
The report, commissioned by the Smart Campaign’s Steering Committee, is based on 479 third-party assessments of client protection practices at more than 300 microfinance institutions (MFIs) in five global regions – an unprecedented compilation of independent evaluations in microfinance. The assessments were conducted by leading microfinance-focused investors, microfinance rating agencies, and, most recently, by the Smart Campaign itself.
“The fact that we now have data from almost 500 third-party, external assessments of client protection practices at MFIs shows the extent to which the microfinance industry has committed itself to accountability on this all-important front,” said Isabelle Barrès, Director of the Smart Campaign. “Responsible finance is assured when we develop and apply tools to hold MFIs accountable for the way they interact with customers.”
First Client Protection Scores are Encouraging
While the results highlighted various weak points in MFIs’ interaction with clients, they also portrayed an industry committed to treating clients with dignity and serving their needs: 88 percent of the rated MFIs received overall passing marks (3.0 or higher on a 1-5 scale) with an average score of 3.8. These results also held for the two most important principles, Preventing Over-indebtedness, and Transparency. While there was relatively little overall variation by region or institution size or type, smaller institutions underperformed the average, as did MFIs in Sub-Saharan Africa.
Third Party Client Protection Assessment Gains Momentum
The rich data-set, which the Campaign expects to expand and improve upon in coming years, highlights the Campaign’s dramatic progress since its 2009 launch in promulgating the Client Protection Principles (CPPs) as a standard by which MFIs judge themselves and are assessed by investors, donors and their peers.
Rarely, if ever, has an industry mobilized itself to this extent to revamp, and hold itself accountable for, the procedures governing its interaction with customers.
In the last year, at least ten major microfinance investment funds managing over $2 billion have integrated client protection assessment into their due diligence and reporting. National and regional microfinance associations from 30 countries have joined the Campaign in formal relationships, resulting in the training of 53 trainers and 42 assessors who have spread know-how on client protection to nearly one thousand managers and staff of MFIs. Most importantly, raters and investors are carrying out more and more third-party assessments to examine the implementation of the CPPs. Because they are external, such assessments provide greater confidence about results than does self-reported data.
Moreover, the rapid development of third-party client protection assessment methods has the Campaign on track to launch a certification program in early 2012 – at which point, MFIs will be able to request Smart Campaign certification from one of the four specialized microfinance rating agencies. Certification will be available in conjunction with financial or social ratings or as a stand-alone event. In future years, it is expected that additional entities will be licensed as certifiers in order to broaden the reach of certification.
The spread of client protection assessments reflects the extent to which the microfinance industry has embraced the CPPs and the Campaign. To date, the Campaign has attracted over 2,200 endorsements from over 130 countries, including over 700 MFIs (representing over 40 million clients), 130 investors and donors, 350 networks and associations, and 1,170 individuals.
Results by Region, Institution Type and Size
The State of the Practice Report provides detailed analysis of MFI performance on each of the Client Protection Principles – Preventing Overindebtedness, Transparency, Responsible Pricing, Appropriate Collections, Staff Ethics, Complaint Resolution, and Privacy of Data. Scores broken out by region, type of institution, and assets under management are tabulated in an appendix (p. 43). The South Asia region is under-represented, a gap that will be rectified in subsequent reports, as client protection assessments are gaining momentum in partnership with the Small Industries Development Bank of India (SIDBI) and with the International Finance Corporation (IFC).
About the Smart Campaign
The Smart Campaign is a global campaign consisting of microfinance leaders from around the world who believe that protecting clients is not only the right thing to do but the smart thing to do. To date, over 2,200 microfinance and other financial institutions, microfinance support organizations, investors, donors, and individual industry professionals have pledged adherence to the Smart Campaign’s core Client Protection Principles. By providing microfinance institutions with the tools and resources they need to deliver transparent, respectful and prudent financial services to all clients, the Smart Campaign is helping the industry maintain a dual focus on improving clients’ lives while attaining financial sustainability. The Campaign is headquartered at the Center for Financial Inclusion (CFI) at ACCION International and is governed by a Steering Committee representing a broad cross-section of the industry.
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Manager, Operations and Communications
The Smart Campaign
Tel. +1 202-393-5113 ext 1667