1. Appropriate Product Design and Delivery

2. Principle in Practice
Providers take adequate care to design products, delivery channels and select partners in such a way that they do not cause clients harm.
Products and delivery channels are designed, and partners selected 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.
Principle in Practice – 5 mins.
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.
Considerable care should be given to designing products that suit client needs while being simple and flexible. As one example, loan repayment schedules are best structured to correspond with the expected cash flows of borrowers. The point of suitability is not to over-design products for narrowly defined purposes, but to ensure that the products are designed to be useful for clients. In delivering products, providers should gather sufficient information from the customer to ensure that the product is likely to meet the customer’s needs and capacity.
Suitable product delivery. Product design should take into account the process by which products will be sold, as discussed further under Fair and Respectful Treatment.
Simplicity. Simple products, including products with simple pricing, are easier for clients to understand and compare. Simple products may be more affordable and flexible for clients. Simplicity implies minimizing the use of bundled products (that is, requiring a client to buy a second product, such as credit life insurance, in order to use a first product, such as a loan).2 We note that simplicity is not an absolute value: it must serve product relevance and usefulness.
Minimum changes. Products should be designed in a way that minimizes the possibility that product changes, such as unexpected changes in pricing, terms or fees will become necessary during the course of the product’s life.
No waivers of client rights. As a general rule, clients should not be asked to waive their rights, such as the right to sue the provider, receive information, cancel use of the product, maintain privacy, etc. If a financial service provider considers a waiver imperative, for example if a product is not viable without a waiver, then this should be made clear to the client. Waivers requested for the convenience of the provider are generally not appropriate.

3. The Principle in Practice
Suitable Products
Suitable Design
Suitable Delivery
Multiple and/or flexible loan products address different business and family needs. If products offered through third-parties, thorough vetting occurs.
Repayment schedules are flexible and match cash flows. Loan size matches financial need.
Services are reliable, convenient, and function as advertised.
These are the good practices that the Smart Campaign has defined for this principle.

4. Suitability runs through multiple systems
Board Approved Policy
Product Design and Partner Selection
Staff Training and Incentives
Monitoring and Revision

5. Suitability Beyond Credit
Provider should analyze insurance uptake, claims ratio, claims rejection ratio, renewal rate, coverage ratio, demographics of those covered, complaints ratio, average time for claim's resolution, reasons for lapses in coverage and rejection of claims.
Insurance
The provider and/or its agent network provider has a system to monitor third party agent liquidity and network availability and take action in the event of system failures.
Payments
Suitability Beyond Credit
This principle also applies to savings, insurance, and payments. Here are two examples.

6. Aggressive Sales
“[The woman from the bank] kept following me everywhere. I was working, and she kept coming to my house offering me a credit card that I didn’t want. She kept asking for my number for activating the credit card. At the end, I was very tempted because my daughter was turning 15, and I wanted to [throw a party].” Female, Peri-Urban Peru
Another note from client
“Now we are finishing repayment of a [MFO] loan, so they are calling and offering us to take a new loan, but currently we do not have need.” Female, Rural Georgia

7. CPP #1: Standards of Adequate Care
FI offers products and services that are suited to the client needs
FI monitors suitability of products, services, delivery channels
FI has policy and documented process to prevent aggressive sales techniques and forced signing of contracts.
Adequate standards of Care – 5 mins
There are 3 standards, 9 compliance criteria and 16 indicators.
The FI offers products and services that are suited to clients' needs.
(Suitable product design : Considerable care should be given to designing products that suit client needs while being simple and flexible. As one example, loan repayment schedules are best structured to correspond with the expected cash flows of borrowers. In delivering products, providers should gather sufficient information from the customer to ensure that the product is likely to meet the customer’s needs and capacity.
Suitable product delivery : Product design should take into account the process by which products will be sold. Details further under Fair and Respectful Treatment.
Simplicity : Simple products, including products with simple pricing, are easier for clients to understand and compare. Simple products may be more affordable and flexible for clients. Simplicity implies minimizing the use of bundled products (that is, requiring a client to buy a second product, such as credit life insurance, in order to use a first product, such as a loan).
Minimum changes: Products should be designed in a way that minimizes the possibility that product changes, such as unexpected changes in pricing, terms or fees will become necessary during the course of the product’s life.
No waivers of client rights. As a general rule, clients should not be asked to waive their rights, such as the right to sue the provider, receive information, cancel use of the product, maintain privacy, etc. If a financial service provider considers a waiver imperative, for example if a product is not viable without a waiver, then this should be made clear to the client. Waivers requested for the convenience of the provider are generally not appropriate.)

8. CPP #1: Standards of Care
FI offers products and services that are suited to the client needs
✔ Policy to offer suitable products / services
Flexible repayment.
Fair collateral Policy
Trained staff
Check ins for 3rd party
Transparent process - Insurance
FI monitors suitability of products, services, delivery channels
✔ Client Feedback
Analyze product usage
Monitor Agent liquidity /Network availability.
Indicators – 10 mins
Refer to all the highlighted words in the slide and ask participants to explain what is meant by the terms.
Please note that the highlighted words means that those indicators are Compliance criteria.
The FI offers products and services that are suited to clients' needs.
A policy is in place that defines how the FI will offer suitable products and services through appropriate channels, including designing products, services and channels and monitoring their suitability.
The FI considers design and delivery suitability when products and services are designed or offered through a third-party provider. (The due diligence should include all products and services that are offered to clients. This applies also to FIs that contract out savings to others. )
Credit products are designed to require principal to be paid down regularly and/or with flexible repayment schedules based on client cash flows.
A policy is in place to ensure fair collateral requirements that do not create severe hardship for clients. (For collateral seizure issues, see CPP5 - Fair and Respectful Treatment of Clients.) (Collateral is an indication of the seriousness of the borrower’s commitment to repay the loan. Collateral protects the lender’s interests in case of the borrower’s default, however, the availability of collateral should not be the primary decision-making criterion. Careful consideration should be given to the results of liquidating collateral that is critical to the borrower’s livelihood or home. On one hand, collateral should be important enough to the borrower that he/she does not want to lose it. On the other hand, removing a source of livelihood, such as a piece of equipment, can exacerbate a borrower’s problems. It is important for lenders to have clear guidelines for what constitutes acceptable collateral.)
Guarantees : Guarantees is used to protect the lender’s interests in case of the borrower’s default, but the availability of guarantees should not be the primary decision-making criterion. There should be standard procedures for evaluating the creditworthiness of guarantors as well as the effective relationship to the client.
( PTIONAL) Foreign currency risk: If the provider has access to local currency funding and the borrower’s operations are only in local currency, then local currency loans are preferred. If local currency loans are not available, then it is important to make this risk clear to the borrower and to add an extra margin to the calculation of the client’s repayment capacity to allow for devaluation risk)
The FI does not collect "mandatory" savings from clients other than as cash collateral, and cash collateral may not exceed 10% of loan disbursed.
The FI has a list of assets or goods that cannot be pledged as collateral. The list is based on local norms and includes items that would create severe hardship or total loss of income earning ability for the client.
Collateral valuation is determined based on a verifiable market price/resale value. The credit committee or second level approval verifies the collateral valuation. (If there is no “verifiable market price/resale value" and collateral is of significant value, the FI has a system to limit discretion in setting collateral value.)
Collateral value as percentage of loan amount is not excessive.
Collateral documents (such as title deeds) are returned to clients after the loan is repaid.
The FI trains staff so that they fully understand how to determine whether products, services and channels are suitable for specific clients, and for lending staff, that collateral policies are understood.
The FI verifies that third parties (agent network managers, etc.) train their own representatives to determine whether products, services and channels are suitable for specific clients, and for lending staff, that collateral policies are understood.
When insurance is offered through third-party providers, the FI has a transparent process for selecting insurers which involves a competitive bidding and/or market study and a consideration of the value and appropriateness of the products and services offered.
The FI's contract with its insurer provides the FI with frequent opportunities to review and cancel, taking into consideration complaints by clients and responsible pricing and delivery.
The FI monitors the suitability of products, services and delivery channels.
The FI conducts satisfaction surveys or other systematic means of gathering feedback on client satisfaction with products, services and delivery channels, at least annually.
The FI management uses results of client feedback to improve products and services. Measures are discussed, implemented, and monitored, and records of these actions exist.
The FI evaluates the clients' ability to interact effectively with the technologies it uses to provide services and information.
The FI analyzes product usage by client characteristic and investigates the reasons for dormancy, drop-out and cancellation.
The FI analyzes data from insurance products to assess their value to clients and client satisfaction. Data should include: product uptake, claims ratio, claims rejection ratio, renewal rate, coverage ratio, demographics of those covered, complaints ratio, average time for claim's resolution, reasons for lapses in coverage and rejection of claims.
The FI and/or its agent network provider has a system to monitor third party agent liquidity and network availability and take action in the event of system failures. (Agent liquidity = cash at hand that allows cash out transactions. Network availability = system downtime, which prevents clients from transacting. ) (Refer to Trainer Guide on Payment products)

9. CPP #1: Standards of Care
FI has policy and documented process to prevent aggressive sales techniques and forced signing of contracts.
✔ Define agressive sales
Train to protect client rights
3rd parties are trained
Monitoring staff /3rd party
Balanced Incentives
Marketing techniques
Indicators : 10 mins
A policy and documented process are in place to prevent aggressive sales techniques and forced signing of contracts.
The FI defines "aggressive sales" and levels that trigger additional monitoring. (set your own definitions of aggressive sales and prohibited practices, as long as they are clear, make sense, and are followed in practice.)
The FI trains staff not to use aggressive sales techniques and to respect clients' right to refuse products. (includes clients’ families and community members that may play a role in the client’s decision-making.)
The FI verifies that third parties (agent network managers, etc.) train their representatives not to use aggressive sales techniques and to respect clients' right to refuse products.
The FI has a mechanism of rigorous and regular monitoring of front line staff and third-party sales techniques (e.g., agents, insurance companies or money transfer companies) to impede aggressive sales. When 'red flags' are raised, it triggers corrective measures. (Example : Mystery Shopping)
The FI's incentive/ bonus structure does not promote aggressive sales.
The FI does not use deceptive marketing techniques.

10. Tools available from the Smart Campaign
Samples and Case Studies
Also see
SPTF Library
MicroSave’s Market Research toolkits
Musoni
Flexibility
2 different loan products
Different loan terms/ repayment schedules
Better/Flexible terms for good clients
Suitability
Easy accessibility
Affordability
Reliable delivery
Market Research
Use of “Choice Modeling” technique
In depth participatory research
Product development committee

11. Hiring Feedback process
Good Practice (IFMR)
Designing products based on client requirements
“Wealth Management Approach”
Approach
Traditional
Financial Planning
Hiring
Professional
Local Community
Feedback process
Internal Audit/LO
Design Identification System
Good Practice – 3 mins
These are the good practices that the Smart Campaign has defined for this principle.

12. Key Messages
App prod design is relevant in CP because FIs often deal with inexperienced clients that do not necessarily have the knowledge/experience to determine if the product provides good value for the money.
Product suitability must be incorporated at all levels of an FI from board policies to staff training
MFIs that listens and learns from their client are more likely to succeed than who imitates others product/services in the market.
Moderate sales techniques should be used to deliver products/services. Aggressive sales must be defined.
Third parties must be vetted with client in mind