Client Protection Certification Program European Microfinance Week November 3, 2011 Isabelle Barrès

Center for Financial Inclusion’s Beyond Codes project and dialogue groups produce learning on client protection Many organizations adopt their own statement of principles 2009 The industry comes together to start a client protection Campaign Smart Campaign defines 6 Client Protection Principles Pocantico Declaration from microfinance leaders emphasizes client protection failures 2011 October: Smart Campaign officially launched Principles updated to 7 Principles Certification Program Input from the industry on the certification program Timeline of the Smart Campaign

Do No Harm! Improve Clients’ Lives Client Protection MFT CampaignSmart Invest in systems to manage double bottom line Measure social goals Tailor services to client need and vulnerability Progress Out of Poverty Index (PPI) + Social Commitment Investor Principles for Inclusive Finance Social Performance

Client protection: 3 pillars 4 Regulation for client protection and supervision RESPONSIBLE FINANCE Financial education and capability Standards and codes of conduct for the industry

Timeline of the Certification Program June 2010  Task force launched February 2011  First meeting of the Technical sub- committee of the Certification Task Force October – November 2011 Public comment period on the certification program:  Open webinars for Q&A in  Send your comments by November – Early 2012Testing period for indicators and benchmarks. 2012Launch of Pilot Client Protection Certification Program with eligible specialized microfinance rating agencies.

Certification Program There are 2 main rationales for the Client Protection Certification program: To enable financial institutions worldwide to demonstrate their adherence to the Campaign's core Client Protection Principles as verified by third-party assessors. To highlight publicly financial institutions meet minimum standards in regards to Client Protection. Note that what is presented here is tentative. The certification proposal is in draft stage.

What does it mean to be certified? Appropriate product design and delivery: it designs products with client characteristics taken into account, with the intent to do them no harm. Prevention of over-indebtedness: it prevents the risk over- indebtedness by checking client capacity to repay and providing incentives based on the quality of the portfolio. Transparency: it communicates clear, sufficient and timely information (especially on pricing, terms and conditions of products) in a manner that clients can understand so that they can make informed decisions.

What does it mean to be certified? (continued) Responsible pricing: it sets prices, terms and conditions that are affordable to clients while allowing for its own sustainability. Fair and respectful treatment of clients: it has a very low probability of experiencing clients’ rights violations. Privacy of client data: both staff and clients know how client data will be collected and used. Client data is protected at least to the minimum requirements of the country (or regional proxies when country policy is not available). Mechanisms for complaints resolution: clear information is available to customers about how to submit a complaint and the organization has an effective, appropriate system in place to resolve complaints in a timely way.

How much will it cost? Currently anticipated at around $12,000-$14,000 if done on a stand-alone basis (to be tested in the field). Will be provided at a significant discount for MFIs that are linking it to a rating (with the biggest discount for social rating with client survey and the smaller discount for financial rating). Note that what is presented here is tentative. The certification proposal is in draft stage.

When an MFI is certified… Certified financial institutions will get a short report highlighting the key results of the certification and examples of how they have met the minimum standards for client protection. They will have the right to use the ‘Client Protection Certification’ label, indicating the year the certification took place. Note that what is presented here is tentative. The certification proposal is in draft stage.

When an MFI is NOT certified… Financial institutions that fail to meet one or several of the minimum standards for client protection will be given a certification report that identifies the areas where they have weaknesses. They will have from 6 to 12 months to put in place corrective measures to improve their practices and enable them to be certified. Note that what is presented here is tentative. The certification proposal is in draft stage.

How often will it be done? Certification should be done on a regular basis. Our proposal is that certification be valid for 2 years, after which a new certification should be obtained by the financial institution. Note that what is presented here is tentative. The certification proposal is in draft stage.

How will it be used? Financial institutions: to market their organization as a pro-client institution to their clients, funders, and the general public. Investors/ donors: to inform their funding decisions. Use the certification results during due diligence, and require certification during a reasonable time prior to or after the investment. Technical assistance providers: to target financial institutions that need assistance in implementing the client protection principles. Rating agencies: will update their methodologies to reflect the standards defined for the certification program, providing a unified basis for how client protection is measured. Note that what is presented here is tentative. The certification proposal is in draft stage.

Who will certify? Certification will be done by organizations licensed by the Smart Campaign. In , licenses will be granted to qualified microfinance rating agencies member of the Technical Sub-Committee of the Certification Task Force. Beyond 2012, licenses will be open to others, provided they meet the licensee criteria. Note that what is presented here is tentative. The certification proposal is in draft stage.

Other intended outcomes The certification indicators can serve as a best practice document that clearly describes the minimum standards in regards to client protection. It is expected that – among others – regulators will be able to use this information to review relevant issues for microfinance and client protection. Note that what is presented here is tentative. The certification proposal is in draft stage.

How? The key elements of the content of the certification are as follows: Five major categories: governance, policies and procedures, staff incentives and staff training, compliance, and results. Key indicator Context Minimum standards and good standards Desk review and an on-site review Client verification Note that what is presented here is tentative. The certification proposal is in draft stage.

How? Note that what is presented here is tentative. The certification proposal is in draft stage. CLIENT PROTECTION PRINCIPLES GOVERNANCE POLICIES AND PROCEDURES STAFF INCENTIVES AND STAFF TRAINING COMPLIANCERESULTS APPROPRIATE PRODUCT DESING AND DELIVERY X PREVENTION OF OVER- INDEBTEDNESS XXX TRANSPARENCYXXX RESPONSIBLE PRICINGX FAIR AND RESPECTFUL TREATMENT OF CLIENTS XXX PRIVACY OF CLIENT DATAXXX MECHANISMS FOR COMPLAINT RESOLUTION XX

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