Growing Global Momentum Toward Smart Certification and Implementing Client Protection

>> Authored by Lindsey Tiers, Communications and Operations, The Smart Campaign

At the Smart Campaign, we’re entering the 2015 Month of Microfinance with tempered optimism; there has much to celebrate in the years since our founding in 2008 as an industry-led effort to keep clients as the driving force of the industry, yet we are well aware of the fact there is still much room for improvement. While there were certainly client protection initiatives prior to the Smart Campaign, the creation of the seven Client Protection Principles has led to global consensus on the standards of fair treatment for clients of financial services providers. These principles cover issues such as preventing client over-indebtedness, making sure clients have a way of making their grievances heard, transparency and data privacy, and more. The development of the Smart Certification program has provided microfinance institutions with an added incentive to meet these standards, and a way of distinguishing themselves as organizations that prioritize client protection.

Recent, measurable momentum in support of our goals is what makes us optimistic for the industry. Over the past four years, more than 4,000 new individuals and organizations have publicly endorsed the Campaign and the client protection principles, often the first step towards better practices. These endorsements become even more powerful when supported by strong networks that prioritize client protection; according to Anne Hastings, managing director of the Microfinance CEO Working Group, “The majority of the 220 MFIs in the Working Group’s networks are either certified or working hard to become certified.”

The emphasis on quality and not just quantity in microfinance is also beginning to resonate more with donors and investors, as evidenced by the upswing in grants and facilities dedicated to client protection and social performance management.  While the MasterCard Foundation has long been a leading supporter of client protection initiatives, 2015 marked the launch of several new programs to build capacity in client protection practices, backed by organizations such as the Agence Française de Développement, Asian Development Bank, and most recently, the International Finance Corporation.

And financial institutions aren’t just voicing their support for better standards of treatment for financial services customers—they’re also tangibly improving their practices.  Over 160 microfinance institutions have conducted an assessment of their client protection practices with the help of an independent evaluator, and many others have utilized the Campaign’s self-assessment tool to internally determine areas for improvement.  To date, 30 microfinance institutions have achieved Smart Certification, meaning that an independent, third-party rater has confirmed their compliance with a core set of standards derived from the seven Client Protection Principles.  Together these institutions ensure that 15 million microfinance customers worldwide can be confident that their financial service provider takes care to treat them responsibly.  We expect that number to grow tremendously in the future, as the nearly 10 million clients protected in 2014 represented a 50% increase in the number of protected clients from the program’s pilot year in 2013.  Ongoing efforts by the Campaign to improve and streamline the certification process also give reason to believe the number of clients served by a certified microfinance institution will increase.

As powerful as those numbers are, our optimism is tempered due to the acute awareness that there is still more work to be done; while 15 million is a critical mass, it is only a fraction of the microfinance clients worldwide.  Even as certain countries can proudly state that over 50% of all microfinance customers are served by a certified institution, such as the case in Kyrgyzstan, there are still markets where clients remain without the option of bringing their business to a certified institution.  While facts like these should not stop us from celebrating the progress the industry has made throughout the Month of Microfinance, they remind us to redouble our efforts, learn from our failures, and capitalize on our successes in order to ensure that improving client experiences remains the driving force behind microfinance.

Photo Credit – ACCION

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