Certification Story - FINCA Kosovo

CERTIFICATION

STORY FINCA Kosovo

Smart Certification helped FINCA Kosovo cement its pro-client practices and achieve long-term sustainability after market crises and organizational restructuring.

WHY SMART CERTIFICATION

Smart Certification is a way for financial service providers to demonstrate their commitment to client protection. To become certified, an institution must complete an independent, third-party evaluation of its policies and practices. Certification is the only truly global seal of an institution’s commitment to protecting economically vulnerable clients.

“The client is the ultimate beneficiary of everything we do. That is our long-term strategy. If we put clients’ interests first, it ultimately helps us reach financial sustainability and our goals.”

FLORIN LILA, EURASIA REGIONAL DIRECTOR, FINCA

About FINCA Kosovo Part of the global FINCA International network, FINCA Kosovo’s mission is to eliminate poverty through lasting financial solutions that help to create jobs and improve borrowers’ standard of living. FINCA Kosovo is primarily interested in reaching people who are underserved or not served by conventional banks. The financial institution focuses on the micro- and small-tomedium enterprise and agricultural segments, which comprise approximately two-thirds of its loan portfolio.

Since its inception in 2000, client well-being has been a core value of FINCA Kosovo. After roughly 10 years of continuous growth, FINCA Kosovo began facing significant challenges due to external market crises and operational issues. New management was brought in and the institution’s procedures and practices were overhauled. According to Eurasia Regional Director Florin Lila, rather than pursuing short-term results, FINCA Kosovo took the opportunity to restructure to make the institution sustainable in the long term and for the benefit of clients.

In 2008, FINCA International endorsed the Smart Campaign, affirming that the Client Protection Principles (CCPs) are the minimum standards to which FINCA subsidiaries should adhere. “The foresight of their founder, their board of directors, as well as their management team cemented all of FINCA Kosovo’s policies and procedures to have the best interests of clients at heart,” said Auberon Kelmendi, general counsel for FINCA Kosovo.

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THE SMART CAMPAIGN

“At the end of the day it’s also a selfish need, because if we put clients’ interests first, it ultimately helps us reach financial sustainability and our goals,” added Florin Lila. “The client is the ultimate beneficiary of everything we do. That is our long-term strategy.” Accordingly, with the support of FINCA International, growing buy-in from local management, and external pressure from other certified financial institutions in the region, FINCA Kosovo achieved Smart Certification in 2016.

Benefits of Certification FINCA Kosovo’s existing policies and practices were well-aligned with the Smart Campaign with regards to the treatment of clients — FINCA Kosovo scored 90 percent on its pre-certification assessment. However, despite its strong position leading up to certification, FINCA Kosovo found it still had much to gain from becoming certified. Here are some examples:

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Improved transparency and feedback loops. While FINCA Kosovo performed very well in pre-certification, its client touch points was an area of relative weakness.

By improving the transparency of contracts, collection processes, fee disclosures and interest rates, FINCA Kosovo made a giant leap forward in customer care best practices.

FINCA Kosovo also standardized client data collection processes and clients’ opinions and experiences became part of future product modifications.

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Data-driven product development. Influenced

by Smart Campaign methodologies, as part of the product development process, FINCA Kosovo conducts regular client surveys. This helps to ensure that products and processes are tailored around the clients’ needs. For example, products that don’t fit the clients’ cash flow are not offered because FINCA Kosovo wants to ensure better, long-term client relationships and avoid putting clients in difficult debt situations.

“The culture of protecting our clients was always there, however, it is cemented further with Smart Certification.”

AUBERON KELMENDI, GENERAL COUNSEL, FINCA KOSOVO

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Strengthened employment practices. Internal hiring practices were also changed to ensure that recruitment efforts focused on candidates who value client treatment, honesty and transparency. Sanctions for staff who violate the code of conduct were formalized, with appropriate monitoring put in place.

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Strengthened staff engagement. Tools like the CPPs helped staff to more easily identify product design flaws, and to address blind spots in the future. Certification helped to reinforce staff pride, satisfaction and motivation because they had an ethos upon which to base and improve their performance.

The Client Perspective FINCA Kosovo is a strong advocate for Smart Certification and client protection. Staff members discuss the institution’s certified status with clients and disseminate the news through advertisements, social media and in-person events.

“The microfinance institution is the family friend nowadays,” Muhamed Xhema, owner of a successful dairy farm said about his personal relationship with FINCA Kosovo.

“Before you could borrow from a relative or a friend, but now we look to FINCA Kosovo.

Whenever we needed something, they responded efficiently and we agreed on the amount before we signed the contract.”

Auberon Kelmendi, general counsel for FINCA Kosovo, reflected on the value of client protection. “FINCA Kosovo has always

FINCA KOSOVO CERTIFICATION STORY

embraced the Client Protection Principles and they are enshrined in our main documents,” he said. “The culture of protecting our clients was always there, however, it is cemented further with Smart Certification.”

“The information I received from FINCA staff was very clear, accurate and the response time was really short,” Qendresa Qerimi, a furniture shop owner said. “FINCA treats us very well as clients and our interests are well protected based on contracts we receive before entering into any agreements.”

The Stakeholder Perspective Smart Certification strengthened FINCA Kosovo’s relationship with the country’s central bank, which sent representatives to attend FINCA Kosovo’s Smart Certification announcement event. Their presence at the event helped to signal to the rest of the industry that Smart Certification is recognized by the country’s regulators.

Smart Certification also directly improved FINCA Kosovo’s relationship with lenders.

FINCA Kosovo does not collect deposits, and so their financing model requires them to borrow money from investors that they then lend to clients. Staff indicated that not only have lenders expressed support for FINCA Kosovo’s Smart Certification, but that they’ve also begun to offer better loan terms to the institution as a result.

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“When a financial institution makes the client the focus like FINCA does, I think it is of the utmost importance to undertake the Smart process because it is the way to make sure that all your products, processes and client services are built around the client. The institution will benefit because Smart will help to identify strengths and weaknesses.”

ADRIAN KASTRATI, ACTING CHIEF EXECUTIVE OFFICER

“Smart Certification creates a bridge between a lender and a borrower in many aspects,” Fisnik Këpuska, FINCA Kosovo’s Chief Financial Officer, said. “They get an assurance about how their funds will be used.” Smart Certification reassures lenders that an institution’s treatment of clients is fair and adequate, which helps create longlasting positive relationships and improve the sustainability of the institution.

The benefits of FINCA Kosovo’s Smart Certification also extend to the broader microfinance industry. FINCA Kosovo is seen as a leader in Kosovo’s microfinance market. Not only has Smart Certification strengthened FINCA Kosovo’s position in the market as a socially responsible institution, it also sets a standard that its competitors will want to meet.

Asim Gupshai, director of Kosovo’s microfinance association, would like to see the central bank make Smart Certification mandatory for microfinance institutions in the country. He expects other institutions in the association to pursue certification.

“It’s of extreme importance that we push

MFIs in less developed markets so that they adhere to certain standards of client relationships,” Gupshai said.

Florin Lin indicated that both he and the CEO of the country’s other certified financial institution, AFK Microfinance, will continue to lobby the other association members to get certified. “If all major players are certified it will ultimately benefit the entire industry,” he said.

“Clients will be more assured that the industry as a whole is making a partnership with them, and not just for short-term relationships.”

Learn More About Smart Certification Smart Certification provides an independent, objective seal of confidence that a financial institution is doing everything it can to treat its clients well and protect them from harm.

Learn more about the pathways to Certification and determine the best course of action for your institution at http://bit.ly/SmartCertification.

See more certification stories at www.smartcampaign.org.

ABOUT THE SMART CAMPAIGN

The Smart Campaign works globally to create an environment in which financial services are delivered safely and responsibly to low-income clients. As the world’s first financial consumer protection standard, the Campaign maintains a rigorous certification program, elevates the client voice, and convenes partners to effect change at the national level. Nearly 100 financial institutions, collectively serving more than 41 million people, have been certified for adhering to the Campaign’s industry-accepted consumer protection standards.

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THE SMART CAMPAIGN