1. SPM Essentials: Client Protection March 15 & 16, 2012 www
SPM Essentials: Client Protection March 15 & 16,
Client Protection Principles: An Introduction to the Smart Campaign
[Introductions of facilitator(s) and participants]

2. The Smart Campaign…
…represents a global, industry-wide effort: 2,690+ endorsers from over 130 countries
…has an international steering committee
…collaborates with the Social Performance Task Force (SPTF), MIX Market Social Reporting, MF Rating Agencies, MFTransparency, and many others
…is housed at the Center for Financial Inclusion at ACCION International
Description of the Campaign: The Smart Campaign is a global campaign made up of microfinance leaders from around the world who believe protecting clients is not only the right thing to do, but the smart thing to do. By providing microfinance institutions the tools and resources they need to deliver transparent, respectful and prudent financial services to all clients, the Smart Campaign is helping the industry make good on its double bottom line promise and elevating microfinance as a model of responsible banking around the world.
[Read the information on the slide]
More information on the Campaign’s partners:
•The Center for Financial Inclusion at ACCION International (MFIs, Networks, Associations)
•CGAP (Donors, Funders, Investors & Regulators)
•“Beyond Codes” Action Research Project
Campaign Steering Committee:
Comprised of respected leaders in the microfinance industry from a diversity of regions and institutions, including the Consultative Group to Assist the Poor (CGAP) at The World Bank, Deutsche Bank Social Investment Group, the World Savings Bank Institute, WWB Colombia, KfW (Germany), Ujjivan (India), CARD Bank (Philippines), the Microfinance Centre (Eastern Europe & Former Soviet Union), and Fonkoze (Haiti).

3. Vision of the Smart Campaign
The Smart Campaign envisions a fundamental transformation of the microfinance industry in four key ways:
Focus on clients
All industry stakeholders will put the interests of clients first
Transparent and prudent services
MFIs will provide transparent, respectful, prudent financial services
Full integration of client protection
Client protection principles will be fully integrated into all microfinance operations
Gain pro-consumer reputation
The microfinance industry will be distinguished as leader in responsible finance
The Campaign’s vision is to distinguish microfinance as a pro-consumer industry that puts the interests of clients first. The Campaign envisions an industry that provides transparent, respectful services and fully integrates client protection into the operations of MFIs. By doing this, the Campaign will help to distinguish the microfinance industry as a leader in responsible finance.
Some other things to note. The Campaign is striving to:
•Encourage informed and confident customers
•Serve as a positive influence on mainstream financial sector 3

4. Timeline of the development of the principles
- Pocantico Declaration from microfinance leaders emphasizes client protection failures.
- The industry starts a client protection campaign.
- The Smart Campaign defines 6 Client Protection Principles.
Center for Financial Inclusion’s Beyond Codes project and dialogue groups produce learning on client protection.
Smart Campaign officially launched.
- Client Protection Principles updated.
- Tools and certification developed.
2011
2010
2009
2008
In a moment, we will review the Smart Campaign’s Seven Client Protection Principles. First, it’s important to understand the history behind these Principles. The Client Protection Principles have been in development for many years. They reflect ethics and values championed by many industry stakeholder groups.   
In 2008, microfinance leaders from around the world convened in Pocantico, New York to address harmful practices in microfinance, such as irresponsible lending practices and low transparency in pricing. The resulting Pocantico Declaration expressed the need for a code of conduct governing how microfinance institutions treat their clients. Their deliberations also helped to refine the existing Statement of Principles.
[More information on the Poctantico Declaration:
Later that year, the Center for Financial Inclusion at ACCION convened for a series of dialogue groups around client protection. These dialogue groups produced over 100 suggested indicators for good practice in client protection. Using these suggested indicators, the Center for Financial Inclusion carried out a fourteen-month long research project called “Beyond Codes”. In this project, fourteen MFIs piloted the implementation of pro-client policies and practices and their experience helped solidify the Client Protection Principles, as well as best practice examples of client protection, and ideas for pro-consumer policies and practices. After more dialogue groups, and collaboration with dozens of other institutions and networks, including CGAP, the Center for Financial Inclusion launched the Smart Campaign and a widely accepted set of Client Protection Principles.
During this presentation and the other Smart Campaign presentations on each of the Principles, you will learn about good client protection practices from institutions all over the world. These examples come from extensive research with the institutions in the Beyond Codes project and institutions within the ACCION Network.
Most recently, in July of 2011, the Principles were expanded to address multiple financial products and the concept of “non-discrimination.” Please see the smartcampaign.org for a more lengthy explanation of how and why the CPPs were updated.

5. Client Protection Principles
1. Appropriate product design and delivery
2. Prevention of over-indebtedness
3. Transparency
4. Responsible pricing
5. Fair and respectful treatment of clients
6. Privacy of client data
7. Mechanisms for complaint resolution
[Each principle is listed, along with how the Smart Campaign defines the principle].
These are the Seven Principles of Client Protection
1. Appropriate product design and delivery
Providers will take adequate care to design products and delivery channels in such a way that they do not cause clients harm. Products and delivery channels will be designed with client characteristics taken into account.
2. Prevention of over-indebtedness
Providers will take adequate care in all phases of their credit process to determine that clients have the capacity to repay without becoming overindebted. In addition, providers will implement and monitor internal systems that support prevention of overindebtedness and will foster efforts to improve market level credit risk management (such as credit information sharing).
3. Transparency
Providers will communicate clear, sufficient and timely information in a manner and language clients can understand so that clients can make informed decisions. The need for transparent information on pricing, terms and conditions of products is highlighted.
4. Responsible pricing
Pricing, terms and conditions will be set in a way that is affordable to clients while allowing for financial institutions to be sustainable. Providers will strive to provide positive real returns on deposits.
5. Fair and respectful treatment of clients
Financial service providers and their agents will treat their clients fairly and respectfully. They will not discriminate. Providers will ensure adequate safeguards to detect and correct corruption as well as aggressive or abusive treatment by their staff and agents, particularly during the loan sales and debt collection processes.
6. Privacy of client data
The privacy of individual client data will be respected in accordance with the laws and regulations of individual jurisdictions. Such data will only be used for the purposes specified at the time the information is collected or as permitted by law, unless otherwise agreed with the client.
7. Mechanisms for complaint resolution
Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients and will use these mechanisms both to resolve individual problems and to improve their products and services. 5

6. Appropriate product design and delivery
The Principle in Practice:
Providers take adequate care to design products and delivery channels in such a way that they do not cause clients harm.
Products and delivery channels are designed with client characteristics taken into account.
Consider this:
Appropriate products and services not only provide access to clients, but they also create value for clients.
Financial service providers have a responsibility to exercise good faith in designing products and delivery channels that are suitable for clients and to not take advantage of client inexperience and/or underdeveloped markets. They should take active steps to consider the characteristics of target clients during the design process. Products should function as advertized, provide value for money, and not be deceptive in design.
It is not enough to simply provide access to financial products and services. Providers should take steps to ensure that these products and services create value for clients.

7. MFI Borrowers Prevent Over-indebtedness: The principle in practice
Carefully establishes the borrower’s ability to afford the loan and repay it.
Are able to handle debt service requirements without sacrificing their basic quality of life.
This is the Campaign’s definition of the principle “Prevention of over-indebtendess.” An institution puts the principle into practice by:
Carefully establishing the borrower’s ability to afford the loan and repay it, and
Taking adequate care that non-credit, financial products (such as insurance) extended to low-income clients are appropriate to their needs and means.
If the institution does these two things, borrowers should be able to handle debt service requirements without sacrificing their basic quality of life.
Research and practical experience show that borrowers consistently overestimate their own capacity to repay debt. While borrowers should take responsibility for their borrowing behavior, lenders have a responsibility to carefully assess borrower capacity before making a loan.
Consider this:
Research and practical experience show that borrowers consistently overestimate their own capacity to repay debt.

8. The Principle in Practice:
Transparency
The Principle in Practice:
Providers will communicate clear, sufficient, and timely information in a manner and language that client can understand, so that clients can make informed decisions.
Consider this:
Transparency is a pre-condition to many of the other principles—foremost, responsible pricing.
This is the Campaign’s definition of the principle “Transparency.” An institution puts the principle into practice by communicating clear, sufficient, and timely information in a manner and language that client can understand, so that clients can make informed decisions.
Consider this: Transparency is an important part of many of the other principles. Foremost, it is a pre-condition to responsible pricing. In other words, transparency is the foundation of responsible pricing.

9. The Principle in Practice:
Responsible Pricing
The Principle in Practice:
Pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for the financial institution.
Consider this:
Financial sustainability is required to continue serving clients, but is not an end in itself.
This is the Campaign’s definition of Responsible Pricing. An institution puts the principle into practice by ensuring that pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for the financial institution.

10. Fair and respectful treatment of clients
The Principle in Practice:
Providers and their agents treat clients fairly and respectfully. They do not discriminate. They will ensure safeguards are in place to detect and correct corruption.
Consider this:
Most abuses happen during the loan sales and debt collection processes—these need special attention by providers.
This is the Smart Campaign’s definition for Fair and Respectful Treatment of Clients: Providers and their agents treat clients fairly and respectfully. They do not discriminate. They will ensure safeguards are in place to detect and correct corruption. Special attention should be paid during the loan sales and debt collection processes, as this is when most abuses occur.

11. The Principle in Practice:
Privacy of Client Data
The Principle in Practice:
The provider complies with all local data privacy laws. Client information is only used in the ways agreed upon at the time of data collection.
Consider this:
Clients trust financial service providers with very sensitive personal and financial information.
This is the Campaign’s definition of the principle “Privacy of Client Data.” An institution puts the principle into practice by complying with all local data privacy laws. And only using client information in the ways agreed upon at the time of data collection.
Consider the responsibility that comes with client trust. Clients trust financial service providers with very sensitive personal and financial information.

12. Mechanisms for Complaints Resolution
The Principle in Practice:
Providers have a mechanism for collecting, responding in a timely manner, and resolving problems for customers. The mechanism is used to resolve individual complaints and improve products/services.
Consider this:
Suggestions boxes are not effective for responding to specific problems in a timely way.
This is the Campaign’s definition of the principle “Mechanism for Complaints Resolution.” An institution puts the principle into practice by having a mechanism for collecting, responding in a timely manner, and resolving problems for customers. The mechanism is used to resolve individual complaints and improve products/services.
Many institutions use suggestion boxes, but these are not usually sufficient to receive and respond to complaints in a timely way. They are also inaccessible to illiterate clients. This presentation will discuss alternatives to suggestion boxes.

13. Key Tools and Resources
Client Protection Principles Training Series
How to Develop an Institutional Code of Ethics
Smart Lending: Client Protection in the Individual Loan Process
Educating Clients About Client Protection: A Guide for Financial Service Providers
Avoidance of Over-indebtedness: Guidelines for Financial and Non-financial Evaluation

14. What’s next? Questions? Comments? Thank you!
Endorse the Smart Campaign. Visit
Sign up to receive news and information.
What’s next?
Download the Getting Started Questionnaire and conduct a client protection self-assessment.
Thank you!
us!