NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, January 24, 2013

Washington, DC (January 24, 2013) – As of today, the microfinance industry has new client protection standards and a Client Protection Certification Program aimed at retail financial institutions serving the world’s poor. The ambitious effort, created for and by the industry and managed by the Smart Campaign, represents an important milestone in the evolution of microfinance as a uniquely client-focused portion of the global financial sector. “There has been widespread demand for mechanisms that protect microfinance clients. This is the first program that verifies client protection publicly,” said Smart Campaign Managing Director Isabelle Barrès.

Business Standards to Protect the World’s Most Vulnerable Clients

Today thousands of regulated and unregulated microfinance institutions serve over 200 million poor and financially-excluded individuals around the world. The sector’s progress from social movement to multi-dimensional financial services industry has led to several pro-client advancements, including lower interest rates and the rising use of technology; however, an emphasis on rapid growth has also led to instances of over-lending and debt stress. The Smart Campaign and the client protection principles were created in response, with the recognition that microfinance needs to keep its eye focused more clearly on client treatment standards.

“We see the Smart Campaign’s Certification Program as becoming the Fair Trade standard in microfinance. It weaves client protection into all aspects of the business relationship between a customer and a financial institution,” said Asad Mahmood, Managing Director of the Global Social Investment Fund at Deutsche Bank and member of the Smart Campaign Steering Committee.

The Client Protection Certification Program contains a rigorous set of standards against which institutions are evaluated by certifiers licensed by the Smart Campaign. The certifiers—Planet Rating, M-CRIL, MicroFinanza Rating and MicroRate—are established, specialized microfinance rating agencies with deep experience analyzing hundreds of institutions. For the first time, the names of passing institutions will be made public, starting today.

First Certified Institutions

The Campaign is proud to announce that five financial institutions have already successfully passed through the certification process: Bosnian non-governmental institutions Partner Microcredit Foundation and EKI Micro-credit Foundation, Indian finance companies Ujjivan and Grameen Koota, and Indian non-governmental organization Cashpor. Together, they serve over 1.6 million clients. They also represent markets recovering from crises that led sector participants to a renewed focus on client protection. “This certificate sends a strong message to our clients and to the market that Partner is a reliable and socially responsible lender. Internally, this recognition presents an obligation and responsibility for Partner to justify being certified, through maintenance and daily improvement in our client protection practices,” said Senad Sinanovic, Director of Partner Microcredit Foundation.

The program was designed through a highly consultative process involving stakeholders from across the microfinance sector. “Microfinance institutions recognize the value of certification as a way to distinguish themselves and to demonstrate their commitment to clients. Certification has also been embraced by investors who are willing to use it as a litmus test for selecting investee institutions,” Barrès said. Though the certification program is nascent, its supporters expect it to grow into a global brand recognized for its rigor and contribution to pro-client financial services for the poor.

Sponsors and Collaborators

The Client Protection Certification Program is possible because of partnerships with the MasterCard Foundation, Ford Foundation, the Multilateral Investment Fund of the InterAmerican Development Bank, the International Financial Corporation, and Accion International. It has been shaped through cooperation with dozens of supporting organizations, notably Smart Campaign co-founder, the Consultative Group to Assist the Poor.

About the Smart Campaign

The Smart Campaign is a global movement to embed a set of client protection principles deep within the microfinance industry. It is governed by a Steering Committee representing a broad cross-section of the industry and is housed at the Center for Financial Inclusion at Accion International. By providing microfinance institutions with the tools and resources they need to deliver transparency, respectful and prudent financial services to all clients, the Smart Campaign is helping the industry maintain its commitment to treating clients fairly.

More information on the Client Protection Certification Program can be found here.

To view the registry of certified organizations, click here.