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Symposium 2009

Implementation - The Smart Campaign - The Microfinance Industry’s Client Protection Initiative

The Challenge

In the aftermath of the collapse of the western financial system, many observers agree that neither unfettered financial markets nor invasive regulation are able to ensure that financial and busines ...

In the aftermath of the collapse of the western financial system, many observers agree that neither unfettered financial markets nor invasive regulation are able to ensure that financial and business leaders will necessarily act in the public interest.

"The Smart Campaign addresses issues that have been identified by the GES 2009. The GES solutions of 2009/2010 inter alia call for 'more services that prevent microfinance customers from accumulating excessive debt and potentially facing bankruptcy.' I believe the project would be a good example of how solutions to the recent problems in microfinance can be implemented in practice."

Christian Weistroffer, Economist, Deutsche Bank and Global Economic Fellow 2009

In response to a strongly recognized need to assure safe and responsible treatment of microfinance clients, microfinance industry leaders from around the world came together in 2008 to launch a campaign to establish the Client Protection Principles and to make them part of the DNA of microfinance. To put the principles into action, the Smart Campaign was launched in October 2009. Today, it is a global effort with over 2,500 signatories, a wealth of tools and resources, and an ambitious action agenda. It is changing the way microfinance institutions protect their clients.

The client protection principles: Responsible financial service providers to low-income people—including microfinance institutions (MFIs), credit unions, and others—implement the following client protection principles:

  • Appropriate product design and delivery
  • Prevention of overindebtedness
  • Transparency
  • Responsible pricing
  • Fair and respectful treatment of clients
  • Privacy of client data
  • Mechanisms for complaint resolution

 

Over 2,500 microfinance institutions, microfinance support organizations, investors, donors, and individual industry professionals have signed up with the Smart Campaign. In almost two years, it has reached more than 130 countries, with 33 percent of signatories from Asia, 22 percent from Latin America, 15 percent from Africa, and 30 percent from Europe and North America. The Smart Campaign has endorsements from 800+ microfinance institutions serving more than 40 million clients.

To genuinely embed the Client Protection Principles in industry practice, the Campaign works first to win endorsers and then to help them implement the principles through tools, training, and a forthcoming certification process to ensure that the principles are implemented and verified.

The Smart Campaign builds on the social commitment that prompted the founding of microfinance institutions and that continues to be a guiding motive throughout the microfinance community. Industry leaders have been quick to endorse the Client Protection Principles because they are aligned with leaders’ own social commitment to offer financial services that improve clients’ lives.

Putting principles into practice

The Smart CampaignIn addition to raising awareness about client protection, the Campaign works on three fronts: tools and guidance, global outreach with training, and certification.

Tools development and dissemination. The Smart Campaign has developed a host of tools that help microfinance institutions implement the Client Protection Principles. The tools for microfinance institutions range from diagnostics to guidelines on applying the principles in the credit process and complaint resolution processes. The toolkit for investors contains guidelines for incorporating the principles into due diligence and loan agreements. Microfinance investors like Deutsche Bank, Triple Jump, and Oikocredit have trained their analysts to examine client protection practices. Asad Mahmood of Deutsche Bank writes, "The Smart Campaign has helped us in our due diligence. We address each aspect of the principles in considerable detail in our credit write-ups and on-site due diligence." More tools and guidance are under development.

Global outreach with training. The Campaign has created memorandums of understanding with 30 national and regional associations of microfinance institutions in Africa, Latin America, Asia, the Middle East and Eastern Europe, representing close to 1,000 institutions. Through these agreements, the local associations work directly with their members to systematically assess their practices and train them on putting principles into practice. By way of these efforts, microfinance institutions in the far corners of the world are examining their practices—for example, Access Alliance, an association in India, just scheduled two trainings and assessments in West Bengal.

Certification. Self-reporting on client protection cannot provide confidence that the Client Protection Principles are actually being followed. Verification by an objective third party is needed. Since February 2011, the Smart Campaign’s certification taskforce (comprised of more than 30 experts representing various stakeholders) has been working with the microfinance industry to develop a Client Protection Certification Program that can be rolled out across the industry. This program will enable financial institutions worldwide to demonstrate their adherence to the Campaign’s Client Protection Principles as verified by third parties. Financial institutions that have met adequate standards in Client Protection will be highlighted publicly. The Certification Program is still in development and many of the parameters of the program need to be validated through industry feedback from October 2011 through February 2012. The pilot Certification Program is expected to be launched in the first half of 2012.

Further details:

http://www.db.com/us/content/en/new_certification_for_microfinance_institutions.html
http://smartcampaign.org/

Implementing Client Protection in Microfinance: State of the Practice, 2011: http://www.smartcampaign.org/tools-a-resources/536

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