On October 20, 2009, Vikram Akula of SKS Microfinance in India, Elizabeth Littlefield of CGAP at The World Bank and Kurt Koenigsfest of BancoSol in Bolivia spoke during a panel discussion on how to instill consumer protection principles within the microfinance industry. Elisabeth Rhyne, managing director of the Center for Financial Inclusion at ACCION International, made introductory remarks and Robin Ratcliffe, Director of the SMART Campaign, moderated the discussion.[1]
The SMART Campaign, which germinated as an idea in April 2008 with the Pocantico Declaration during the Microfinance Leaders Retreat, was officially launched in this month. Housed at the Center for Financial Inclusion with seed money from ACCION International, the Campaign currently has over 700 endorsers comprised of microfinance institutions, networks and associations, and investors and donors worldwide.[1,4] The Campaign’s mission is to “to unite microfinance providers worldwide to develop and implement standards for the appropriate treatment of low-income clients based on six principles.”[2] The six principles are: avoidance of over-indebtedness, transparent pricing, appropriate collections practices, ethical staff behavior, mechanisms for redress of grievances, and privacy of client data.[3]
In her introductory remarks, Elisabeth Rhyne notes that the failures in consumer protection and good governance that triggered the subprime mortgage debacle are the very problems the Campaign’s principles hope to protect against happening in the microfinance market. The six principles emerge out of a consensus of best practices industry-wide and represent individual endorser’s commitment to consumer protection within their business practices.
The Campaign has developed tools “to help organizations implement client protection into their daily business operations, and its most recent offerings include an institutional self-assessment, [an] investor toolkit developed by CGAP, and the first installation of Smart Notes, a collection of best practices based on research from the field.”[5] Ultimately, Ratcliffe states that “the goal at the end of three years is to have more than 300 of the largest MFIs actively engaged in assessing and improving their operations.”[1] She admits this is an ambitious target as this goal if achieved would represent nearly 85% of the microfinance client population.[1] Another ambitious goal is to develop a uniform certification system by the year 2010 so that individual MFIs can be measured against uniform metrics for evaluating consumer protection practices.[1]
An active endorser of the Campaign’s principles, Vikram Akula spoke to the business model and culture of consumer protection developed at SKS Microfinance. Currently, SKS Microfinance has 5.5 million clients and yet, Akula notes that “despite such a fast paced growth, if you have the proper system and culture in place you can continue to have the social aspects of the business inform everything that you do.”[1] SKS Microfinance’s extraordinary success can be attributed to a fundamental philosophy of its founder that “there is no conflict between having a social mission and using a commercial means. . . if you do it correctly, they actually tie together . . . you actually create greater shareholder value in the long run than if you take a more transactional approach.”[1] Kurt Koenigsfest of BancoSol takes a similar approach in business practices that enhance consumer protection by providing extensive consumer training, including “teach[ing] [his] customers basic training in things like accounting, marketing, client retention for their own businesses, customer satisfaction, customer service and so on. . .tools that [clients] need in their own operations.”[1] Finally, Elizabeth Littlefield spoke to the Campaign principles and the project as a whole to enable social investors as well as commercial investors to distinguish good social investments and institutions by providing uniform metrics and standards. She noted that “at end of the day [she] think[s] these principles are critically important in order to be able to distinguish [them]selves . . .from the mainstream and to unlock the powerful amounts of social capital that await on the sidelines for such investments.”[1]
By Hio Kyeng Lee, Research Associate.
Make your comment at:
http://microfinanceassociation.ning.com/forum/topic/search?q=consumer+protection&page=2
Bibliography:
[1] Audio recording of the Smart Campaign teleconference on October 20, 2009 located at, http://media.accion.org/cfi/Smart_Campaign_Launch-1009.mp3 (note download may take time)
[2] The Smart Campaign for Client Protection, located at the Center for Financial Inclusion at ACCION International which serves as interim host, http://www.centerforfinancialinclusion.org/Page.aspx?pid=1371
[3] The Smart Campaign Client Protection Principles Handout, located at the Center for Financial Inclusion at ACCION International, http://www.centerforfinancialinclusion.org/Document.Doc?id=463
[4] “An Industry Imperative: Enhancing Consumer Protection in Microfinance,” Microfinance InSights, Sept/Oct 2009 issue, located at Center for Financial Inclusion at ACCION International, under “New & Noteworthy” tab, http://www.accion.org/Document.Doc?id=637
[5] The Smart Campaign’s “Client Protection Tools” located at, http://www.centerforfinancialinclusion.org/Page.aspx?pid=1414
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