NEW! Client Protection Certification Program – Call for Comments! Click here to learn how you can share your thoughts, feedback, questions with the Campaign.
No one argues against the importance of client protection. Indeed, the fact that financial institutions (FIs) should operate in a responsible way vis-à-vis their clients is such a universal principle that it is sometimes taken for granted.
Recent problems highlighted in the press, as well as assessments of financial institutions’ client protection practices by raters, investors, and the Smart Campaign, show that there is still a lot of work to be done to ensure that all microfinance institutions are acting responsibly. The microfinance community has come together around a set of Client Protection Principles (CPPs) which are widely endorsed by financial service providers, funders, investors, supporting organizations, and individuals. In order to provide assurance that the CPPs are being implemented, it is agreed that self-reporting is insufficient. A process of third-party certification is needed.
Since June 2010, the Smart Campaign has been working with the microfinance industry (through a task force of over 30 experts representing various stakeholders) to develop a Client Protection Certification Program. The Certification Program will enable financial institutions worldwide to demonstrate their adherence to the Campaign's core CPPs as verified by third parties. Financial institutions that have met adequate standards in Client Protection will be highlighted publicly.
Several methodologies already exist to assess Client Protection Practices (client protection assessments, client protection evaluations conducted by social raters, social auditors, and the due diligence processes of social investors). It is envisioned that the certification process will build on the existing methodologies, but also be available as a stand-alone product for financial institutions that do not wish to undertake a rating.The Certification Task Force has made great progress over the past year to identify the main pillars of the program and the indicators that will comprise the basis for the certification. The task force agreed that certification needs to recognize real achievement in client protection and provide incentives for financial institutions to improve their practices. The task force recognizes that it requires significant commitment and attention to achieve adequate client protection performance. The fact that a financial institution has responsible practices should not be taken for granted, but rather celebrated as a true achievement.
Certification of adherence to the CPPs also requires some level of client validation through means of verification such as focus groups or a survey. The certification process also recognizes and incorporates this important element.
The Certification Program is still in development, and many of the parameters of the program need to be validated through industry feedback from October through December 2011. The testing phase will run in parallel starting in November 2011, with a focus on credit, savings and credit life insurance. Throughout Q1 2012 field testing will take place. The pilot Certification Program is expected to be launched in the first half of 2012.
As the certification process develops, it is important to recognize that due to the recent revision of the Client Protection Principles, a number of areas are still in the formative stage. The recent revision adjusted the Principles to address the broad range of financial services, while the original version focused on credit. An important non-discrimination clause was also added. Since the assessment methodologies available for developing certification were developed around the original version, they will be the focus of the certification at the start. More work will be done to develop methods for assessing: appropriate product design and delivery, insurance (except for credit life insurance, which is already included), payments, agent banking and the incorporation of the notion of non-discrimination. While the Certification Program will first focus on credit, savings and credit life insurance, standards and indicators will be developed for these new areas in 2012 and incorporated into the Certification Program in 2013, so that it reflects the full suite of financial products encompassed in the new Principles.
The Smart Campaign Certification Task Force needs your input!