1. Principle # 5 – Fair and respectful treatment of clients This presentation is made possible by the Smart Campaign www.smartcampaign.org

2. 2 1.Client protection principles 2.Principle #5 in practice 3.Participant feedback 4.Tools for improving practice 5.Conclusion and call to action Agenda

3. 3 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 Client Protection Principles

4. 4 1.Client protection principles 2.Principle #5 in practice 3.Participant feedback 4.Tools for improving practice 5.Conclusion and call to action Agenda

5. 5 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.

6. 6 Set ethical standards Set appropriate debt collection practices Train staff on ethics Spell out organizational values and standards of professional conduct for staff in a Code of Ethics. It should be approved by the Board and signed by staff. Establish the precise steps to take in case of default including actions that should not be taken and behavior that is prohibited. Inform clients of their rights and the highlights of the Code. Recruit and train staff in line with Code of Ethics. Train collections staff on appropriate practices for loan recovery. The Principle in Practice

7. 7 Set fair collateral policies Incentivize appropriate behavior Enforce penalties for violations Establish: 1) a policy on acceptable pledges of collateral (don’t accept assets vital to survival) and 2) a policy on rescheduling loans for clients who are willing to repay. Use incentives that encourage ethical behavior and do not put staff in a “conflict of interest” with the clients—particularly during loan collection. Monitor staff compliance with ethical standards and enforce sanctions for non-compliance. The same rules should apply to third-party collections agents. The Principle in Practice

8. 8 The role of management Creating a Code of Ethics for the institution. Communicating the importance of ethics to staff on a regular basis. Training staff to respond to ethical dilemmas tailored for their position. Empowering managers to follow up on ethical complaints. Establishing an Ethics Committee that rewards ethics and sanctions violations. Training today: Handling delinquent clients

9. 9 The code at the center Code of Ethics Management Internal Audit Human Resources

10. 10 Credit staff uses offensive or abusive language. Collections agents threaten clients or harass them at work, home, or their place of worship. Examples of inappropriate practices Offensive language and threats Collections agents enter a client’s home and/or seize property without a judicial order. The institution accepts collateral that may deprive borrowers of their basic survival capacity. Unethical seizure of property The institution subcontracts collections to businesses that are not subject to the same ethical standards as the institution. Subcontracting to unethical businesses Careless debt extension The institution issues automatic debt extensions.

11. 11 Effects on the client and the institution Clients mistrust the institution, and tell others. Inappropriate Collections Practices Clients mistrust the institution, and tell others. Staff rely on coercion for repayment, rather than good portfolio management. To avoid humiliation, clients go to extremes to repay their loans.

12. 12 What a code of ethics includes Source: Adapted from Compartamos Banco Institutional Philosophy Mission & Values Ethical Expectations Norms of Conduct Enforcement Methods Updating the Code Norms of Conduct Conflict of Interest Privileged Information Client/Staff Relationships Corruption Harassment Use of Company Property Safeguarding the Company Reputation Respecting the Work Environment

13. 13 Keeping a code “alive” Annual Review of Code New employees must sign Tested on Code after 90 days Annual recertification test Refresher campaign each year Ethics workshops Internal polices incorporate the Code of Ethics Training includes examples of real situations Source: Compartamos Banco

14. 14 Good Practices from Around the World One MFI includes “ethical behavior” in its annual performance reviews in order to give employees feedback on their behavior and find out how successful the organization has been in building an ethical culture. Another MFI designed a training program on ethical behavior that includes specific ethical dilemmas for different job functions. The training modules are based on experiences that employees face at work.

15. 15 1.Client protection principles 2.Principle #5 in practice 3.Participant feedback 4.Tools for improving practice 5.Conclusion and call to action Agenda

16. 16 Feedback from participants Have you received training at your institution that highlights ethical staff behavior? Appropriate collections practices? Can you describe an ethical lapse or ethical success at your institution or elsewhere? What kinds of collections practices have you seen at your own (or other) MFIs?

17. 17 1.Client protection principles 2.Principle #5 in practice 3.Participant feedback 4.Tools for improving practice 5.Conclusion and call to action Agenda

18. 18 Technical Tools Getting Started Questionnaire: Self Assessment for MFIs How to Develop a Code of Ethics & Example Codes Smart Lending Smart Savings Technical Guide for Investors Samples and Case Studies Client Welcome Kit Best Practices in Collections Strategies Code of Conduct for Collections from Swadhaar Smart Note: Collections with Dignity at FinComun Activities for Training Staff on Customers’ Rights Code of Conduct E-Learning Module Tools available from the Smart Campaign

19. 19 An institution's corporate culture should value and reward high standards of ethical behavior and service. What is considered appropriate/inappropriate behavior should be specified in advance and staff should be trained regularly. Clients must be treated with dignity at all times, and collection efforts should never be abusive or coercive. Good practices are available to help institutions achieve a collections system that is both effective and ethical. Conclusion Call to Action: What next steps can your institution take to create a corporate culture that values high ethical standards among staff? What next steps can your institution take to improve collections practices?

20. 20 Feedback from Participants Endorse the Smart Campaign. Visit www.smartcampaign.org Sign up to receive news and information. Download the Getting Started Questionnaire and conduct a client protection self-assessment.Getting Started Questionnaire What’s next? Email us! comments@smartcampaign.org