i-Focus Committing the Microfinance Industry to Proactive Consumer Protection Ms. Robin Ratcliffe, Director, Campaign for Client Protection in Microfinance
ll of us in the microfinance arena believe strongly that financial services have the power to help people improve their lives, sometimes dramatically so. However, if offered carelessly or used improperly, financial services — especially credit — can also cause great harm. The importance of good practice has been demonstrated only too clearly given the role that over-lending to vulnerable families has played in triggering the U.S. and global financial crisis. Yet microfinance institutions (MFIs) must balance fulfilling their mission, surviving competition and achieving profitability and growth. These competing forces may play a role in pushing financial institutions into practices that do not coincide with pro-consumer ideals, such as over-lending or lack of transparency. The endorsing institutions of the Campaign for Client Protection in Microfinance (www.campaignforclientprotection.org) believe that microfinance distinguish itself as strongly pro-consumer if it is to retain its positive reputation – and fulfill its mission. The issue of client protection in microfinance is not a new one. Over the years, a number of industry leaders have discussed the need for an industry-wide code of conduct and a proactive assertion of the brand of microfinance as a double bottom line industry. Over the past several years, consensus has emerged that providers of financial services to lowincome clients should adhere to six core principles. These principles, which guide the Campaign, are distilled from the path-breaking work by providers, international networks, and national microfinance associations to develop proconsumer codes of conduct and practices. 1.
Avoidance of Over-Indebtedness. Providers will take reasonable steps to ensure that credit will be extended only if borrowers have demonstrated an adequate ability to repay and loans will not put the borrowers at significant risk of over-indebtedness. Similarly, providers will take adequate care that non-credit financial products, such as insurance, extended to low-income clients are appropriate.
Transparent Pricing. The pricing, terms and conditions of financial products (including interest charges, insurance premiums, all fees, etc.) will be transparent and will be adequately disclosed in a form understandable to clients. Appropriate Collections Practices. Debt collection practices of providers will not be abusive or coercive. Ethical Staff Behavior. Staff of financial service providers will comply with high ethical standards in their interaction with microfinance clients and such providers will ensure that adequate safeguards are in place to detect and correct corruption or mistreatment of clients. Mechanisms for Redress of Grievances. Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients. Privacy of Client Data. The privacy of individual client data will be respected, and such data cannot be used for other purposes without the express permission of the client while recognizing that providers of financial services can play an important role in helping clients achieve the benefits of establishing credit histories.
The Six Principles are the foundation upon which The Center for Financial Inclusion at ACCION International, CGAP and many other industry players established the Campaign for Client Protection in Microfinance, now in its pre-launch phase. The Campaign is above all committed to protecting microfinance clients and ensuring that the financial services offered by MFIs do no harm. Through a variety of on-line activities, tools and outreach, the Campaign looks to:
Raise awareness and encourage dialogue throughout the microfinance industry about client protection.
Develop tools to facilitate the implementation of the client protection principles by financial institutions.
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