Tools & Resources Defining and Monitoring Collection Practices at FODEMI

Defining and Monitoring Collection Practices at FODEMI

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FODEMI’s management, a microfinance institution based in the North Andean region of Ecuador, had become aware of institutional gaps through a Smart Assessment conducted in February 2013. The resultant effort to bridge the gaps involved collaboration across departments including Human Resources, Social Performance, Internal Audit, Operations, and the Credit Department.

fodemi_web_000FODEMI, a microfinance institution (MFI) based in the North Andean region of Ecuador, believed that enhanced collaboration amongst collections staff would improve the likelihood that clients were being treated with dignity and respect during collections. FODEMI’s management had become aware of institutional gaps through a Smart Assessment conducted in February 2013. The resultant effort to bridge the gaps involved collaboration across departments including Human Resources, Social Performance, Internal Audit, Operations, and the Credit Department.

The team agreed that improving performance should include the creation of specific and standardized guidelines for staff (and third-party agencies) on collections and monitoring of behavior. Specifically, FODEMI did the following:

  1. Improve Institutional Policy. In order to lay out a foundation for appropriate behavior, FODEMI edited their Code of Conduct. The Code now speci#es that delinquent clients should “receive a respectful treatment and high quality services to recover the loan but also to solidify their loyalty.” The edited Code also lists specific guidelines for treating clients with dignity during the loan collection process. It identifies unacceptable collection practices such as times of the day where client contact is inappropriate (e.g. late at night), and forbids against abusive or offensive language, physical harassment, and humiliation. Additionally, it mandates that assets that deprive borrowers of their basic survival capacity cannot be seized. The Code also specifies that sta” cannot enter the client´s house without previous permission and reaffirms a commitment to non-discrimination on the basis of race, ethnicity, gender, political affiliation, disability, or religious orientation.
  2. Monitor Behavior. In order to bring their new code of conduct policy off the page, FODEMI is creating a monitoring system for loan officers. Before conducting sample field visits, auditors must now check for complaints associated with the loan officer whose clients they are going to visit regarding abusive collection practices. New Internal Audit standards monitor the appropriateness of collection practices to verify compliance of staff with the Code of Conduct. Auditors are also responsible for assessing client satisfaction and whether loan officers have been respectful to clients, particularly during collections.
  3. Align Third Party and Institutional Standards. Third-party collections agencies contracted by FODEMI must now abide by the same institutional practices expected of FODEMI staff. Specifically, collection agencies must commit to treating the clients with dignity. In signing the document, third party staff pledge to follow FODEMI’s practices on “Fair and Respectful Treatment of Clients” as well as FODEMI´s mission, vision, and values. 

Improving collections practices is not simple. It requires an effort to articulate written procedures that specify inappropriate collections behaviors in a staff handbook. While outsourcing collections is not necessarily a bad practice, FIs should make sure that third-party agents are held accountable to the behavioral standards expected from internal staff. And, to ensure internal staff compliance, internal audit should play a key role to ensure practices throughout the organization are consistently verified with clients themselves

This story was originally published in the Smart Campaign State of Practice Report Study of Client Protection in Latin America and the Caribbean.