Client Protection: How do MFIs mainstream client protection? (Leah Nedderman)

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Microfinance Focus, October 15, 2010 (Colombo) : One of the fundamental principles of responsible microfinance is the protection of clients from unfair, non-transparent or unethical practices. These are clearly defined in the Smart Campaign’s Client Protection Principle’s – Avoidance of Over-Indebtedness, Transparent and Responsible Pricing, Appropriate Collections Practices, Ethical Staff Behaviour, Mechanisms for Redress of Grievances and Privacy of Client Data. Hundreds of microfinance institutions and stakeholders have signed up to these principles. But the question remains as to how these are how are these mainstreamed into the day-to-day practices of microfinance institutions?

Kelly Hattel, SEEP Network Consultant and moderator of the session began the day’s session with a foray into the importance of implementing client protection in MFIs. She said, “This has been a topic that is of interest to me for a long time. Previously, we have looked into consumer protection and trust group transparency. Those were some of the early efforts to address the issue of client protection. Moving on 6 years, today we are here to look at how far we have come and more importantly, where we can go from here.”

Leah Nedderman, Consultant for Smart Campaign (USA), reviewed the campaign itself and how MFIs can go about implementing these principles. She said, “Hi everybody. At Smart Campaign (SC), we believe client protection is not just the right thing to do, but the smart thing to do. This campaign has really taken off in the past year and a half.  Our 6 principles are the backbone of client protection and also to explain the definition of client protection. I would like to reveal to you the 6 principles of Smart Campaign: Avoiding client over-indebtedness, transparent & responsible pricing, ethnical staff behaviour, appropriate collection practices, mechanism for redress of client grievances and protection of client data.

Mainstream of client protection means management defines clear priorities and policies for client protection and uses these when making operational decisions. It also means that all staff understand and practice client protection policies in every point of contact with clients – from sales of products to collection of loans and deposit. This makes operations very client-centred. Management has to be aware and use all tools and resources available to created policies for client protection, and not just giving lip services. It is not just saying that you will do it, but actually internalization and using it in your daily service.

I like to give practical examples. Let’s say management went to a conference in Sri Lanka on 15th October, and thought, yes these principles sounds good. She then educates herself and other management through free tools on Smart Campaign’s website, and goes about to create policies, such as “all staff to explain loan contracts and loan pricing clearly” and we will “clearly spell out enrolment fee in insurance products”.

Client protection principles has to trickle down to all level of staff. To explain, let’s say we have a officer signing a loan contract with an illiterate client. Train the loan officers to learn why it is important to explain the contract clearly to clients – the client protection efforts by the institution is then evident to him because he is receiving training and it is clear to him that the management is doing something about it. So this loan officer will sit down with the client and ask the client to read the loan contract properly before signing it – the woman as usual, looks at it and agrees. But, he then realises that the woman is illiterate. He decides to go through it line by line before letting her sign it. This is what we mean by mainstreaming client protection from management to the ground.

The Smart Campaign has created tools and resources because we know that tackling this issue is a challenge.

To mainstream client protection, REACT.

Respond - For all stakeholders to respond to the campaign to protect clients. We encourage every MFI who are interested in this to endorse the campaign, and put pressure on your networks to involve them. As well as to submit ideas.

Educate – Resources on SC website. “Smart Notes” which are case studies of institutions that have implemented client protection. “Getting started” audit, where we will get certified auditor to talk to MFIs about their current state of client protection, based on answering 43 questions. A tool will then automatically generate a graph which shows which principles u are strong in or weak in and which ones to prioritise.

Assess – Smart certified assessors to help you brainstorm how to move on from here, called Smart assessments.

Change – Pilot projects where you put the tools (MFI Toolkit) to practice. Just a practical example, if an MFI believes in ethical staff behaviour as priority, their change would be a staff rule book or code of ethics.

Track - Track the progress, the changes, so as to refine it in the future. And lastly, report to Smart Campaign or MIX market on your client protection progress.

I urge you to use the Smart Campaign resources that are readily available.

Kelly: I think the 6 principles are very concise to help us with client protection. And remember, REACT.

Note: In the Asia Microfinance Forum 2010, Leah Nedderman has also conducted an interactive three hour Client Protection workshop the day before, which included pair work and active discussions on client protection and the introduction of the various free Smart Campaign tools available.

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