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Contents Foreword.................................................................................................................................................v Responsible Finance Forum and the Community of Practice.............................................................. vi Acronyms............................................................................................................................................... vii Acknowledgements............................................................................................................................... ix About this Report.................................................................................................................................. xi Introduction............................................................................................................................................ 1 Chapter 1: Emerging Trends.................................................................................................................. 3 Consumer Protection Regulation.......................................................................................................... 3 Financial Institutions’ Self-Regulation.................................................................................................... 4 Financial Education............................................................................................................................... 5 Emerging Challenges and Issues........................................................................................................... 5 Enabling Infrastructure – Support to Responsible Finance..................................................................... 6 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives................................ 7 Introduction......................................................................................................................................... 7 Initiatives that Set the Policy Framework at the Global and National Levels........................................... 7 Consumer Protection Regulation.......................................................................................................... 7 Financial Institutions’ Self-Regulation Initatives................................................................................... 11 Financial Education............................................................................................................................. 17 Chapter 3: Case Studies....................................................................................................................... 23 Emerging Evidence: Themes and Lessons............................................................................................ 24 Responsible Finance in Eastern Europe and Central Asia: Measuring Over-indebtedness...................... 25 Bosnia and Herzegovina: U-Plusu—An Innovative Approach in Hard Times......................................... 26 Ghana: Promising Results from a Concerted Approach with Multiple Stakeholders............................. 28 Pakistan: Shaping a Responsible Finance Vision for the Microfinance Industry..................................... 30 Indonesia: Private Sector Engagement in Financial Education for Microinsurance................................ 33 China: Ombudsman Scheme with the Securities Regulatory Commission............................................ 34 Philippines: Bangko Sentral ng Pilipinas and Consumer Protection...................................................... 36 India: A Comprehensive Approach across all Three Pillars of Responsible Finance................................ 39 iii Progress in Responsible Financial Inclusion Chapter 4: Microinsurance: Emerging Focus...................................................................................... 43 Consumer Protection Regulation........................................................................................................ 43 Financial Institutions’ Self-Regulation.................................................................................................. 44 Financial Education............................................................................................................................. 44 Responsible Finance Forum IV – Focus on Microinsurance................................................................... 45 Conclusions........................................................................................................................................ 46 Chapter 5: Looking Forward............................................................................................................... 47 Consumer Protection Regulation........................................................................................................ 47 Financial Institutions’ Self-Regulation.................................................................................................. 47 Investors Well-Positioned in Responsible Market Building.................................................................... 48 Financial Capability Gaining New Ground in New Places..................................................................... 49 Building Capacity Across the Pillars of Responsible Finance................................................................. 50 References............................................................................................................................................ 51 Endnotes............................................................................................................................................... 55 Compendium: Global Mapping Survey Respondents 2013.............................................................. 61 Intergovernmental Organizations ...................................................................................................... 65 Donors and Investors.......................................................................................................................... 65 International Support Networks.......................................................................................................... 89 National Support Networks................................................................................................................ 97 Research, Advocacy and Consulting Organizations............................................................................. 98 Rating Agencies............................................................................................................................... 100 Microfinance Institution Affiliate Networks....................................................................................... 102 Financial Services Providers............................................................................................................... 103 Figures and Boxes Figure 1: Responsible Finance: A Multistakeholder (Three-Pillar) Approach............................................ 1 Box 2.1: Summary of G-20 High-Level Principles on Financial Consumer Protection.............................. 8 Figure 2.1: Responsible Financial Inclusion Strategies............................................................................ 9 Box 2.2: Mexico’s National Commission for the Defense and Protection of Financial Consumers......... 10 Figure 2.2: Alliance for Financial Inclusion Members: Maya Declaration.............................................. 11 Figure 2.3: Universal Standards for Social Performance Management.................................................. 12 Figure 2.4: The Smart Campaign Certification.................................................................................... 13 Figure 3.1: IFC Survey Tool for Determining Over-indebtedness........................................................... 25 Figure 3.2: Securities Association of China Mediation Scheme............................................................ 36 Box 3.1: The Philippines’ Truth in Lending Act.................................................................................... 38 Box 4.1: Global Index Insurance Facility.............................................................................................. 45 iv Foreword With more than 2.5 billion people and over 200 million businesses still lacking access to basic financial services in much of the developing world, increasing access to finance remains an enormous challenge. The financial sector, and microfinance in particular, have seen tremendous growth, but intense competition in some markets has provoked over-indebtedness and resulted in crises in countries such as Bosnia and Herzegovina, India, and Nicaragua, while signs of overheating are emerging in other markets. The recurrence of financial crises, the most recent one in 2008, has underscored the importance of accountability and transparency for a more stable and resilient financial services sector. In recent years, responsible finance has emerged as a cornerstone to refocus on the needs of end-clients to ensure sustainable growth across the financial sector. Through a set of operational practices that have the end-client needs at the core, responsible finance encompasses such concepts as disclosure, fairness of pricing, dignified treatment of customers, as well as ensuring product and services quality. There is now broad recognition in the development community that private sector led growth contributes significantly to poverty alleviation. By embedding the principles of responsible finance into the core delivery of financial services, financial institutions can provide low-income households broader access to essential goods and services, and contribute toward wider economic growth. Efforts in the fields of financial consumer protection regulation, self-regulation by financial institutions, and financial education have shown great successes, but huge challenges remain. IFC’s Responsible Finance Program and BMZ—the German Federal Ministry for Economic Cooperation and Development, play a global convening role, bringing together participants from the financial sector, bilateral and multilateral donors, and the broader international community through the Global Partnership for Financial Inclusion of the G-20. As founding members of the sectorwide Responsible Finance Forum in 2010, both IFC and BMZ are committed to continue working with the international development finance community to expand responsible access to financial services globally. Sincerely, Susanne Dorasil Peer Stein Head, Economic Policy, Financial Sector Director, Access to Finance BMZ IFC Advisory Services v Progress in Responsible Financial Inclusion A Community of Practice The Responsible Finance Forum (RFF) is an 2013. The Community of Practice includes a growing interinstitutional Community of Practice for knowledge number of bilateral and multilateral donors, development exchange and consensus building on responsible finance. finance institutions, implementing agencies and service Founded by the German Federal Ministry for Economic providers, and financial sector stakeholders. The main Cooperation and Development (BMZ), the Consultative supporters of the RFF are the Dutch Ministry of Foreign Group to Assist the Poor (CGAP), and the International Affairs, BMZ, CGAP, and IFC. Finance Corporation (IFC), RFF is the first joint platform to support the efforts of participating institutions in the In keeping with the vision of the community of practice, development community and provide space to: in advance of each RFF, a thorough stocktaking and report was prepared. In January 2011, RFF II produced the second • Share knowledge and information on ongoing stocktaking report, Advancing Responsible Finance for initiatives and potential collaborations; Greater Development Impact. • Build on the responsible finance frameworks developed to date, foster a broad-based dialogue This report, Progress in Responsible Financial Inclusion, the on this concept among stakeholders, and facilitate third stocktaking report, is a joint effort of the community convergence of views; of practice. It provides a deeper look at the implementation • Gather and disseminate insights on current practices of responsible finance principles across the three pillars: and topics in responsible finance, and; highlighting emerging trends in consumer protection • Support coordinated action in the longer term. regulation, financial institutions’ self-regulation, and financial education through case studies selected on the Since 2009 four RFFs have been convened. The first was basis of initial results and potential for scalability, with some held in January 2010 in Berlin, followed by RFF II in The early results. Additional areas of emerging innovation and Hague in January 2011, RFF III in Washington D.C., in focus are addressed. April 2012, and the most recent, RFF IV in Berlin in June vi Acronyms A2ii Access to Insurance Initiative AFD Agence Française de Développement (French Development Agency)  AFI Alliance for Financial Inclusion BMZ Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (The German Federal Ministry for Economic Cooperation and Development) BNM Bank Negara Malaysia BSP Bangko Sentral ng Pilipinas (Central Bank of the Philippines) CEMC Consumer Empowerment and Market Conduct CFI Center for Financial Inclusion CGAP Consultative Group to Assist the Poor CNBV Comisión Nacional Bancaria y de Valores (Mexico) Mexico’s National Banking and Securities Commission CONDUSEF Comision Nacional para la Proteccion y Defensa de los Usuarios de Servicios Financieros (Mexico) Mexico’s National Commission for the Defense and Protection of Financial Consumers CPP Client Protection Principles CSRC China Securities Regulatory Commission DFID Department for International Development (United Kingdom) FCP Financial Consumer Protection FI Financial Institution FMO Netherlands Development Finance Company  FSP Financial Services Provider GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH GPFI G-20 Global Partnership for Financial Inclusion G-20 Group of Twenty Finance Ministers and Central Bank Governors IAIS International Association of Insurance Supervisors ICPs Insurance Core Principles IFC International Finance Corporation ILO International Labour Organisation INFE International Network on Financial Education KfW KfW Bankengruppe vii Progress in Responsible Financial Inclusion MFA Microfinance Association MFI Microfinance institution MFO Microfinance Opportunities MFP Microfinance providers MFT Microfinance Transparency MNO Mobile network operator NGO Nongovernmental organization OECD Organisation for Economic Co-operation and Development PIIF Principles for Investors in Inclusive Finance PRI Principles for Responsible Investment PMN Pakistan Microfinance Network RFF Responsible Finance Forum SAIA South African Insurance Association SEEP SEEP Network SPTF Social Performance Task Force SSB Standard Setting Body USSPM Universal Standards for Social Performance Management viii Acknowledgements This report is a joint product of the German Federal Ministry for Economic Cooperation and Development (BMZ), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the International Finance Corporation (IFC). The report was prepared under the supervision of a joint team led by Karen Losse from GIZ and Lory Camba Opem from IFC – with a core team including Mohini Bhatia (IFC), Kathleen Welvers (GIZ) and Maelis Carraro (IFC). Heather Clark, an independent consultant, conducted the global mapping survey (Annex II) and authored this report. The report was shared with the RFF Community of Practice in Berlin in June 2013, and their inputs are reflected in the final contents of this report. BMZ, GIZ and IFC thank individuals and organizations who responded to the survey and provided insights through interviews and shared their experiences through in-depth Case Studies, including Ajla Mostarac, U-plusu Bosnia and Herzegovina; Eliki Boletawa and Peter Foster, Alliance for Financial Inclusion; Jennifer Isern and Girish Bhaskaran Nair, IFC South Asia; Martin Hintz, Allianz SE; Natasa Goronja and Rolf Behrndt, IFC Eastern Europe and Central Asia; Nejira Nalic, Mi-Bospo; Thorsten Giehler and Marc-Andre Zach, GIZ China; Torsten Schlink and Maria Vitores, GIZ Ghana and GOPA Consulting; and Zahra Khalid, Pakistan Microfinance Network. We also thank our peer reviewers who provided more nuanced comments throughout the report, namely: Eliki Boletawa, Alliance for Financial Inclusion (AFI); Kate McKee, Consultative Group to Assist the Poor (CGAP); Monique Cohen, Microfinance Opportunities; Florian Henrich, GIZ; and Gilles Jacques Galludec and Martin Holtmann, IFC. ix About this Report This report aims to stimulate discussion on the ongoing industry debate, challenges and the growing benefits of financial sector stakeholders working together to serve clients responsibly1. It updates global responsible finance initiatives and builds on previous stocktaking reports2 to take a deeper look at implementation of responsible finance principles across the three pillars, highlighting emerging trends in consumer protection regulation, financial institutions’ self-regulation, and client financial education. This report is based on the global mapping methodology and reflects responses received from a survey of the community of practice. The following organizations, industry associations, investors and donors, and global support networks responded to the survey. Appui au Développement Autonome (ADA), Alliance for Financial Inclusion (AFI), Allianz SE, Agence Française de Développement (AFD), Azerbaijan Micro-Finance Association, Bamboo Finance, Comité d’Echanges de Réflexion et d’Information sur les Systèmes d’Epargne-crédit (CERISE), CGAP, Chemonics International, Citibank Foundation, Cordaid, Development International Desjardins, Dutch Ministry of Foreign Affairs, FinMark Trust, GIZ, Grassroots Capital Management, IFC, KfW Entwicklungsbank, MasterCard Foundation, MCC MIKROFIN (Bosnia and Herzegovina), MCF EKI (Bosnia and Herzegovina), MI-BOSPO (Bosnia and Herzegovina), MicroCred S.A, Microcredit Foundation LIDER (Sarajevo), Microcredit Summit Campaign, MicroEnsure, Munich Re Foundation, the Organisation for Economic Co-operation and Development (OECD), Opportunity International, Rural Bankers’ Association of the Philippines, Microenterprise Access to Banking Services for the Phillipines (MABS), Savings Banks Foundation for International Cooperation, Social Performance Task Force, Principles for Responsible Investment, the SEEP Network, and the World Bank. Survey participants were asked to describe their responsible finance initiatives, and nominate innovative cases across the three pillars that could be featured in the report. Case studies were selected from the responses to the global mapping survey. The criteria for case selection for this report included: (1) initial implementation results; (2) emerging evidence and lessons learned; (3) potential for scale and replicability; and (4) a balance of initiatives across the three pillars. Case study contributors were interviewed to provide insights, challenges, and key lessons learned. The report also includes case studies from the global mapping and other sources that illustrate topics discussed. The global mapping exercise showed several encouraging trends across the three pillars of responsible finance that respond to challenges identified during Responsible Finance Forum III.3 xi Introduction Responsible Finance refers to “coordinated public and across strategy and governance, customer acquisition and private sector interventions that encourage and assist relationship management, product design and delivery financial services providers and their clients in improving channels, processes and risk management, and financial their understanding and approaches, practices, and education. behaviors to create more transparent, inclusive, and 3. Financial Education: the process by which financial equitable financial markets balanced in favor of all income consumers and investors improve their understanding groups.”4 Responsible Finance brings the focus back to the of financial products and of concepts and risks; and, needs of the end-beneficiary clients by operationalizing through information, instruction and/or objective practices that promote a more transparent, inclusive, client- advice, develop the skills and confidence to become centric, and equitable delivery of financial products and more aware of financial risks and opportunities to make services. Responsible finance is advanced through actions informed choices, know where to go for help, and take across three pillars. other effective actions to improve their financial well- 1. Consumer Protection Regulation: designing and being.5 Financial education covers financial awareness implementing industrywide customer protection and financial capability. regulation around principles of transparency; responsible pricing; fair and respectful treatment of clients; privacy The “three-pillar framework,” is more likely to result in of client data and mechanisms for complaint resolution. success when combining multiple initiatives rather than relying on one action by a single stakeholder (Figure 1). 6 2. Financial Institutions’ Self-Regulation: embedding responsible finance practices into business functions Figure 1: Responsible Finance: A Multistakeholder (Three-Pillar) Approach Areas of 1. Consumer Protection (regulations): A regulatory framework for financial consumer protection, at both national Action and international levels 2. Responsible Providers: Voluntary commitments, practices, standards, and initiatives in the financial sector (individually and at industry level, nationally and internationally) 3. Financial Capability: Interventions aimed to build and enhance financial capability of financial institutions clients— the consumers of financial products and services Key Providers of financial services— Regulators (central banks, Consumers—individuals and Stakeholders banks, MFIs, NBFIs, other— financial regulators, consumer businesses—and advocacy and their associations protection agencies) organizations Cross-Cutting Financial markets stability, poverty reduction, access to finance, job creation and SME development, health and Issues education, sustainable development Source: IFC, CGAP, and BMZ 2011; Stein, Randhawa, and Bilandzic 2011, 30; CGAP 2011, 2-3. 1 CHAPTER 1 Emerging Trends Building on prior years, the emerging trends over the Consumer Protection Regulation past year include a move toward explicit articulation and Emerging trends related to the regulatory environment for implementation of responsible finance principles into financial consumer protection, the first pillar, are described practice. The main tenet of financial inclusion is expanded below. access and use of financial services. Well-designed and customer-centric products can deliver benefits, often on • National financial sector regulatory regimes for a very large scale, without users having to increase their consumer protection are being strengthened, financial capability. However, stakeholders are discovering sometimes with mutually reinforcing industry self- that financial inclusion, when delivered in combination regulation approaches. This year, the trend continues with financial education, has greater customer uptake. to broaden to include more countries that have made Increasingly stakeholders are aware of the need to define commitments under the Maya Declaration and address and provide quality services and address consumer explicit measures to improve financial consumer awareness and financial capability, despite the challenges. protection11. Over 40 Alliance for Financial Inclusion Recent research7 explores these approaches, and some (AFI) member countries have committed to 4 principles Responsible Finance Forum (RFF) survey respondents8 that cover (1) creating an enabling environment for new noted that although financial inclusion without financial technology, (2) establishing proportionate regulatory education may increase the number of clients, many of frameworks, (3) conducting consumer protection and them may not have basic literacy levels or financial skills education, and (4) collecting data. (See Chapter 2.) to make informed choices.9 Full information on a product Results of the upcoming World Bank - FinCoNet is often not provided — raising the issue of how well the Global Survey for Financial Consumer Protection will interface functions between financial service providers’ give more insights on the status of implementation of (FSP) front-line staff and clients.10 Chapter 2 discusses consumer protection regulation.12 global initiatives, trends, and challenges associated with • International support is growing for strengthening each responsible finance pillar (see Figure 1) with a focus consumer protection regulatory environments and on the last 18 months. These trends are reflected in country establishing global regulatory regimes. This support case studies in Chapter 3. Chapter 4 focuses on an emerging includes formulation of the “G-20 High Level Principles area of work, microinsurance. Chapter 5 presents the way on Financial Consumer Protection”; formalization of forward and identifies areas that require ongoing efforts. the network of market conduct supervisors (FinCoNet); Two Annexes provide resources, guidelines, and toolkits, guidance from global financial standard setting along with a compendium of institutions working actively bodies (SSBs) such as the International Association of on responsible finance initiatives (the list of institutions is Insurance Supervisors (IAIS); practical application of limited to those that provided information). core principles for inclusive finance (CPIs); and related work under the umbrella of the Global Partnership for Financial Inclusion (GPFI) of the G-20. This trend is also evident in the attention to consumer protection in Maya Declaration commitments (beginning in 2011), and in the development of frameworks and tools (for examples, 3 Progress in Responsible Financial Inclusion see the treatment of consumer protection regulation in include the Smart Campaign’s launch of the Client the World Bank’s Financial Inclusion Strategies Reference Protection Principles (CPPs) certification program (to Framework13 and regulatory and supervision tools from complement its assessment and implementation toolkits CGAP14). The engagement with the financial standard- for practitioners, associations, and funders), the UN setting bodies, including on responsible finance and “Principles for Investors in Inclusive Finance (PIIF)” financial consumer protection,15 and following the G-20 endorse the “Principles for Responsible Investment Principles for Financial Inclusion (2010),16 are other (PRI),” as well as the “Universal Standards for Social examples of growing support. Regulators are looking Performance Management (USSPM)” released by the more closely at ways to make disclosure regimes more Social Performance Task Force (SPTF) in June 2012. effective. The agenda examines the extent to which Adoption of industry-led client protection initiatives in disclosure can improve outcomes, including reforms microfinance has grown significantly at the global and that enable users of financial services to receive clearer, national levels. National initiatives also show a trend simpler, and more transparent information on which toward a unified set of principles; for example, the to base good decisions. An underlying concern is that Pakistan Microfinance Network (PMN) seeks to shape consumers are not able to take full advantage of past a responsible finance vision for Pakistan’s microfinance disclosure efforts either because of poorly designed industry, and India’s two national microfinance industry efforts or because of clients’ low literacy rates and/or associations, Microfinance Institutions Network (MFIN) low financial capacity. There is greater recognition that and Sa-Dhan, agreed to adhere to a harmonized code disclosure measures can only go so far: they are more of conduct for all microfinance institutions (MFIs) in likely to be effective when reinforced by well-designed India. (See case study in Chapter 3.) consumer research and financial education initiatives as • The industry expects more rigor and accountability well as by incentives to make financial institutions more to ensure that practice reflects principles. The transparent. development and use of tools, tool kits, and capacity- • Multiple stakeholder consultation processes became building programs support these efforts. Initiatives more common, within and among all pillars, but include the Microinsurance Networks’ newly released especially in consumer protection regulation. “Social Performance Indicators for Microinsurance” and Recognition is growing that stakeholder consultation tools based on the USSPM (which fully incorporate the is essential to successful implementation of policy and CPPs and other industry standards.18 (See Chapter 2.) regulatory reforms. Examples include loan disclosure • On the investor side, positive initiatives match sheet reforms in the Philippines and consultative principles and practice. Initiatives use deliberate processes for regulatory frameworks for mobile financial actions to demand more accountability and are aided services (MFS) in Kenya, Latin America, and the Pacific by tools, such as CGAP’s investor guide19 and investors’ Islands.17 tools to deepen capability of institutions to implement responsible finance in operations.20 The PIIF piloted Financial Institutions’ Self-Regulation reporting requirements for its investor signatories Increasingly there is a stronger demand, predominantly in and developed a new reporting framework for the microfinance sector, for accountability and uniformity in implementation in 2013. In addition, an investor group quality and delivery of financial services to ensure responsible launched new guidelines to avoid over-indebtedness and finance principles are reflected in practice. Initiatives under better harmonize due diligence and investee reporting the second pillar include: requirements21. • Efforts are being made to consolidate and bring • Investors are increasingly concerned about building consistency to principles and frameworks, one of the healthy financial markets and institutions. The key issues discussed at the Responsible Finance Forum PIIF engages investors and their clients in mutual III (RFFIII), hosted by the International Finance accountability relationships to promote responsible Corporation (IFC) in April 2012. Global initiatives practices throughout the financial market. IFC’s work 4 Chapter 1: Emerging Trends emphasizes capacity building and implementation of implement the Organization for Economic Co-operation responsible finance. Other examples include private and and Development’s International Network on Financial public investors working: (1) in the Kyrgyz Republic Education (OECD/INFE)‘s “High-Level Principles on with MFIs to develop a responsible lender charter; (2) National Strategies for Financial Education,” which were with the Cambodia Microfinance Association and several endorsed by Group of Twenty (G-20) leaders in June leading MFIs and banks to prepare for certification using 2012. the Smart Campaign methodology, including supporting • An increasing trend is to search for models that are research22 and providing technical assistance to upgrade cost-effective, can reach scale, and keep the client at systems and practices; and (3) in Bosnia and Herzegovina the center. Financial education is an important tool to and India to support marketwide initiatives. (See case address the imbalance between the consumer and the studies on Eastern Europe and Central Asia, Bosnia and provider and help consumers access, use, and benefit Herzegovina, and India in Chapter 3.) from products and services. Financial education is in tandem with consumer protection because it can help Financial Education clients develop skills to compare and select the best products for their needs and empower them to exercise Challenges faced over the last year raised questions their rights and responsibilities. Practitioners see financial including: what do we mean by “financial education”? What education more broadly, as a means for people to better programs and policies are likely to be effective? How do we manage their lives, going beyond consumer protection. measure impact? What is an appropriate role for financial Properly designed, financial education is tailored to institutions? clients’ specific contexts, helping them understand the • As experience increases, national consumer research way financial instruments can address their financial begins to address these questions. Colombia, Kenya, concerns, from daily cash-flow management to planning Mexico, Peru, Tanzania, and the Philippines, among for emergencies to managing risk. others, champion these efforts. Research, such as Citi Foundation’s 2012 “Bridging the Gap” report,23 Emerging Challenges and Issues Microfinance Opportunities’ (MFO) collaboration with Consumers International, and the Russia Financial Despite impressive progress, global experience in responsible Literacy and Education Trust Fund have generated useful finance implementation demonstrates that challenges tools, research, and metrics for financial education.24 remain, 25 especially around the need for increased capacity The private sector is also engaged; for example, Allianz building and dedicated resources across all three pillars. SE pilots an insurance financial education initiative in These challenges are discussed in Chapter 2. Specific Indonesia. (See case study in Chapter 3.) These initiatives challenges across the pillars are highlighted below. are backed by an array of toolkits, data banks, metrics, and research. Consumer Protection Regulation • Financial education is increasingly on the agendas Consumer protection regulation is just being of governments, nongovernmental organizations introduced in many countries. Key challenges include (NGOs), and the private sector. It is also mandated (1) matching regulators’ capacity with intent and mandate, by some central banks and financial-sector regulators. (2) coordination across agencies for implementation, This year, we note that financial education is increasingly supervision, and enforcement of consumer protection tied to consumer protection frameworks and financial regulation, which is less advanced in many countries, institutions’ self-regulation. (see case study on Ghana in meaning that incentives for financial service providers to Chapter 3.) Consumer financial capacity is becoming comply with regulations may be weak; and (3) developing widely recognized as an indispensable component of any a framework for supporting financial infrastructure (e.g., consumer protection regime, not merely a complement. credit bureaus), which is also limited in most countries. Governments and other stakeholders engage actively to 5 Progress in Responsible Financial Inclusion Financial Institutions’ Self-Regulation or a combination of stakeholders? Evaluation of financial education and awareness initiatives has been stepped up in The business case for responsible finance demonstrates the past few years27 to better inform these debates. the long-term viability and sustainability for financial institutions and is increasingly being understood by not only the microfinance community, but beyond within Enabling Infrastructure – Support to the financial sector. One such example is the “Treating Responsible Finance Customers Fairly (TCF)” guidelines which apply to all An enabling environment is critical to ensure responsible companies in the United Kingdom (UK) were instituted finance principles have an appropriate environment in by the UK Financial Conduct Authority in 2006, prior which to take root and have sustainable impact on the to the financial crises. Many stakeholders, especially those sector. This environment includes an effective credit that have survived crises and are committed to customer- reporting system, well-functioning credit bureaus with centric principles, consider it “a way of life.”26 However, efficient sharing of information across institutions, as well the up-front investment costs and resources needed as an emphasis on risk management within institutions. to implement responsible finance practices are often a Credit reporting addresses a fundamental problem of credit deterrent to financial institutions. The up-front investment markets: asymmetric information between borrowers and compared with the long-term payback impacts institutional lenders leading to adverse selection, credit rationing, and growth and sustainability. Implementing a management- moral hazard. IFC has been an international leader in the driven, sustainable approach based on a code of conduct development of credit reporting systems, providing support requires a fine balance between responsibly scaling up in more than 60 emerging markets worldwide since the financial inclusion and managing medium-term growth late 1990s, prior to the global financial crises including in and returns. Where regulations, industry codes of conduct, Bangladesh, Cambodia, Ethiopia, Tonga, the Caribbean and/or financial infrastructure, such as credit bureaus and and more. In India, with IFC support, two bureaus, High registries, are weak or nonexistent, institutions’ emphasis Mark and Equifax, now provide credit reporting services for on growth alone can impede implementation of responsible the clients of microfinance institutions with over 95 million finance principles. records, making it the largest database in the world. Financial Education The first universal standards on credit reporting, the For financial service providers, perhaps the biggest question “General Principles for Credit Reporting” were published is how to improve clients’ understanding, skills, and behavior in September 2011, following two years of deliberations reliably, at scale, and in a cost-effective way. Stakeholders by an international task force, including IFC28. Credit more broadly want to determine to what extent responsibly information sharing is critical for tackling some of the designed and delivered products can benefit clients in the issues underpinning the latest financial crises including the absence of investment in financial education. These debates development of more inclusive credit reporting systems for would benefit from input from financial consumer and small and medium enterprises (SMEs) and microfinance advocacy organizations, which are, however, relatively institutions; better utilization of credit information data by scarce and under-resourced in most developing countries. prudent supervisors; and financial education and literacy Another key issue is who should pay for different types of on credit and credit reporting, targeted at supervisors, consumer awareness and financial education interventions: regulators, lenders, and indirectly, end-users or borrowers. individual providers, industry associations, governments, 6 CHAPTER 2 Progress and Challenges in Global Responsible Finance Initiatives Introduction Initiatives that Set the Policy Financial inclusion is high on the agenda of policy makers, Framework at the Global and funders, and practitioners. An increase in access to finance National Levels offers households and businesses many benefits, such as asset The G-20 High-Level Principles on Financial Consumer building, better risk and money management, consumption Protection29 consist of 10 principles summarized in Box 2.1. smoothing, and gains in efficiency. It also contributes to They are broadly consistent and aligned with responsible the broader economy through job creation and tax revenue. finance trends described in this report,30 including the Access to finance is justified on growth and equity grounds recognition that financial consumer protection is a main and is compatible with stability objectives when services element of regulation and supervision and should be are designed and delivered responsibly. Adoption and use reinforced and integrated with other financial inclusion and of services, even those that are designed and delivered financial education policies. The 10 G-20 principles include responsibly, are likely to be suboptimal if consumer a call for a greater role for financial consumer protection confidence and trust is low. Initiatives within each of the oversight bodies with sufficient authority and resources to three pillars can boost confidence and trust, a key way that carry out their missions. Many countries have taken up this responsible finance advances financial inclusion efforts. call to action.31 Policy makers and others see the links between responsible A white paper prepared by CGAP on behalf of GPFI32 finance and financial inclusion. More attention is paid to offers guidance to standard-setting bodies on the relevance financial consumer protection (FCP) policy and regulation of financial inclusion for their mandates and provides and understanding is growing that disclosure alone will opportunities to explore those linkages, including the rarely compensate for low levels of financial capability contribution of financial inclusion and protection measures or customer inexperience with financial services. Policy to the traditional core mandates of financial stability and makers are also seeking ways to improve disclosure regimes integrity.33 It is also noteworthy that the International through research on financial consumer and financial Association of Insurance Supervisors (IAIS) recently issued institution behavior. Finally, the role of financial capability updated “Insurance Core Principles” (ICPs). IAIS’s mission is acknowledged throughout guidelines and integrated is to promote effective and globally consistent supervision into policy implementation and standards setting, just of the insurance industry to develop and maintain fair, safe, as the state of knowledge and practice about what works and stable insurance markets for the benefit and protection well, when, where, and for whom is still evolving. This of policyholders (including microinsurance policy holders); chapter discusses recent progress in the three pillars. It and to contribute to global financial stability. 34 notes promising developments and discusses key challenges within each pillar. Consumer Protection Regulation Policy makers and regulators engaged in developing financial inclusion strategies note the value of improved financial consumer protection regulation and 7 Progress in Responsible Financial Inclusion Box 2.1: Summary of G-20 High-Level Principles on Financial Consumer Protection 1. Legal, regulatory, and supervisory framework: 6. Responsible business conduct of financial services Integrate financial consumer protection into frameworks providers and authorized agents: Financial services in a proportionate way and a consultative manner. providers and authorized agents should work in the best interest of their customers and be responsible Role of oversight bodies: Assign oversight 2. for upholding financial consumer protection. bodies to be explicitly responsible for financial consumer Financial services providers should be responsible and protection with the necessary authority to fulfill their accountable for the actions of their authorized agents. mandates. Encourage a level playing field across services and cooperation among oversight bodies. 7. Protection of consumer assets against fraud and misuse: Relevant information, control and protection Equitable and fair treatment of consumers: 3. mechanisms should protect consumers’ deposits, Ensure consumers are treated equitably, honestly, and savings, and other similar financial assets against fraud, fairly at all stages of their relationship with financial misappropriation, or other misuses. service providers and pay special attention to the needs of vulnerable groups. 8. Protection of consumer data and privacy: Protect consumers’ financial and personal information by 4. Disclosure and transparency: Provide consumers defining the purposes for which data may be collected, with key information about the benefits, risks, and processed, held, used, and disclosed (especially to third terms of the product, including conflicts of interest parties). Acknowledge the rights of consumers to be associated with the authorized agent through which the informed about data sharing, to access data, and to product is sold. Ensure financial promotional material obtain prompt correction and/or deletion of inaccurate, is accurate and understandable and not misleading. or unlawfully collected or processed data. Adopt standardized pre-contractual disclosure practices to allow comparisons among products and services. 9. Complaints handling and redress: Ensure consumers Conduct consumer research to help determine and have access to adequate complaints handling and improve the effectiveness of disclosure requirements. redress mechanisms that are accessible, affordable, independent, fair, accountable, timely, and efficient. Financial education and awareness: Promote 5. financial education and awareness. Ensure consumers 10. Competition: Promote competitive markets that can access clear information on rights and responsibilities. provide consumers with greater choice among financial Develop mechanisms to help existing and future services and ensure providers offer competitive consumers develop knowledge, skills, and confidence to products, enhance innovation, and maintain high appropriately understand risks and opportunities, make quality service. Consumers should be able to search, informed choices, know where to go for assistance, compare, and where appropriate, switch between and take effective action to improve their financial products and providers easily and at reasonable and well-being. disclosed costs. Source: OECD 2011. supervision. One aim of widespread reforms in disclosure mechanisms, as well as creating or improving third-party regimes is to ensure that financial service providers (FSPs) dispute resolution options such as financial ombudsmen. provide information to end-clients in a transparent manner Fair treatment—ranging from responsible lending to sales to enable them to make well-informed decisions about how and collection practices to staff ethics—is another major best to manage and use financial services. Complaints- area receiving more attention. The World Bank’s newly handling and redress is another common area of focus for released Financial Inclusion Strategies Reference Framework35 regulation and supervision, with different jurisdictions provides practical advice on ways to implement the focusing on strengthening service providers’ internal concepts. The Principles and Good Practices for Financial 8 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives Consumer Protection,36 also from the World Bank, provides financial knowledge or inexperience, or be sufficient on a comprehensive diag­ nostic tool to help identify consumer their own. protection issues in all parts of the financial sector. Guidance from AFI, CGAP and others offers policy advice tailored to Disclosure regimes have rarely been designed and the circumstances of lower-access markets, where regulatory implemented in ways that are sufficiently informed by and supervisory capacity is typically more limited than in the specific circumstances of poorer and more vulnerable more developed countries. consumers. Efforts are underway to design a next generation of more effective disclosure requirements. Many respondents to the mapping survey agree that Experiences in Mexico (see Box 2.2) and the Philippines measures to strengthen consumer protection, enforcement (see case in Chapter 3) illustrate innovations and challenges and to raise financial consumer awareness and capability in reforming disclosure regimes. need to be introduced alongside or as part of financial inclusion strategies.37 (See Figure 2.1) The Citi Foundation’s Lack of enforcement complicates consumers’ ability to 2012 study, Bridging the Gap: The Business Case for Financial make informed choices. For example, a study found that Capability, notes, “where consumers are not well protected 60–80 percent of Indian insurance agents recommended or unable to make informed decisions or where products or unsuitable high-commission products, and that institutions are not well monitored, the impacts of financial requiring commission disclosures for one product led inclusion can be reduced or even negative.”38 agents to recommend other products without disclosure requirements.39 This experience raises the issue of conflict Disclosure Reforms Get More Attention of interest in the way staff and agents are compensated and it effects on consumer protection. In addition, many staff Policy makers are paying increasing attention to consistent and agents who interface with customers cannot adequately disclosure requirements across financial products as essential explain products and terms, as recent research in Mexico for consumer protection. They also recognize that such illustrates. (See Box 2.2) measures may not compensate for limitations in consumer Figure 2.1: Responsible Financial Inclusion Strategies 4 Consumer Protection and Financial Literacy help build public confidence, and raise demand for financial services 4 Disclosure and transparency promote financial inclusion, lower risk, and can stimulate competition 4 Financial Literacy enables consumers to benefit from financial decisions FINANCIAL INCLUSION COMBINED WITH FINANCIAL FINANCIAL INCLUSION CAPABILITY, CONSUMER PROTECTION Examples of how Households/Firms can benefit Examples of how Households/Firms can benefit • MICROINSURANCE: Microenterprises able to buy • MICROINSURANCE: Microenterprises able to understand insurance that reduces exposure to potential losses and the risks covered, cost of premium compared to potential enables business gowth benefit, select the most appropriate product • BASIC BANK ACCOUNTS: Low income households • BASIC BANK ACCOUNTS: Low income households able able to open a ‘no frills’ bank account, accessed through to select bank account that meets their needs and enables a mobile phone or ATMs, to save, receive remittances, them to lower financial transaction costs, and avoid make payments hidden charges or excessive debt with credit cards • REGULATORY REFORMS: Regulators introduce reforms • REGULATORY REFORMS: Regulators better understand to promote innovation by financial institutions to serve and accommodate the level of understanding of lower income clients consumers, ensuring that reforms have the maximum impact on the intended consumers Source: World Bank 2012b. 9 Progress in Responsible Financial Inclusion Consumer research is being undertaken to prioritize consumer protection measures and strengthen their Box 2.2: Mexico’s National Commission for the design and implementation. Several government agencies, Defense and Protection of Financial Consumers such as Mexico’s National Banking and Securities Commission (Comision Nacional Bancaria y de Valores; A studya commissioned by Mexico’s National Bank- CNBV) and National Commission for the Defense and ing and Securities Commission (Comision Nacional Protection of Financial Consumers (CONDUSEF), and Bancaria y de Valores; CNBV) in collaboration with the Central Bank of the Philippines (Bangko Sentral ng its National Commission for the Defense and Protec- Pilipinas; BSP) are undertaking full-fledged research efforts tion of Financial Consumers (Comision Nacional para la Proteccion y Defensa de los Usuarios de Servicios to understand consumer and financial institution staff Financieros; CONDUSEF) evaluates the effectiveness behavior and how to improve the disclosure environment of Mexico’s credit disclosure reforms on consumer and customer comparison shopping. The research also understanding and financial decision making. Early examines whether simple and targeted educational efforts findings suggest that financial service provider staff (e.g., SMS reminders) affect consumers’ ability to make members appear to be misinformed about many of sound financial decisions. (See case studies on Ghana and the characteristics of the products offered, do not of- the Philippines in Chapter 3.) ten provide voluntary information, and do not know or could not adequately explain potentially confus- A positive recent trend toward “responsible financial ing terms to customers. Second, the study notes that inclusion” is supported by the Alliance for Financial disclosure and transparency policies are difficult to Inclusion Members (AFI) and the peer-to-peer working implement successfully because financial institutions groups of central bankers, regulators, and policy makers. have a strong incentive to undo them. Third, disclo- In 2011, AFI launched the Consumer Empowerment and sure policies alone are insufficient to correct for the lack of consumer knowledge and information. Finally, Market Conduct (CEMC) Working Group, which serves effective enforcement of disclosure requirements lags as a platform for policymakers to develop a common behind setting policies and regulatory requirements. understanding of good practices and adopt cost-effective policy tools at national levels and within the broader Notes: a. Xavier Giné, Cristina Martinez de Cuellar, Rafael Kennan Mazer, February 2013. “The Quality of Financial Services: Evidence international context. from an Audit Study in Mexico” The Maya Declaration The Maya Declaration (2011), the AFI member commitment such as savings, credit, and insurance, will spur large to financial inclusion, is applauded and valued as the first socioeconomic gains by increasing access and lowering global and measurable set of commitments by developing costs of financial services. and emerging country governments to address responsible • Developing proportionate regulatory frameworks. financial inclusion. The Maya Declaration has been Implementing a proportionate regulatory framework endorsed by 108 countries, representing over 75 percent strengthens connections between financial inclusion, of the world’s unbanked population (see Figure 2.2). Over integrity, and stability. 40 Alliance for Financial Inclusion (AFI) member countries have committed to the principles and committed to more • Connecting consumer protection and education. than 70 initiatives following the areas outlined in the Integrating consumer protection and consumer declaration. Each country makes measurable commitments empowerment is a key pillar of financial inclusion. in the following four broad areas proven to increase financial • Collecting data: Data will be used to inform policy inclusion: making and track results. • Creating an enabling environment to harness new technology. Many believe that a phased approach with AFI’s CEMC working group is a dedicated platform small payments serving as an entry to formal financial for policy makers to discuss policy and regulatory issues services followed later by a suite of financial services, related to their consumer empowerment initiatives and 10 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives Figure 2.2: Alliance for Financial Inclusion Members: Maya Declaration AFI Member Countries Endorsed Maya Declaration AFI Member Countries Committed to Maya Declaration Source: Alliance for Financial Inclusion market conduct regulations. The group focuses on four Financial Institutions’ Self-Regulation priority areas: (1) transparency and disclosure; (2) sales Initiatives and marketing practices; (3) avenues for help and redress; Ideally, self-regulation initiatives reinforce regulation and and (4) financial literacy, capability, and awareness.40 AFI’s vice versa. Incentives from global initiatives, donors, and Working Group on Mobile Financial Services has published investors are essential to make country-level self-regulation guidance on protecting consumers that includes guidance initiatives effective. This section updates recent trends contributed by the CEMC working group.41 in global industry self-regulation from practitioners and investors and discusses benefits, lessons, and challenges for Summary: Consumer Protection Regulation future action from each perspective. Increasingly governments are conducting research and policy level initiatives to further the agenda on consumer To help institutions and investors navigate the initiatives for protection regulation. Policy-makers and regulators note responsible investments in microfinance, a joint industry the complementarity in consumer protection regulation effort has produced a map of responsible finance and and financial education to both protect low income responsible investment initiatives (Figure 2.3). consumers and increase broad-based access to financial services. The Maya Declaration endorsed by over 100 Global Initiatives on Universal Responsible Finance countries, representing 75 percent of the world’s unbanked Standards for Microfinance population is one of the notable efforts to promote In June 2012, the Social Performance Task Force consumer protection regulation globally. launched the “Universal Standards for Social Performance Management (USSPM)” driving industry progress across distinct but related global initiatives. 11 Progress in Responsible Financial Inclusion Figure 2.3: Universal Standards for Social Performance Smart Campaign Management The Smart Campaign is a global effort to unite microfinance leaders with a common goal: to embed a set of client-protection principles deeply into the fabric DEFINE of the microfinance industry (Figure 2.4.) The campaign AND MONITOR SOCIAL GOALS works with microfinance leaders from around the world BALANCE Imp-Act Consortium ENSURE BOARD, to provide microfinance institutions with the tools and FINANCIAL MANAGEMENT, AND SOCIAL AND EMPLOYEE resources they need to deliver transparent, respectful, and PERFORMANCE COMMITMENT TO SOCIAL GOALS prudent financial services to all clients. As of May 2013, MIX UNIVERSAL more than 1,000 MFIs have endorsed the Smart Campaign. CERISE STANDARDS FOR SOCIAL The Center for Financial Inclusion (CFI), together with PERFORMANCE CGAP, led a coalition to create the Smart Campaign to TREAT MANAGEMENT EMPLOYEES TREAT put the seven client protection principles into practice. CLIENTS RESPONSIBLY RESPONSIBLY After two years of research, consultation, and testing, their International Labor DESIGN PRODUCTS, MF Transparency Smart Campaign “Client Protection Certification” is ready for use.42 In Organization SERVICES, DELIVERY MODELS AND CHANNELS January, 2013, the campaign formally launched the Client THAT MEET CLIENTS’ NEEDS AND PREFERENCES Protection Certification initiative. Smart Compaign MicroSave Certification requires preparation. Financial service providers undertake an initial assessment of their policies Source: Social Performance Task Force and practices and often need to modify them. When institutions are ready, they invite one of the certifiers licensed by the Smart Campaign (Planet Rating, Microfinanza’s These universal standards offer a comprehensive resource Ratings, M-CRIL, and MicroRate) to undertake an on- for microfinance institutions (MFIs) and draw on best site examination. To become certified, institutions must practices from leading industry initiatives and MFIs in the to pass all 30 standards within the seven principles. field (including CERISE, Smart Campaign, Microfinance Financial institutions that meet or exceed the standards Transparency, the International Labour Organisation are highlighted publicly by the Smart Campaign as being (ILO), Microfinance Information Exchange Inc. (MIX), “client protection certified.” Imp-Act, and MicroSave). The universal standards aim to reduce reporting burdens and improve coherence among Within the first group of 13 Smart Campaign certified the many initiatives. Implementation is a process that MFIs institutions, 3 are from Bosnia and Herzegovina and 3 are choose to undertake at their own pace. from India, both of which experienced over-indebtedness crises. (See case studies on Bosnia and Herzegovina and Investors can also use the standards, tailoring indicators to India in Chapter 3.) suit their context, as part of their due diligence processes. A group of investors called Aligning Investor Due Diligence Investors play a key role in reinforcing responsible finance. and Monitoring with the Universal Standards (ALINUS) are IFC, for example, supported the first group of financial developing a due diligence tool that will be aligned with the institutions certified by the Smart Campaign. Since then, standards and will be available to all investment institutions. there is some evidence that support for the certification It will offer a single set of due diligence indicators based on process is growing. For example, the Microfinance CEO the standards and shaped by the expertise and experience of Working Group43 notes, “Over the past year, the number investors across a variety of institutions. Aligning investors of network members who have endorsed the Smart around a single due diligence tool also reduces the reporting Campaign increased by 40 percent, and the number of burden for financial service providers, who frequently have MFIs completing the ‘Getting Started Questionnaire’ a to report to their investors in many different ways. self-assessment of client protection practices, grew by more 12 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives Figure 2.4: The Smart Campaign Certification This effort builds on the early and continuing leadership from many private investors such as IncoFin, Oikocredit, Triodos, IFC, Triple Jump, Accion, Blue Orchard, Opportunity International, FINCA International, Women’s World Banking (WWB), part of the Social Performance Task Force, and early supporters of the initial stages of the Smart Campaign. Microfinance Transparency Another important initiative is MicroFinance Transparency (MFTransparency), an international non-governmental organization that promotes transparency by facilitating microfinance pricing disclosure, offering policy advisory Source: The Smart Campaign. services and developing training and education materials than 50 percent, which represents important early steps for all market stakeholders. MFTransparency represents an toward appropriate client protection. Moving forward, we industry movement toward responsible pricing practices. will apply the same commitment to supporting members of MFTransparency promotes transparent communication our networks to become certification ready.”44 among market players on the prices of microcredit products, through the use of Annual Percentage Rate Yet, there are challenges. One of the main challenges (APR) and Effective Interest Rate (EIR) as standards for is generating demand for certification from FSPs. communicating pricing that allows comparison between To date, demand is driven by investors such as KfW products. MFTransparency provides training and education Entwicklungsbank, Agence Française de Développement to the broad range of stakeholders to ensure that transparency (AFD), the Netherlands Development Finance Company  leads to a strengthening of the microfinance industry and (FMO), and IFC. Marketplace recognition of certified FSPs also works with regulators and policymakers to support the is still a distant goal. For some FSPs, responsible finance development of effective policies for pricing disclosure and is recognized as important to ensuring sustainable growth client protection. MFTransparency partners with initiatives and facilitates better risk management, but the benefits of such as the SPTF, the MIX, SMART Campaign to facilitate implementing better practices are less evident when FSPs industry-wide participation in the process of developing are faced with immediate needs for growth in challenging standards for transparent and responsible pricing. and competitive markets. Implementing a management- driven approach often requires a mindset change and a Important Role of National Networks redesign of systems and practices that require investment in Another emerging trend is to evolve ownership within capacity building. (See case study on India in Chapter 3.) national networks and authorities to enhance sustainability, innovation, and learning in the marketplace. National For the next three years, the Smart Campaign intends networks and member-based industry associations have to address top challenges including (1) working with an important role to play in promoting codes of conduct international and national networks and technical as a means of self-regulation in the microfinance industry. assistance providers to incorporate the Client Protection Microfinance Associations (MFAs) can be effective Principles into their work; (2) building a cadre of accredited mechanisms for the collective action required for setting assessors, who will help prepare retail providers for the standards and providing their members with support to certification process; and (3) seeking ways to reduce the adhere to codes of conduct. They serve as advocates for the costs of assessment and certification by developing tools, importance of codes among market stakeholders, such as guidance, and communications packages that will lead to policy makers, investors, regulators, competing financial better preparation and more complementarities between services providers, and clients, on what it means to commit assessment tools and certification. to the codes and the expected market behavior. 45 13 Progress in Responsible Financial Inclusion MFAs pursue many activities to design meaningful self- exchange ideas, and collaborate with authorities to develop regulatory systems and implement effective codes of or expand regulatory frameworks for microfinance. As conduct, including: such, demanding member compliance is often beyond their sphere of authority. The monitoring process also can • Assessing the best means to ensure adherence to global be expensive, which may limit an association’s ability to consumer protection principles and standards while oversee members’ compliance with standards. ensuring adaptability to local contexts; • Extending research on self-regulation and codes of Finally, conflicts of interest may arise when those who conduct to examine the practices of other successful are charged with promoting and enforcing a code are associations; also running businesses that must be bound by it. A well- • Monitoring the implementation of a code over time to established, well-reputed association, not directly engaged in assess its impact on MFI practices; the business of running MFIs, can go a long way to promote and support compliance with such a code. A hopeful vision • Sharing knowledge on effective designs for and practices for the next generation of MFA self-regulatory initiatives is of self-regulation; and illustrated by MFIN in India. • Studying the relationship between systems of self- regulation and formal regulation. With IFC support, MFIN and Sa-Dhan, India’s two largest microfinance industry associations collaborated to adopt Self Regulation Benefits and Challenges a unified code of conduct for all MFIs. (See India case study in Chapter 3.) MFIN uses several mechanisms to Self-regulatory initiatives by provider associations offer a enforce its code including a five-member Code of Conduct flexible and pragmatic approach that can be tailored to local Enforcement Committee responsible for overseeing market context and the needs of retail service providers member compliance and enforcement. The committee that are association members. One primary disadvantage establishes stringent guidelines and strict timelines of relying on such an approach is inadequate coverage: the regarding violations, reporting, and inquiry procedures. number of FSPs who fall outside association membership Finally, code violations by MFIN members can result in and influence may be large and they may lack incentives financial penalties and pose a reputation risk. and enthusiasm for responsible behavior (the coverage problem). Another is the challenge of enforcing compliance Principles for Investors in Inclusive Finance by association members. MFAs that seem able to overcome this challenge in the context of a voluntary code tends to Investors are an increasing stakeholder group influencing have a strong reputation and representative membership, quality and accountability. “Principles for Investors in which gives the MFAs the status and the authority to Inclusive Finance (PIIF),” an investor initiative to meet the encourage good practices by members and influence demand for guidance on investing responsibly in inclusive nonmembers to modify their practices. 46 finance, was launched specifically to focus on institutional investors, both asset owners and investment managers. The lack of incentives for network members, as well as for PIIF’s focus is to promote policies and procedures among FSPs outside the MFA’s ambit, to comply poses a second investors that encourage and reward good practice at the challenge to self-regulatory systems, which is why the retail level.47 linkage to FCP regulation and supervision is important. All systems of self-regulation function better when formal In signing the principles, investors commit to: regulatory systems provide a framework. Complementary • Expand the range of financial services available to low- measures required by donors and investors that reinforce income people; and improve the effectiveness of self-regulatory initiatives provide powerful incentives as well. Monitoring members’ • Integrate client protection into all policies and practices; compliance and enforcing standards are often difficult for • Treat investees fairly, with clear and balanced contracts a network. The main functions of MFAs are to advocate, and dispute resolution procedures; 14 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives • Integrate environmental and social performance and • Integrating client protection. All investors who governance factors into policies and reporting; took part in the pilot endorsed the Client Protection Principles (CPPs). Nearly all include client protection • Promote transparency in all operations; measures in their investment policies, due diligence • Pursue balanced long-term returns that reflect the processes, and financing agreements. Fewer support interests of clients, retail providers, and end investors; investees in implementing the CPPs; however, most and reported that they provide training or assistance to • Work together to develop common investor standards investees in implementing client protection measures. on inclusive finance. Activities include educating one’s own investment staff on the CPPs so they can share best practices and provide Signatories are required to report on their practice against suggestions on implementation of the principles during the principles, on an annual basis. Over the past year, a monitoring visits, funding workshops for investees on new reporting framework was designed with input from the CPPs, and funding country-level over-indebtedness PIIF’s signatories. The new reporting framework has both studies that lay the groundwork for discussions on the mandatory and voluntary indicators. The mandatory topic. indicators represent the minimum set of public information • Ensuring fair treatment. The reporting framework that signatories are required to report beginning in 2014. looks at proxies such as the tenor and currency of finance Signatories will receive a confidential report that will assess provided and the transparency of terms and conditions. their progress in implementing the PIIF year-on-year and All debt providers offered local currency loans, but the relative to peers. term varies widely. Debt investors indicated that they ensure that investees have full understanding of financing The framework was piloted in 2012. A “Report on terms, covenants, and the implications of breach. The Progress,” based on the responses received, revealed high responses from direct investors suggested that equity commitment among direct investor participants to invest in holders take a fairly long-term investment perspective, retail providers that offer a range of services and adopt client with investment periods typically five or more years. protection practices. Investors provide debt and equity with Most seek minority stakes. a range of terms and conditions to investees and participate • Integrating environmental, social performance, and in industry-wide initiatives to develop common standards. governance into policies and reporting. Participants Areas where there is room for improvement include reported integrating social performance measures into incentives for social returns, an active role in corporate due diligence and monitoring and reporting processes. governance, investors transparency, and encouragement Some used in-house tools; others relied on external tools. of investee transparency on pricing and other terms and Nearly 90 percent reported a procedure to integrate conditions to the ultimate client. environmental issues into investment decision making. This percentage is larger than the 66 percent reported PIIF provides summary data from the reporting pilot by microfinance investment vehicles (MIV)s in a 2012 showing investor performance with respect to each survey.49 Most also reviewed the composition and principle, as follows:48 compensation of boards, ensuring they had depth and • Expanding the range of services. All 15 direct breadth of skills. The majority had board seats with half investor participants reported actively supporting retail of their investees and slightly over half of the investors providers to offer a diverse range of financial services providing training or assistance in corporate governance. that respond to client needs. Most provided some level • Promoting transparency. Building transparency of technical assistance to retail providers, particularly has to be a proactive process; it does not happen by for organizational capacity building and new product chance.50 Of those reporting in 2012, 80 percent development. They also encouraged knowledge sharing disclosed information to investors aligned either to the among their investees. MIV Disclosure Guidelines or Impact Reporting and 15 Progress in Responsible Financial Inclusion Investment Standards (IRIS). Most disclosed their own responsible finance into daily operations. FMO further policies, criteria, and related conditions of products and suggests that good quality, affordable local or regional services on their websites and fully explained pricing in a experts in responsible finance are an essential ingredient form understandable to investees. for investors and potential clients to implement the CPP. • Striving for balanced, long-term returns. All reported • IFC focuses on both implementation and capacity taking social performance into account in investment building and sees strong complementarities among decision making and would decline to invest if social implementing responsible finance practices, risk performance did not meet minimum standards. Only management, and credit reporting across the entire array a few incentivized social performance by considering of financial products and services53. Since 2008, IFC’s a price reduction in debt funding and/or a technical performance-based approach has enabled IFC to embed assistance grant if social performance is high or by responsible financial inclusion and social performance creating staff incentives in line with social performance strategies in line with an institution’s business. Today, measures. more than 80 clients at various stages of implementation of responsible finance practices are being tailored to • Collaborating to set harmonized standards. A high deepen implementation of more customer-centric level of direct engagement with industry initiatives practices. IFC also supports sector initiatives in priority was reported but less encouragement for investees regions and countries by advancing consumer-centric to endorse and/or participate in such initiatives. practices jointly through its investment appraisal work Generally, participants valued the knowledge sharing and advisory services to help build capacity at the and joint working opportunities facilitated by the industry and institutional levels. global initiatives. Although most participated in global initiatives to varying degrees, MIX, Smart Campaign, • KfW Development Bank,54 Germany’s leading and SPTF tended to be industry leaders for both internal development bank, sees responsible finance as an integral and external investor actions. part of its holistic strategy and approach to financial sector investments. KfW promotes responsible finance PIIF led a case study research project among signatory practices at the institutional, policy, and sector levels. investors regarding application of the principles. The cases Since 2007, with the publication of a responsible finance provide insights and challenges on implementing each “Leitmotif ”, or guiding motif, KfW Development Bank principle.51 committed to align all of its financial sector activities to responsible finance practices. Responsible finance Investors Increase Use of Responsible Finance in at KfW is a mandatory part of program appraisal for Operations financial institutions. To support this strategy, KfW has developed a series of tools to integrate responsible Private investors as IncoFin, Oikocredit, Triodos, Triple finance issues into the normal project cycle. The toolkit Jump, Accion, Blue Orchard, Opportunity International, includes a position paper on responsible finance, a FINCA, Women’s World Banking, just to name a few, due diligence checklist, a responsible finance contract have integrated responsible finance into their investment clause for loan agreements and grants, and studies on processes. responsible finance topics such as over-indebtedness. KfW also promotes responsible finance as part of its Examples of development finance institutions (DFIs) are governance responsibilities and holds seminars and highlighted below. publishes knowledge management resources for staff • FMO (Netherlands Development Finance Company),52 and partners. the Dutch development bank, takes a risk-based approach to client protection as part of its due diligence Summary: Financial Institutions’ Self-Regulation for new and existing investees. It developed a new risk rating assessment that helps formulate and negotiate Global initiatives show many positive trends toward an effective action plan to aid its client to implement coherence, accountability, and addressing challenges, 16 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives especially in the microfinance sector. Industry initiatives services sector in its responsibility to offer the right focus on coherence of standards and have worked products to its target markets. together to create common universal standards. Investors • Financial inclusion implies an alignment of supply and practitioners are going beyond recognizing that self- and demand, where financially literate consumers have regulation and consumer protection regulation are mutually opportunities to apply their knowledge in a marketplace reinforcing, to acting on this agenda. The broader industry of appropriate product options. 57 is calling for increasingly higher levels of commitment to principles by requiring specific actions. The business case for implementing responsible finance is gaining increased Policy Initiatives attention as investors and practitioners call for practical Changing consumer financial behavior has become a long- solutions on the trade-offs and synergies with the goal term policy priority in many countries. As the attention and of bringing responsible finance practices to the entire resources spent on financial education has increased, so has financial services industry. And finally, investors’ procedures the importance of ensuring the efficiency, relevance, and increasingly investigate responsible finance practices during impact of these programs on improving financial capability. due diligence and require responsible finance measures in Coordinated and tailored strategies at national levels are performance based agreements. considered a good means for meeting efficiency goals and avoiding duplication of resources and efforts.58 Well- Financial Education designed and implemented national financial capability strategies can reinforce financial consumer protection This section examines financial education, highlighting frameworks. Countries all over the world have developed initiatives, recent research findings, and practitioner national strategies.59 experience. • Financial literacy comprises a combination of financial Many policy makers view increasing financial education awareness, knowledge, skills, attitudes, and behaviors as a complement to consumer protection regulation. necessary to make sound financial decisions and Increasing the financial literacy of the population aims to ultimately achieve individual financial well-being. ensure that consumers can make savvy use and choices of financial services available to them, thereby improving their • Financial education is the process by which financial individual and household future financial well-being and consumers/investors improve their understanding of eventually contributing toward broader financial stability of financial products, concepts, and risks, and, through the country. Many governments are responding with new information, instruction and/or objective advice, regulatory frameworks as the industry creates new products develop the skills and confidence to become more aware and technologies that have the potential to dramatically of financial risks and opportunities, to make informed close the financial access gap. Governments are also seeking choices, to know where to go for help, and to take other to address these challenges either through traditional effective actions to improve their financial well-being. 55 school-based initiatives and adult education programs or (Financial education includes financial capability.) by new methods that incorporate real-time interventions • Financial capability encompasses financial knowledge to provide information and promote changes in financial (literacy), attitudes, skills, and behaviors. More behavior. These new methods include text messages, radio specifically, financial capability is the internal capacity to programs, and other ways of communicating that take act in one’s best financial interest, given socioeconomic advantage of multimedia. environmental conditions. It includes the knowledge, attitudes, skills, and behaviors of consumers to be able Global Initiatives to manage their resources effectively. In addition, to understand, select, and make use of financial services The World Bank’s global efforts include developing a that fit their needs56 and to choose and make appropriate comprehensive survey instrument to measure financial use of these financial products. It engages the financial capability of low-income populations in low- and middle- income environments. The recent publication “Measuring 17 Progress in Responsible Financial Inclusion Financial Capability: New Instruments and Results from • Recognizes the importance of financial education, MICs and LICs,”60 summarizes the financial capability including possibly through legislation, and includes measurement work, funded by the Russia Trust Fund for a definition and scope to drive implementation at the Financial Literacy and Education (RTF). national level based on identified national needs and gaps; Starting in 2002, the OECD developed a comprehensive • Includes collaboration across a range of stakeholders and project on financial education which led to the identifies a national champion or coordinating body/ development of a series of globally recognized policy council responsible to drive the agenda; instruments on financial education including a first general recommendations on financial education and awareness in • Establishes a roadmap to achieve specific and 2005 and three recommendations relative to specific areas predetermined objectives within a set period of time; in the financial sector related to insurance (2008), private and, pensions (2008), and credit (2009). • Provides guidelines for individual programs to use and ensure contribution towards the national strategy goals In 2008, the OECD created the International Network and objectives.” on Financial Education (OECD/INFE) to gather worldwide expertise on financial education and pursue With the support of the Russia Trust Fund for Financial the development of this project. The OECD/INFE now Literacy and Education62 OECD/INFE has further comprises 107 countries and 240 public institutions and established criteria, principles, guidelines and good practices relevant international organizations. It works on developing to improve financial education efficiency. This has included global policy instruments and frameworks, research, report, work in the following areas:63 methodologies, data collection and tools to promote, implement, and review financial education strategies and • Surveys, research, reports and implementation toolkits initiatives. These notably include: on topics of priority including: (1) financial education in schools/for youth; (2) the role of financial education • The development of “High-level Principles on National in financial inclusion, including a dedicated work stream Strategies for Financial Education” endorsed by G-20 on migrants; (3) empowering women through financial leaders in Los Cabos in June 2012. Follow up work in education and awareness; (4) financial education for 2013–14 included a G-20, Russia, and OECD report on long-term savings and investment; national strategies for financial education, international guidelines on the role of private and civil sectors in • Tools to measure and evaluate financial literacy and financial education and a policy handbook on the financial education programs; implementation of these national strategies. This work • A database to collate financial literacy work globally is ongoing and will include consolidation of existing (20 countries covered, 20 more planned); recommendations and policy instruments on financial • Regional peer reviews of financial education programs, education in a global set of policy instruments. policy instruments, and methodology (e.g., in Africa, • The development of policy instruments for strategic and Latin America; Asia is forthcoming in 2014); areas including: principles on evaluation of financial • A Financial education database, “International Gateway education programs, guidelines on financial education for Financial Education,”64 a global clearinghouse in schools and policy guidance to address needs for on financial education (400 programs summarized financial education, and financial awareness specifically across more than 100 countries), providing access to a for girls and women. comprehensive range of information and resources on financial education issues worldwide. A national strategy for financial education61 is defined as “a nationally coordinated approach to financial education that With the support of the private sector Banco Bilbao Vizcaya consists of an adapted framework or program, that: Argentaria (BBVA), the OECD Program for International Student Assessment (PISA), which tests the attainment of 18 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives 15-year-olds in mathematics, reading, and science across improve. For instance, the World Bank study, “The Impact 65 countries, introduced a financial literacy assessment in of Financial Literacy through Feature Films: Evidence from 2012 and 2015 to provide an international benchmark in a Randomized Experiment in Nigeria,”69 provides empirical 18 countries. Initial results were evaluated in June 2014. evidence that an entertaining movie with an emotionally charged story line can motivate entrepreneurs to open At the country level, national strategies are being implemented savings accounts. successfully in over 20 countries, with at least another 25 in the process of developing national strategies.65 An example Industry Initiatives of a financial education initiative in the new generation of impact evaluation of financial education programs was The link to consumer protection is one goal among many Brazil’s National Strategy on Financial Education launched for financial education as the microfinance industry has in December 2010. This strategy included the Financial recognized. Generally, the industry group’s financial Education Program for School Children and Parents, and a capability efforts fall into three broad categories: consumer pilot initiative in 891 schools with 26,000 students between protection and awareness, product adoption and improved the ages of 14–17. The initiative aimed to empower high product use, and personal development for improved school students to make sound financial decisions. A recent livelihoods.70 impact study66 notes positive preliminary results: (1) the • Consumer protection and awareness. Some broad- average level of financial proficiency was significantly higher based financial education programs seek to change in the participant group (60) than in the control group consumer interactions with the financial market. A (56) and 10 percent higher for knowledge about financial popular example of this type of program is the use of concepts, such as interest rates, loans and sources of finance, financial education as a tool to introduce the public insurance, income tax, and minimum payments on credit to basic financial concepts and to promote financial card bills. The number of students who saved increased by inclusion for the “unbanked.” In general, financial 10 percent and the number who saved for future projects industry associations typically favor this type of financial by 14 percent. education program because they have a mandate to change some aspect of the market in which their This study was the first large-scale, rigorous, impact membership operates. For example, Association of evaluation to measure whether a high-school- based Microfinance Institutions (AMFIU) in Uganda and financial education program can successfully change South African Insurance Association (SAIA) engage in financial knowledge, attitudes, and behaviors among these programs. students and their parents. AMFIU uses a variety of delivery methods, including an educational radio program with integrative elements to The World Bank has conducted research on the effectiveness encourage public participation. AMFIU selected radio of a wide range of financial capability enhancing programs, stations that reach out to a diverse range of people. An including those that address traditional methods of impact study showed a significant increase in the number financial education as well as those using more innovative of clients and number of deposits at a sample of financial methods. A range of impact assessments are available insti­tutions. online.67 “Financial capability in low- and middle-income countries: measurement and evaluation” 68, A report on the SAIA has a mandate from the government of South World Bank’s research program and the knowledge from Africa to promote insurance education. It offers the Russia Financial Literacy and Education Trust Fund various financial education in­ terventions intended to summarizes the World Bank studies, including lessons increase con­sumer knowledge about insurance and their learned. A key finding was that programs that use mass rights and responsi­ bilities as consumers when buying media and social marketing tools promise to be particularly products from accredited financial services providers. effective. Another important finding was that programs This initiative is an example of a successful private– can be effective in changing financial behavior even in pub­lic partnership to provide consumer education about cases where the financial literacy (i.e., knowledge) does not insurance. 19 Progress in Responsible Financial Inclusion Finally, partnerships among government agencies and knowledge/behavior/skills building around livelihoods. stakeholders have the advantage of introducing large One such example is the Private Education Develop­ment numbers of people to financial concepts and the formal Network (PEDN) in Uganda, a nonprofit organization financial sector. (See case on Ghana in Chapter 3). that empowers youth by establishing entrepreneur­ ship and business skills programs in public and private • Product uptake and improved product use:71 Financial secondary schools, as well as in communities. Its objective education can teach consumers about appropriate is to produce cre­ ative and competitive individuals who products and services, thereby boosting uptake and use. are productive job creators, not just job seekers. PEDN This uptake can be mutually beneficial for consumers combines financial education with entrepreneurial and and FSPs. Clients can become better equipped to manage business skills training and an opportu­nity to save so that their finances and make more appropriate choices about participants are able to immediately put new knowl­ edge the financial products offered; some FSPs perceive into practice. Globally, many such programs combine improved portfolio quality as being a result of less risky financial education with livelihood training and some clients. This type of financial education program is organizations go a step further to connect entrepreneurs generally implemented by FSPs. Financial institutions with mainstream markets for their goods and services. have an invaluable advantage over other organizations in providing financial education; they can offer clients An in-depth assessment of over 60 financial awareness and an immediate opportunity to practice and apply newly education initiatives in India was undertaken to review their acquired skills with actual financial products. For success and efficacy.73 Early findings from the study suggest example, the Foundation for International Community elements of success for financial education programmes Assistance (FINCA) of Mexico sees financial education by FSPs. Each of these conclusions applies to certain as the principal driver for the increased adoption and interventions but is open to debate in others. use of ATMs; Opportunity International Bank of Malawi (OIBM) credits financial education as a critical ingredient in maintaining portfolio quality and increased Elements of Success from the India Study outreach.72 • A diverse set of communication methods (e.g., media, FINCA Mexico introduced its financial education live training, posters, skits) helps reinforce messages program to build clients’ knowledge and confidence about and enhance retention. Different communication the prepaid card it offers and, ultimately, its branchless methods obtain different levels of attention and response banking. FINCA’s financial education program addresses from the audience, so diversification is an important the clients’ level of technical knowledge and enhances strategy to ensure effectiveness. their trust in mobile banking and other financial tech­ • Follow up is important. It is useful to have follow- nologies. FINCA has reached 10,500 people with up programs that build on and reinforce each other. prepaid cards. All re­ceived financial education training. An illustration comes from the work of Ujjivan, a OIBM is the largest commercial microfinance bank in microfinance institution and IFC client, that has Malawi. Together with its financial product line, OIBM two financial literacy programs aimed at training its offers financial education aimed at improving the money customers to manage debt prudently while meeting man­ agement skills of its clients and their ongoing use investment needs and also emphasizing the importance of the bank’s products and services. Since the start of of maintaining good credit history. Efficacy and its financial education program in 2004, OIBM has monitoring can be a challenge in one-size-fits- reached 337,000 people. OIBM measures the suc­ cess of all programs (standardized structure/standardized financial education through improvements in portfolio modules). It is important to build the stake and quality indicators and increases in the use of its products participation of the partner institutions in conducting and services. demand assessment, designing the curriculum, and • Livelihood training: Financial education can be choosing the appropriate delivery methodology. complemented by and integrated with other essential 20 Chapter 2: Progress and Challenges in Global Responsible Finance Initiatives • The study suggests that a long-term strategy and and Tanzania to bring financial consumer advocates into the multiple follow-ups by technical service providers financial capability agenda.74 The project’s overall objective offer a more comprehensive and focused approach to is to create an enabling environment that empowers financial literacy than those designed by individual consumers to make informed decisions about their money MFIs for their own clients. Technical service and the financial products they buy. Specific objectives are to providers have the expertise and resources to design strengthen the capacity of national consumer organizations comprehensive financial literacy modules without bias to provide financial education services and track consumer toward any particular product or service. The programs behavioral change. As part of the project, an important are often a part of a long-term strategy on financial resource, the “Financial Education Counseling – Counselor’s literacy, implemented through partner organizations. Handbook,” was created for financial counselors.75 The materials are well researched and tested, as well as constantly improved to include the latest changes in the Challenges for Financial Education financial sphere relevant to the target segment. Challenges and controversies emerge from experiences • Keeping time and associated opportunity costs low in developing, implementing, and evaluating financial for lower income households is important when education programs. designing appropriate programs. Some institutions have devised innovative programs to make the training less Different perspectives exist within the industry about the time intensive and more quickly beneficial. The idea is objectives of financial education, which influences the way to take the training to the target audience with minimal challenges are perceived. One perspective links consumer loss of time and earning opportunities. financial education to consumer protection, the aim of • Financial education followed by relevant product which is to ensure adequate protection to consumers who delivery enables behavior change and facilitates purchase financial products. A second perspective aims for financial inclusion but can create a conflict of interest. the broader goals of helping people use financial products to Financial literacy messages need to avoid product biases improve their livelihoods and well-being. Neither objective and encourage clients to make the right choices for is mutually exclusive; however the perception around themselves. resources needed, programs, activities, and funding vary. • Client demand for financial literacy drops when fees A case can be made that customers can gain practical are charged – full cost recovery is not yet a possibility. experience and increase financial capability simply by using Very few initiatives catering to low-income people basic financial products. Conversely, a recent study by Citi charge fees for financial literacy programs. Sustainability Foundation, a veteran supporter of financial education of effective financial education programs is higher when efforts globally, argues that “the risk of not addressing linked to the core business of the institution. the [financial capability] gap can prove costly not only to customers but to a range of actors in the financial services Bringing Consumer Organizations Into system.”76 The Responsible Finance Agenda A major item for the future agenda is to bring consumer Another debate centers on responsibility for making representatives into the responsible finance mix. To date, markets safer and fairer. Responsibility clearly lies with consumer interests are represented only indirectly by regulatory authorities and the industry, rather than with FSPs or their networks and by government departments. the consumer. Yet, there is a compelling argument that the Consumers rarely have advocates who represent their growing complexity of the financial landscape increasingly interests in stakeholder dialogues or serve as unbiased transfers financial risks and responsibilities to consumers. resources for advancing the consumer perspective. Financial education is one useful tool to restore confidence Consumers International and Microfinance Opportunities, in financial markets.77 This debate is further complicated supported by the UK’s Department for International by the general absence of financial consumer advocacy Development (DFID), launched a pilot project in Kenya organizations in many places. 21 Progress in Responsible Financial Inclusion A clear business case for financial education has not yet The author of a study on financial education in developing been established, even though education in general is countries noted that, “There is little in the way of a well-established “public good,” and many FSPs see robust evidence to show the overall effect of financial multiple advantages of financially capable customers. training…. This conclusion is valid across different types Achieving financial capability reliably, at scale, and in of interventions… and calls for caution and not pushing a cost-effective way is still an open question, although for more of the same until better evidence is at hand.”82 there has been advancement. Several approaches, such as Emerging evidence from financial education programs consumer education campaigns that reach the public with indicates changes in behavior. However, none of the impact key messages, can reach scale at relatively low cost. The test studies to date have spanned a period of time long enough must be to define which financial education interventions to capture the anticipated changes.83 New evaluation tools achieve the desired behavior changes and outcomes. developed by OECD/INFE and the World Bank, with School-based programs that use traditional platforms to support from the Russian Trust Fund on Financial Literacy reach groups of young people provide an opportunity to and Education and Microfinance Opportunities, now go to scale and may have a long-term effect on behavior allow assessment of an increasing number of programs. In but may be resource intensive. (See case study on Brazil in addition, the OECD/INFE and World Bank have developed Chapter 3.) survey instruments to measure financial literacy/capability across countries with different income levels. Measurement Financial education provided by FSPs has the advantage of efforts have been undertaken in several countries and results using “teachable moments” that combine education with are now available for a wide variety of countries.84 However, product use, which is essential to adoption of new behavior. challenges remain. Yet, marketing incentives may compromise quality financial education. A recent study looked at different approaches Consumer representation in stakeholder consultations is a that compare the costs of traditional classroom programs topic for consideration. Financial consumer and advocacy and FSP-provided “induction training.”78 Newer methods organizations are not present in most countries, and if of delivering financial education are met with enthusiasm, present, lack adequate resources and a singularity of focus to yet few initiatives have been evaluated over the long term meet the high demands of financial education. It therefore for cost effectiveness, sustainability, or increasing financial becomes a challenge to address the interests of end- capacity. Further, there is the question of “Who pays? clients. Emerging innovative programs from Consumers Should it be individual providers, industry associations, International, Microfinance Opportunities, and DFID may government, consumers, or a combination?” develop solutions. “Who is really in the best position to provide financial Summary: Financial Education education in a transparent manner?” FSPs have the ability Consensus exists about the importance of financial to offer clients an immediate opportunity to practice and education as a strong pillar of responsible finance. Policy apply newly acquired financial management skills.79 Early makers have embraced financial education efforts as a promising results illustrate that product-linked models can key component that leads to financial stability, consumer achieve cost-effective delivery through induction training.80 protection, and widespread benefits from financial However, the model raises the question of striking the right innovation and inclusion. The industry continues to balance between financial capability and product marketing, engage in promoting and advancing financial education. As something the field has long recognized. “Full financial evidence emerges about the success and promising results of capability to know the choices and make decisions among different programs, there is a role for a range of stakeholders the full range of product offerings and the promotion of the to test and scale up these programs, effectively managing relatively narrow range of products provided by a particular costs and measuring outcomes. financial service provider are not always aligned,”81 commented a Center for Financial Inclusion blogger. 22 CHAPTER 3 Case Studies This report is based on a global mapping methodology. • Pakistan: The Pakistan Microfinance Network (PMN) This year’s stocktaking involved a survey of the community case is firmly rooted in the self-regulation pillar but of practice, including industry associations, investors and with a strategy that incorporates all three pillars. The donors, and global support networks. Survey participants case analyzes how PMN is providing a range of practical were asked to describe their responsible finance initiatives, responsible finance services to the microfinance industry. and nominate innovative cases across the three pillars that could be featured in the report. Case studies were selected • Indonesia: Allianz SE’s Allianz Care Foundation from the responses. The criteria for case selection included: Financial Literacy Program for Adults (FLAME) (1) initial implementation results; (2) emerging evidence in Indonesia shows private sector engagement in and lessons learned; (3) potential for scale and replicability; microinsurance training and financial education and (4) a balance of initiatives across the three pillars. Case curriculum development. The case shows how a private- study contributors were interviewed to provide the flavor sector provider can improve financial education. of the case and to dig deeper into lessons and results, • China: The ombudsman service in China, supported highlighting key insights and global trends. by GIZ on behalf of BMZ and the China Securities Regulatory Commission, illustrates development of This chapter highlights eight case studies: financial market infrastructure for dispute resolution • Eastern Europe and Central Asia: IFC developed a through mediation. The case shows how the mechanism market indebtedness assessment tool in Bosnia and was developed and shares lessons for similar initiatives in Herzegovina that allows an assessment of the extent of the consumer protection regulation pillar. the over-indebtedness problem. This case falls into the • Philippines: The Central Bank of the Philippines self-regulation pillar and shows how practical research (Bangko Sentral ng Pilipinas; BSP) conducted consumer can inform follow up initiatives. protection and market conduct initiatives with efforts • Bosnia and Herzegovina: U-Plusu, a nonprofit, free, to make disclosure effective for low-income consumers personal financial management counseling center, and more broadly across the market (with support conducted a unique effort to provide debt mediation from AFI and CGAP). The case documents process and services and financial education opportunities. The center product lessons and falls under the consumer protection is being replicated within the country to demonstrate regulation pillar, with aspects of self-regulation. its efficacy as a more broadly relevant model. This case • India: The case from India describes IFC’s early falls into both the financial capability and self-regulation initiative to advance responsible finance across all pillars pillars and provides lessons for others interested in since it began credit bureau work in 2009. In 2010, a establishing similar initiatives. multiyear collaboration began with industry networks • Ghana: A GIZ/BMZ initiative with multiple Ghanaian and the Smart Campaign on client protection principles, stakeholders shows the effectiveness and challenges of a risk-management, and financial awareness. The case multiplayer initiative across several responsible finance shows how investors can play a broader role with pillars. The case involves a concerted effort to promote advisory services before and after a crisis to help embed cohesive industrywide action. responsible finance in institutions’ operations, rebuild a market, reinforce regulations, and benefit the industry overall. 23 Progress in Responsible Financial Inclusion A range of organizations implemented the eight responsible • Different factors (such as financial sector stability, finance programs featured in this report. The case studies provider commitment to social goals, or financially can be grouped into five categories: empowering consumers) motivate pursuit of responsible finance. • Consumer protection and disclosure (Philippines), a government initiative; • Collaborative efforts and assurance of stakeholder commitment is worth the time and effort, even • Integrated approaches to shaping the industry (Ghana, though it may delay implementation plans. There is Pakistan, and India) that show dedicated attention to all renewed emphasis on the importance of consultation, three pillars; working groups, and building stakeholder commitment • Addressing over-indebtedness (Bosnia and Herzegovina and ownership. and India), through development of tools to understand • Involving a broad range of expertise, through peer- market behavior, responding to over-indebtedness to-peer learning and exchanges among policy makers, through mediation, broad-based work across the combining specialized technical staff such as insurance microfinance industry, and long-term efforts to build agency staff, with FSP client communication expertise, consumer financial capability; using human resources expertise are effective approaches • Financial education initiatives, such as the effort in for building experience and capacity. microinsurance (Indonesia) sponsored by Allianz SE, an • Effectively managing change is key to progress and international insurance company, as well as several other innovation. Because new concepts and ways of doing cases almost all of which offer financial education as a business challenge social and business norms and values, component; they may meet initial resistance from stakeholders. • Investor protection, mediation, and dispute resolution Effectively managing change through (1) management system (China). vision; (2) a clearly defined strategy; and (3) timely These cases are drawn from the responses to the global communication is key for effective implementation. mapping survey and can serve as examples to others who Effective change management was demonstrated in may be implementing similar initiatives. 85 the case of U-Plusu, Bosnia and Herzegovina, which successfully launched a new concept to market. Depending on their longevity and depth, some cases offer • Rigorous data collection techniques and analysis help lessons in design and start-up and others offer insight on to clearly identify problems and solutions during longer-term implementation. implementation. The Bosnia and Herzegovina and the Philippines cases demonstrate this approach. Emerging Evidence: Themes and Lessons • Use of tools, toolkits, reference guides, and practical applications developed over the last few years enable The cases reinforce the trends and the lessons discussed in efficient tailoring and adaptation to the local context. this report. They highlight several general themes and good practices. • Capacity building at all levels is important. In some cases, the goal is to change the way things are done • Efforts are more effective when they work across the industry-wide, including major changes in rules and three pillars. This conclusion does not mean effective practices. The BSP Philippines case on reforming initiatives are never specialized, but it does mean that disclosure regimes is an example of this theme. BSP coherent regulation, industry standards and expectations, found that consultation; peer-to- peer learning, and emphasis on improving client financial capability and establishing a culture as a learning organization tend to have a mutually beneficial effect on successful enhanced implementation. The India and Pakistan cases implementation of responsible finance initiatives. demonstrate how capacity building is key to translating institutional vision and mission to every “foot-on-street” loan officer. 24 Chapter 3: Case Studies Responsible Finance in Eastern Figure 3.1: IFC Survey Tool for Determining Over-indebtedness Europe and Central Asia: Measuring Over-indebtedness High 23-18% Context 20-21% (exposed) (concerned) In 2009, questions regarding the potential over- Debtor Concern indebtedness of microfinance clients arose in the Kyrgyz and Inability to meet Financial Republic and Bosnia and Herzegovina. Regulators, MFIs, Commitments = and the general public expressed their concerns about Weighted 27-28% industry practices that contributed to high levels of client Vulnerability Score 29-33% (vulnerable) debt. Microfinance institutions needed to determine the (affordable) depth and pervasiveness of the problem, respond to the current crisis, and determine how to be most effective in implementing responsible finance measures for the future. Low Essential Expenditure % Income High Objectives Source: IFC. Note: Smaller percentage figures represent 2011 results and larger figures In Bosnia and Herzegovina, over-indebtedness became represent 2012 results. a serious problem, as expressed through a rise in non- performing loans and a 40 percent equity loss compared Results with 2008. The first issue was how to measure client over- Use of the tool resulted in segmentation of 4,000 indebtedness to assess the degree of the problem. Portfolio respondents in the Bosnia and Herzegovina representative at risk and multiple loans were possible proxies, but neither sample, of which 80 percent were credit borrowers. was directly correlated to client indebtedness and thus not a direct measure. To address the needs of vulnerable and high-risk clients (the orange and red segments of Figure 3.1), IFC worked To test the level of over-indebtedness in the market, IFC with Plus, the Association for Responsible Personal Finance developed a survey tool and an analytical approach it has Management, formerly the Centre for Financial and Credit further refined over the past three years. The tool includes Counseling, a local organization established by several subjective and objective means of verifying the level of MFIs as a response to the crisis. (See case study on Bosnia borrower distress. Subjective questions allow the tool to and Herzegovina for more on U-Plusu.) Since the founding map clients on a risk matrix based on their responses to of Plus in 2010, with the support of the European Fund personal vulnerability questions. The objective axis maps for Southeast Europe (EFSE) and IFC, more than 6,000 clients according to the portion of their income used for individuals have participated in financial education and essential expenditures and for service debt. The tool provides personal money management counseling, which represents a more complete picture by combining debtor concern and more than 2 percent of the country’s microfinance clients.  In inability to meet financial commitments with hard data on addition to onsite training, one-on-one debt advice services the percentage of income used for household basics and are offered. In 2012, 882 Bosnia and Herzegovina citizens debt repayment (Figure 3.1). who had specific questions regarding repayment used the service. In the most recent six-month period, the debt resolution success rate for clients who were experiencing repayment problems grew to 42 percent. 25 Progress in Responsible Financial Inclusion Putting principles into practice Bosnia and Herzegovina: U-Plusu - An In the Kyrgyz Republic, IFC supported a responsible Innovative Approach to Hard Times finance roundtable in March 2012 that attracted more Consumer protection and financial education are aimed than 100 participants. The topic of over-indebtedness was at protecting customers before and during financial introduced, and experiences were shared among colleagues transactions. But what happens when borrowers get into from other countries. In July, the Smart Campaign held a trouble with debt? training session on the principles of consumer protection in microfinance. By January 2013, two Kyrgyz Republic MFIs Context had undergone Smart assessments and several others were in the pipeline. Microcredit borrowers in Bosnia and Herzegovina were hit hard by an overheated and competitive local market Meanwhile, IFC continued support at the client level. A during the global financial crisis. An innovative approach screenplay with personal finance messages was developed to personal financial management and debt counseling was into a 21-series radio soap opera. To deepen financial initiated by three MFIs. literacy levels, the MFI association developed cartoons, brochures, and posters. To test the impact of various The idea of debt counseling or even seeking out a personal approaches, a survey was designed and implemented in financial management professional is new in Bosnia January 2013. The next steps will be to design additional and Herzegovina. People rely on friends and family, not means of communicating messages about personal finance professionals, for financial advice. But something had to be to specific target groups. done to address the high level of over-indebtedness of many clients. A debt advisory center seemed a reasonable response In Bosnia and Herzegovina, the Smart Campaign was to a sector in crisis, and a good alternative for people in launched with a workshop on responsible financing within trouble with credit. the microfinance sector in February 2012. The workshop results were enhanced by the fact that several Bosnia and The first debt counseling center was opened in Tuzla in Herzegovina MFIs (including Partner and Mi-Bospo) had September 2010 with IFC advisory services support and engaged with the Smart Campaign since 2009 and had funding from EFSE. undertaken assessments as part of the research pilot. They provided advice, experience, and technical knowledge to Success Factors and Challenges the Smart Campaign’s advisory committee and working groups. The workshop, attended by the key players from The center staff quickly learned a great deal about social the financial sector, aimed to improve implementation of and cultural norms, including misdirected ideas about the client protection principles by enabling participants responsibility and blame, and the stigma carried by indebted to identify weaknesses and priority areas for improvement clients. within their organizations. Social norms stigmatize people who carry debt beyond By February 2013, three Bosnia and Herzegovina their means to repay. There is often little incentive to help microfinance institutions (EKI, Microcredit Foundation, anyone who is considered so irresponsible as to get into that Mi-Bospo, and Partner) were certified by the Smart situation. Research on the extent of debt and reasons for Campaign (see Chapter 2) and a third MFI was undertaking client indebtedness were keys to successful implementation. the certification process. These MFIs are among the only six As a result Plus changed the marketing emphasis to Smart-certified institutions in the world. focus on responsible personal financial management and financial education, even though debt counseling remains a centerpiece of the operation. 26 Chapter 3: Case Studies When people get into trouble with credit, there is often chain Merkator and Sarajevo Gas Company were the first to misguided behavior on both the borrower and lender side. respond. Plus research found that one of the main reasons As Plus explains, some clients don’t understand interest rates, people sought out counseling services was for repayment and expect to repay only the principal. When they find that of loans for which they were guarantors. Because of their their debt includes accumulated interest payments, they regular salaries, employees of private companies and may even become aggressive. Likewise, management is often government are regularly sought out as guarantors for loans. unaware of the aggressive collections practices used by its Companies such as Merkator and Sarajevo Gas have retained staff. As Plus began to communicate with lenders about the Plus to provide financial education to their employees on problems clients face and the possibility of debt mediation financial products, particularly credit contract clauses and measures, awareness was raised about sharing responsibility. household budgeting. Plus has held three workshops for 60 Many FSPs also appreciated the unintentional “watch-dog” government employees in cooperation with municipalities role played by Plus when investigating client complaints in Sarajevo and Tuzla on the same topics. about aggressive collections behavior. Plus plans to (1) expand financial education with employees Some lenders did not want to participate in debt of private companies, state institutions, and schools, and consolidation because they felt their own means of collection (2) continue debt counseling and mediation services. would be more effective. There is often little incentive to After a difficult start, the program has been successful in split the burden. Others lenders recognized that the debt helping people negotiate repayment plans with multiple burden was partly their responsibility, and a new repayment financial institutions. Plus sees this service as an important plan might make sense, particularly when multiple lenders contribution to society, the industry, and financial well- were involved. being of clients. Results In addition, it will work on mechanisms for industry support. There is potential for financial service providers Despite the challenges, Plus’s team of professionals has: to contribute financial support, possibly by contributing • Provided personal money management services to 2,528 to the government and for the government to support adults and youth and provided specialized individual Plus, as is done in some countries. This mechanism fosters counseling to 955 individuals since its opening in 2010 independence, reduces the perception of a conflict of in Tuzla and its expansion to Sarajevo; interest, and allows FSPs to avoid the appearance of direct responsiblitiy, especially if the contribution is mandatory. • Engaged eight financial institutions to form a debt Plus is also investigating how debt counseling is supported counseling steering group; in other countries. • Developed a client market segmentation matrix, core concepts for debt resolution and debt prioritization, and IFC is also working with local government bodies, such as a common financial statement that better analyzes client social work centers, municipalities, and free legal assistance disposable income; and, offices to ensure that Plus’s learning is transferred to them when it comes to working with the overindebted clients. • Joined the European Consumer Debt Network, a group Training in a series to expand debt counseling outreach was of similar providers in the European Union.86 planned for June 2013, with an IFC assessment to follow on the effectiveness of this approach as a potential transitional The center’s outreach services are growing, and innovative and exit process. methods to reach targeted segments of the market are expanding. Plus staff works with schools, both students and Future challenges include changing regulations around teachers, and holds seminars for government employees. lending codes to compel over-indebted clients to interact with the FSPs and lenders to consider adjustments when As a result of Plus’s research, services are expanding to clients are in difficulty (Bosnia and Herzegovina has no employees of large private companies. The supermarket personal bankruptcy law) and working toward long-term 27 Progress in Responsible Financial Inclusion change in societal attitudes and the debt stigma, which may On behalf of BMZ, GIZ supports the Bank of Ghana (BoG), prevent people from dealing effectively with debt. There is apex bodies, and the Ministry of Finance and Economic a need to communicate that preventing over-indebtedness Planning (MoFEP) to strengthen banking supervision of and acting in a responsible manner when it happens are MFIs to protect consumers, and to improve financial literacy both important. Making the business case for financial and consumer education through awareness campaigns and education and appealing to lenders for support are also education. The support of responsible finance is part of important. the GIZ Program for Sustainable Economic Development in Ghana. It follows a participatory approach, involving Key lessons learned: key stakeholders in the microfinance sector. For example, in the area of financial literacy and consumer education, • Communicate with FSPs by understanding their a working group, consisting of the BoG, MoFEP, and behavior, incentive structure, and business norms. different microfinance apex bodies (Ghana Microfinance • Ensure the communications and marketing package Institutions Network (GHAMFIN), Ghana Association contains messages that bolster the reputation of an of Microfinance Companies (GAMC), ARB Apex Bank, unpopular but important initiative. Credit Union Association (CUA), the Association of Rural Banks, and Ghana Cooperative Susu Collectors • Research the causes of over-indebtedness to understand Association (GCSCA)) was established as a platform for the problem and define a solution. Publicize findings discussion, development, and implementation of financial and use them in communications with stakeholders literacy activities. Similarly, GIZ, the Bank of Ghana and who may have other views. Everyone supports having CGAP have begun a similar industry-wide engagement on principles and practices to protect people who use consumer protection issues, including developing consumer financial services. Prevention is important, but having protection priorities and action plans through a November solutions for people in debt is equally important. 2012 policymaker and provider workshop. Ghana: Promising Results from a Concerted The GIZ program collaborates with the Investigation and Approach with Multiple Stakeholders Consumer Reporting Office (ICRO) at the Bank of Ghana. Technical assistance focuses on development of a suitable Context regulatory framework for consumer protection across the entire market to establish consistent consumer protection Forty-four percent of adult Ghanaians are financially standards for all providers offering credit, savings, and other excluded.87 Broadening access and deepening participation common retail products and services. in financial markets emerged as one of the key recommendations of Ghana’s Financial Sector Strategic Plan (FINSSP). The Government of Ghana is convinced Objectives that this goal can only be achieved if consumers are The objective of GIZ’s Responsible Finance Project is “to capable of making well-informed financial decisions and provide micro, small and medium enterprises (MSMEs), if financial service providers follow responsible finance economically active low-income households, and students principles. A survey revealed that the level of knowledge of with a better understanding of loan and savings products financial institutions, services, and products among urban and to enable them to enjoy better client service and Ghanaian adults is low and that even when consumers are consumer protection in the banking sector.” GIZ assists the knowledgeable; their knowledge often does not translate Banking Supervision Department of the BoG to develop a into behavioral change.88 In January 2009, Ghana’s regulatory and supervisory framework for the microfinance National Forum on Microfinance adopted the National sector and provides advice on BoG guidelines for setting Strategy for Financial Literacy and Consumer Protection up a new microfinance supervision unit. The program in the Microfinance Sector, which places Ghana among the supports microfinance apex bodies (CUA, GAMC, Money first countries in Africa to have a dedicated national strategy Lenders Association Ghana [MLAG], GCSCA) to set up on financial literacy. supervisory mechanisms including supervision manuals, 28 Chapter 3: Case Studies reporting systems, and risk-management systems. Specific messages about loans, saving, and consumer rights. One- efforts are taken for Tier 489 Institutions, such as GCSCA minute messages were developed and are currently being and MLAG, where the BoG has opted for a delegated broadcast. The plan is to broadcast several messages per supervision model. day over one year to familiarize the audience with the messages in hopes they start following the advice. In collaboration with BoG’s Investigation and Consumer • Training modules on customer care and protection Reporting Office, Technical assistance focuses on for MFI employees and a “Financial Literacy and development of a suitable regulatory framework for Consumer Protection Tool Box” have been developed. consumer protection. The current focus is on disclosure, Staff members of microfinance apex organizations were recourse, and the development of a set of general principles. trained as trainers for member institutions. The recourse model, the level of engagement of the associations, and integration of consumer protection in the • Introduction of financial education in a compulsory supervision visits are being discussed. Guidelines are being curriculum for senior high schools is currently developed with CGAP. At a later stage, specific activities underway. Seventeen teaching and learning modules will address the challenges of apex bodies in complying with have been developed. The teachers in pilot schools have or helping their members comply with the regulations. been trained, and modules are being piloted, with the objective to roll out the project nationally. Working on the third pillar of responsible finance, financial education, is equally important. GIZ supports the working Results group to implement the National Strategy for Financial Regulation and supervision of the microfinance sector: Literacy and Consumer Protection in the Microfinance BoG is aware of the acute need to regulate and supervise Sector. The following activities have been carried out: the microfinance sector to avoid fraud and to protect the • Support to the Ministry of Finance and Economic interests of its clients. The Microfinance Unit in the Banking Planning for financial literacy weeks. Supervision Department helped develop a regulatory and • Development of client educational material, such as supervisory framework that BoG approved in July 2011. DVDs on borrowing, savings, and banking operations, Currently, the unit is working on licensing operators and and an “ABCs series” of savings, loans, and insurance in developing the supervision model. GIZ has assisted in the form of posters and brochures, which are distributed training and in developing a supervision manual. by the apex bodies to retailers. The newly issued guidelines give associations a new role, • Organization of a financial literacy campaign with particularly those falling under Tier 4, GCSCA and road shows that feature giant puppets, brass bands, and a MLAG, to which supervision has been delegated. Technical drama and that ends with a question and answer session. assistance concentrates on Tier 4 associations by supporting The working group, a local event organizer, a drama them to develop required reporting systems and maintain troupe, and managers of MFIs developed the script and a member database. Supervision manuals have been chose participating communities. developed, and training has been delivered to most of the apex organizations. Technical assistance has been provided • Development of a financial literacy radio program in areas that can impact good governance, such as proper called “Money Matters” based on the results of a survey internal financial management. among MSME’s about the perception of savings and credit access in Ghana. The content of the radio program Exchanges with BoG’s Investigation and Consumer was developed with the working group. The program Reporting Office on the development of the draft guidelines was aired once a week on each radio station, using local for a consumer protection framework will be presented to languages and music. Each program consisted of a jingle, BoG’s Banking Supervision Department management. a drama, a panel discussion, and a phone-in section. Consultation with the apexes is the next step before final This effort is now being followed by a series of radio BoG approval. 29 Progress in Responsible Financial Inclusion Financial literacy and consumer education: An impact • Introducing compulsory financial education into school assessment of “road shows” revealed a generally positive curricula and scaling up to cover all senior high schools impact. Road shows, a nontraditional approach to in the country are major challenges. financial education, use giant puppets and other forms of • Impact measurement of financial education activities, entertainment to deliver financial education messages to behavioral change among clients, and balancing costs consumers. Following the road shows, MFIs observed a and benefits remain challenging. It is difficult to find the significant increase in the number of clients and deposits right balance between financial resources dedicated to and were able to improve their customer care services. After measurement and those dedicated to implementation. the shows, MFIs were more able to recognize and categorize clients’ expectations and had a better understanding of Key lessons include: the clients’ needs. From the client perspective, 94 percent found that messages were appropriate and that the mode • Rely on good analysis of partner commitment, of delivery was suitable. The shows allowed consumers to particularly in areas where significant financial resources improve their knowledge of cash savings and daily sales are needed, such as for the support of school curricula management and gain confidence to save money at the bank. and for development of financial literacy materials. Their savings also increased in anticipation of access to • Develop plans jointly with partners. Take time to credit. Overall, the shows strengthened the bank-consumer make the project ready to implement. The inception relationship, improved the level of trust, and encouraged phase is critical for a project that involves multiple clients to transact business with banks. stakeholders who sometimes have opposing interests. A good stakeholder analysis is needed to identify potential Financial literacy in the schools: Seventeen learning conflicts. modules are available covering all aspects of financial education. These modules, which serve as guides for • Identify a local financial education champion to ensure teachers, use a highly interactive methodology. The modules sustainability and steer the process. are being piloted in schools, which will be followed by an impact evaluation. Pakistan: Shaping a Responsible Finance Vision for the Microfinance Industry Success Factors and Challenges Context • The program’s comprehensive approach implies a synergy between increasing the number of microfinance Since 2009, the Pakistan Microfinance Network (PMN) clients through the financial literacy activities and a has put in place a sector-level responsible finance initiative well-regulated and supervised financial sector plus the that includes: (1) information bureaus (credit clients, staff, adoption of consumer protection measures. Improved and branch mapping), (2) client protection, (3) social regulation and supervision, including consumer performance, and (4) financial literacy. These initiatives protection, may encourage people to use financial were urged on by evidence from PMN research90 on the services with confidence. high degree of client over-indebtedness, the increased • The participatory approach involving all stakeholders credit risk for MFPs,91 and a weakening of lender-borrower builds consensus on measures to address the problem relationships, all consequence of intense competition among and facilitates coordination of activities. Through MFPs during a period of rapid growth from 2002–07. In a working groups, strong commitments from all parties similar crisis in 2010 in the Pattoki district in Punjab, the were reached and maintained. PMN and its members92 concluded that client indebtedness and eroding portfolio at risk (PAR) had become an ongoing • A main challenge is ensuring sustainability of financial reality nationwide, and was even more entrenched in some education programs. A champion to host and drive all of the country’s more competitive markets for microfinance. the priorities included in the financial literacy strategy is needed. 30 Chapter 3: Case Studies PMN is well placed to carry out responsible finance identify areas that have few microfinance services and initiatives because of the trust placed in it by its members enables balanced outreach. Pakistan microfinance provision and the support and recognition of crucial industry is clustered in urban localities and east of the Indus River, stakeholders, such as donors, the industry apex (Pakistan whereas the western part of the country has little to no Poverty Alleviation Fund [PPAF]) and the central bank access to microfinance. This software was launched in (State Bank of Pakistan [SBP]). Among the first proactive February 2012 and by December 2012 was receiving more efforts in responsible finance, PMN’s initiatives are being than 150 hits per month. taken forward and deepened through its business plan for 2013–17. PMN’s initiatives are based on the three-pillar Consumer Protection: The consumer protection initiative strategy, with a focus on industry self-regulation. began with a code of conduct for consumer protection that was signed voluntarily by PMN’s entire membership in Objectives early 2009. Since then, PMN has moved forward in four implementation areas: Information Bureaus: As a result of a successful two- • Dissemination of client rights and responsibilities year pilot begun in 2010, a microfinance-specific credit messages to the clients of microfinance through information bureau is being rolled out nationwide in a staggered communications campaign. The first collaboration with IFC under a three-year plan. There are component of this campaign, a print campaign via 2.2 million micro-borrowers in the country about whom microfinance institutions’ branches, has been completed. 1.6 million records have been collected, and the remaining micro-borrowers are expected to be completed soon. In the • Work on pricing transparency in the Pakistan second quarter of 2012, 46,000 inquiries were made with microfinance industry in collaboration with a hit rate93 of 71 percent. PMN analysis shows that MFIs’ MFTransparency an international organization that rejection rate of loan applications has gone up by 15 to 20 promotes transparent pricing in the microfinance world, percent as a result of use of this bureau. In addition, the in 2013. bureau is helping MFIs design more appropriate products • Client protection assessments of all member MFPs because they are now in a better position to gauge debt to help offer a roadmap to improve client protection burdens and credit capacity of borrowers. practices in collaboration with the Smart Campaign during 2013–15. The PMN also runs a microfinance staff reference bureau. This bureau, launched in August 2010, helps flag staff • Advocacy with member MFIs to put in place client members who have committed fraudulent behavior, grievance mechanisms, as well as advocacy with industry embezzlement, or other coercive practices. This bureau stakeholders for setting up a third-party grievance redress is especially useful in a country where the legal recourse mechanism for the microfinance industry in Pakistan. mechanism is fraught with challenges. The bureau offers a closed-group platform on which information on staff Social Performance: PMN has taken several strides toward wrongdoing can be shared with other microfinance mainstreaming social performance (SP) management institutions. It also sends a strong message at the field level practices within member institutions, including encouraging that there is low tolerance for such practices. So far, 44 cases since 2009 all members to report on social performance to the have been reported to the bureau. MiX Market, an international nonprofit that reports social performance measurements for microfinance institutions The third quasibureau set up by PMN is the “MicroEYE” globally. By 2012, 100 percent of PMN members were software available on the PMN website that maps every reporting their MiX Social Performance Standards. PMN microfinance branch location in the country through an has been performing validation of its members’ data for online format powered by Google Maps. The purpose is the past two years in collaboration with MiX Market, for to avoid crowding branches into a few locations, which has enhanced transparency and reliability of data reported. This led to unhealthy practices and issues of over-indebtedness, data culminates in a biennial “Social Performance State of client protection, and staff poaching. The map also helps the Sector Report.” PMN promotes active involvement of 31 Progress in Responsible Financial Inclusion its members on social performance issues through an SP win acceptance for and build confidence in its members. working group, and more recently by developing a four- The PMN has solicited support for some initiatives from the year SP strategy with three main components: State Bank of Pakistan and the Pakistan Poverty Alleviation Fund. Funding from these sources would send a signal to • Awareness Raising: dissemination of information local microfinance industry of the importance ascribed to related to SP initiatives to MFPs and other industry these efforts by local policymakers, thus compelling more stakeholders such as external social auditors, networks, MFP participation. institutions, the State Bank of Pakistan, and the Pakistan Poverty Alleviation Fund. PMN’s interventions focus on building a healthy • Social Transparency: promotion of tools for reporting microfinance sector through responsible, sustainable on SP indicators to external stakeholders and social institutions serving the market. Benefits of these activities auditors and rating agencies and strengthening poverty to microfinance institutions include: measurement in the sector. • Customer loyalty as a result of a better relationship with • Implementation: collaborating with MFPs to build microfinance clients and a long- term and sound means roadmaps for compliance to universal standards for to a more robust microfinance sector. Within such an social performance management, building capacity of environment, it will become difficult for local activists MFPs’ data management systems to include poverty, and and others to create problems for the industry, which is impact data management for better decision making and what happened in previous delinquency crises; review. • Well-informed clients that act responsibly and become better financial managers; PMN is engaging in a social performance management implementation project in 2013–14, with support from the • More client information available to each microfinance Microfinance Center in Poland and the Ford Foundation. institution, helping them to offer better products, This project will contribute to the network’s wider SP manage staff and deliver effectively on the ground; strategy, ultimately leading to institutionalization of social • Open sharing of information that leads to healthy performance management at MFPs with a double bottom competition, especially in terms of transparent and line vision. uniform pricing disclosures; Financial Literacy: PMN has been collaborating with • A more level playing field among MFPs. Building industry players active in the field by providing input compliance with industry client protection standards and a short-term supply-side analysis toward the National and transparency in pricing disclosures levels the playing Financial Literacy Program run by the central bank. PMN field between bank MFPs and nonbank MFPs, who has also recently completed curriculum development for a currently are not regulated. The regulated segment of financial literacy initiative for the biggest social safety net the market is now at a disadvantage to nonbank players program in the country. Going forward (2013–17), PMN because regulations require many client protection and is planning a microfinance industry-wide financial literacy disclosure requirements, which unregulated nonbank campaign targeting lower microfinance staff and ultimately, players are not obliged to follow; microfinance clients. • Elimination of the need for restrictive regulations that do not contribute to creating a level playing field that Results benefits customers, responsible providers, and the industry; PMN is in the preliminary stage of most activities. However, the process of evidence-based decision making and joint • Creation of a positive reputation for the industry at the local action on global initiatives has shaped a responsible local and international levels. finance vision for Pakistan’s microfinance institutions. These partnerships help build credibility for PMN’s work and help 32 Chapter 3: Case Studies Indonesia: Private Sector Engagement in of financial education and financial literacy: a combination Financial Education for Microinsurance of consumers’ understanding of financial products and concepts and their ability and confidence to appreciate The international insurance company, Allianz SE, through financial risks and opportunities, to make informed choices, its Allianz Care Foundation, started a Financial Literacy to know where to go for help, and to take other effective Program for Adults (FLAME) in 2012. Partnering with the actions to improve their financial well-being. International Labour Organisation (ILO), Allianz plans to scale up this educational initiative with the engagement of In late 2011, Allianz developed a module on insurance for the MFI staff nationwide in 2013. ILO Adult Financial Literacy Curriculum. The curriculum, including the insurance module, was pilot tested in three Context MFI partner institutions. Twenty trainers went through a “training of trainers” workshop and subsequently trained Access to formal finance in Indonesia remains low. The weak about 200 clients in Papua, Borneo, and Java. educational background of a large share of the population and the geographical challenges of a country with more Lessons learned from the 2012 FLAME pilot are: than 17,000 islands add to the challenge of improving access to finance and promoting responsible use of financial • Selecting participants and location is important to the products. Allianz engaged in the Indonesian microinsurance success of this program. Although specific requirements market in 2006 and by the end of 2012 had a base of 1.2 for training participants (such as age, gender, education, million clients. Life insurance linked to loans is the most business background) had been presented in advance to common form of insurance in the low-income market. MFI partners, some participants were ineligible because MFIs use both informal mandatory “credit life insurance” they were illiterate, unregistered, or had different and offers voluntary life insurance products to their clients. expectations of the classes. Some participants arrived late MFIs are Allianz’s major distribution partners for the and asked to finish early to travel the long distance to formal, voluntary microinsurance products. Allianz’s MFI and from their homes. partners have articulated the need for more information on • Validation of participants’ eligibility on the established insurance, since it is a relatively new financial service, and for criteria and mapping time and location for class training appropriate ways to communicate this information to their should be carefully planned with partners. An initial clients. Allianz partnered with the ILO, which developed training needs assesement should be planned to meet a curriculum on personal financial management for adults participants’ expectations, and the question of whether a in 2007. This curriculum was amended by a module on classroom-based approach is the best alternative for the insurance developed by Allianz in 2011. target group should be addressed. • Participation and company buy-in have increased Objectives outreach effectively. Most MFI clients are unfamiliar with insurance products and lack knowledge of the range of financial services. For the scale-up in 2013, a network of master trainers of Reaching scale with educational programs is a challenging the ILO/Allianz curriculum will be established throughout task in Indonesia because it is the fourth most populated the country to educate trainers at about 80 MFIs with a and the largest island country in the world. Partner MFIs total customer base of 1.2 million. The trainings for groups of Allianz stated the need for support from the insurance of customers are delivered mostly by MFI staff, but also by company in educating their clients on insurance and, Allianz staff who contribute their work time as part of the if possible, other financial literacy topics such as credit, company’s employee social engagement program. savings, and budgeting. Allianz has initially assigned two full-time employees as FLAME’s goal is to assist low-income adult Indonesians master trainers. More trainers will be added as needed to achieve full financial capability, with particular emphasis cover class demand. Allianz also covers costs for travel, on insurance. Allianz follows the OECD/INFE definition accomodations, meals, class training, and logistics. 33 Progress in Responsible Financial Inclusion Results The decentralized structure of regionalized master trainers providing local training-of-trainer sessions for MFI staff, The 2012 pilot provided important lessons for future efforts. who then educate MFI clients, seems a promising approach Participants showed improved awareness of insurance and to improve outreach in Indonesia’s geographical context. the associated benefits. However, because of a lack of This structure not only overcomes logistical challenges, but detailed knowledge of insurance processes, such as making also considerably reduces costs. claims for benefits, coupled with a short supply of suitable insurance products, insurance penetration remained quite Key lessons include: low in all trained MFI client groups. • Having different partners with their respective fields of In addition, a rough assessment of participants’ feedback expertise and experience was a crucial success factor for the and follow-up on their financial behavior after the training initiative. The pilot counted on the expertise of insurance show that most participants were able to improve their experts from Allianz, training expertise and curriculum personal financial budgeting, including prioritizing development from ILO, and communications and client contributions to savings or household expenditures, which interface from MFI partners. showed a positive effect on their ability to pay regular loan • Linking corporate social responsibility activity with the installments. Participants also requested Allianz to offer MFIs’ interest in improving their clients’ knowledge follow-up trainings and a wider range of topics, especially of financial services was a good precondition for the on entrepreneurship (how to start, maintain, and grow their implementation of the initiative. small enterprises). • A key challenge during pilot testing was the low supply of financial services: access to financial services remains Success Factors and Challenges low in Indonesia, especially in remote areas. The training A key success factor of this initiative lies with the partner sessions, which included information on a multitude of structure. The existence of the ILO curriculum as a basis services, raised demand by participants for the products for the initiative proved to be a valuable asset: Allianz about which they learned. Disappointment at being could build the insurance training module on the existing unable to access these products might have a negative curriculum without starting from scratch. The curriculum influence on people’s attitudes toward those services. as a whole now allows trainers to give MFI clients a full Recent research shows financial services knowledge does picture of responsible use of financial services. not last long if it cannot be applied.94 • Until now, the training sessions have been selective The MFIs, as the central implementing partners of the and not embedded in a comprehensive structure. initiative, made a crucial contribution to the training Incorporating training into a larger curriculum and program’s success. Their demand for more customer follow-up training sessions to deepen knowledge would education on financial capability in general and insurance contribute to the initiative’s impact. in particular kicked off the engagement of Allianz in this initiative. China: Ombudsman Scheme with the Allianz staff members in Indonesia are dedicated to Securities Regulatory Commission social engagement, which helps motivate employees to Context become voluntary FLAME trainers. The MFI and Allianz management support this engagement by providing the China has more than 50 million private investors. In training materials and encouraging staff members to conduct the past few years, an increasing number of complaints trainings during work hours, so volunteer staff members do were addressed to the Chinese supervisory authorities, not have to spend free time conducting trainings. so the China Securities Regulatory Commission (CSRC) considered implementing an ombudsman scheme to lighten the burden on the judicial system. The ombudsman 34 Chapter 3: Case Studies scheme is a convenient, time- and cost-efficient, flexible, and learned about the German system during two study out-of-court conciliation scheme that helps protect private tours in 2011 and 2012. investors in China. • A comprehensive study of research results from German and Chinese experts was handed over to the On behalf of the BMZ, the German Federal Ministry Chinese public authorities in 2011. This study served for Economic Cooperation and Development, GIZ is as a guideline for the design of the Chinese ombudsman cooperating with institutions from the Chinese financial scheme. sector to implement the ombudsman scheme. • In 2012, SAC set up the Mediation Professional The program, “Investor protection in the securities market Committee, composed of representatives of securities in China,” is part of the GIZ Financial Sector Reform companies, and started designing financial mediation Programme based on a trilateral cooperation among GIZ, schemes. The Chinese authorities formally approved the German Financial Services Regulatory Authority the Mediation Center, which is responsible for the daily (BaFin), and the CSRC. Several other key stakeholders management of the mediation scheme. on both sides of the globe are involved. The project has • SAC issued a set of rules on the mediation scheme: facilitated strong cooperation and exchanges of experiences among the Association of German Private Commercial — Management Measures for Securities Dispute Banks (BdB), which established an ombudsman scheme in Mediation System (Trial) Germany in 1992, the CSRC, and the Securities Association — Securities Dispute Mediation Rules (Trial) of China (SAC). ­ — Mediator Management Measures (Trial) Objectives Results CSRC and GIZ work jointly to improve the protection of The mediation scheme is fully operational in China and private investors in the securities market by strengthening has started processing disputes. It resolves disputes between Chinese institutions. consumers (private and institutional financial investors) and service providers in the securities market, disputes To achieve these goals, the program follows two approaches: among member companies, and disputes between member companies and other stakeholders. The scheme is organized 1. Capacity Development in the Chinese financial sector in three parts (see Figure 3.2): through workshops and advisory services on investor protection specialists and managers of Chinese public • The SAC Mediation Committee gives overall guidance to authorities the mediation scheme. The committee is responsible for the design and revision of mediation rules and measures 2. Exchange between German and Chinese financial sector and for mediator appointments. institutions in cooperation with BdB, CSRC, SAC, and the Securities Investors Protection Fund (SIPF). • The SAC Mediation Center organizes and coordinates the securities mediation and is responsible for the Several steps were taken to establish the ombudsman mediators’ management. scheme: • SAC Branch Offices in all provinces support the mediation • In October 2010, a Sino–German workshop on the scheme by receiving the complaints and conducting ombudsman scheme brought together experts from BdB a preliminary complaint assessment. Mediators are and an expert team from the Renmin University. The stationed in all provinces to provide effective and timely experts from BdB visited local authorities, investment dispute-resolution services. Part-time mediators were firms, and the Shanghai Stock Exchange to learn about recruited by the SAC and are prepared to undertake complaint mechanisms. A Chinese delegation of CSRC, their responsibilities through training provided by SAC. SIPF, and SAC representatives visited BdB in Germany 35 Progress in Responsible Financial Inclusion Success Factors and Challenges Figure 3.2: Securities Association of China Mediation Scheme The major success factor was the strong commitment of the Chinese authorities from the onset. Because of the high participation of Chinese people in the capital markets, • Research & Guidance on securities mediation issues. public authorities in China were aware of the need to build SAC • Mediation rules and measures drafting Mediation strong institutions to protect investors in the securities Committee • Mediator appointment market. Therefore, all key stakeholders from the Chinese • Organizing and coordinating financial sector were involved in the process, which made SAC the securities meditation. Mediation Center • Mediators recuitment & the initiative succeed. management • Receiving complaints. Consultation with FSPs was especially relevant because the SAC • Preliminary complaints assessment Complaints Office concept of the ombudsman scheme was at first received • Where mediators stationed and work with scepticism. Source: Ombudsman Intro & Project Progress Recruitment and training of mediators was challenging. It was difficult to determine the best kind of professional Financial Consumer Affairs Group (FCAG) as part of the background for mediators, as well as how (and where) they bank. should be trained. Initially, the plan was to train Chinese ombudsmen in Germany, but language barriers and the The Alliance for Financial Inclusion (AFI) comprises 100 differences in legal systems and mediation schemes made policymaking and regulatory member institutions from this approach too difficult. more than 80 developing and emerging countries. BSP serves as chair of the AFI steering committee, chairs the AFI Key lessons include: Consumer Empowerment and Market Conduct (CEMC) • Identifying a strong partner in the country who supports Working Group, and is an active member of Mobile the scheme is vital. Financial Services, Financial Inclusion Data, and Financial • Involving all relevant stakeholders, including FSPs, in a Integrity working groups. consultation process is essential for the success of any new initiative, particularly when it entails a new way of This case study highlights the BSP work in consumer settling disputes. protection and market conduct. It also shows one example • Looking at international “best practices” can be helpful, of the power of peer-to-peer exchanges promoted by AFI. but it is important to implement an ombudsman scheme adapted to the country’s institutional and legal Objectives landscape and to consider different options for the BSP believes “financial inclusion is a worthy policy institutional setup, looking closely at their advantages objective that should be pursued alongside the promotion and disadvantages. of the stability and efficiency of the financial system.”95 The general approach promotes an enabling policy and Philippines: Bangko Sentral ng Pilipinas regulatory environment for market-based solutions to and Consumer Protection address financial access while maintaining proportionate application of sound regulatory and supervisory principles. Context BSP is guided by the framework of financial inclusion that The Central Bank of the Philippines (Bangko Sentral ng includes: Pilipinas; BSP) pursues many responsible finance initiatives. • Provision of a wide range of financial services (credit, It has established a framework for consumer protection, savings, payments, and insurance) to serve the demands enhanced implementation of the Truth in Lending Act (see of different market segments; Box 3.1), adopted market conduct regulation, and set up a 36 Chapter 3: Case Studies • Availability of financial products that are appropriately issue similar Truth in Lending Act requirements to those designed, priced, and tailored to market needs and that would be issued by the BSP. capacities; • Participation of a wide variety of strong, sound, and Key Elements of the Disclosure Reform duly authorized financial institutions that use innovative • The Truth in Lending Act is designed to protect delivery channels to provide financial services to more consumers from a lack of awareness of the true cost of Filipinos; and credit and help them make informed decisions when • Effective interface of bank and nonbank products and they borrow. Being able to compare prices combined delivery channels, technology, and innovation to reach with effective transparency regulations enables price the financially excluded.96 shopping and stimulates competition, thus lowering prices and improving product quality. Results • The BSP and other regulatory agencies issued similar regulations to cover all credit providers, which is an With support from AFI, BSP visited Bank Negara Malaysia element of an effective disclosure regime because it (BNM) to better understand BNMs practices of credit covers the entire market. These regulations mandate disclosure reforms. BSP’s aim was to ensure transparency full disclosure of all charges related to the extension and information standards were met by all credit providers of credit.98 The reform requires all credit providers to on all credit products offered in the country. During the charge interest on the outstanding balance of a loan visit, BSP reviewed the BNM disclosure sheet and discussed at the beginning of an interest period and consider all BNMs experiences with adoption procedures and practices. charges incident to the loan in computing the effective interest rate. BSP revised its disclosure requirements based on knowledge gained from its visit and market research it conducted to • All credit providers are required to use a standard, simple better understand how new disclosure reforms could improve disclosure format to ensure that borrowers are provided the understanding and decision making of consumers. This with the information they need to understand their loan research, conducted in collaboration with CGAP, included transactions.99 initial testing of draft disclosure formats with low-income • One of the most important elements of BSP’s disclosure microfinance consumers, which led to revisions to the reform is its comprehensiveness. Disclosure regulations format to enhance clarity and consumer understanding of cover the entire financial sector, regardless of the type of the key terms of the credit product. As a follow-up, BSP financial service provider. The BSP issued several tailored and CGAP are using mystery shopping methodologies to circulars that covered banks and nonbank financial measure the quality of information provided to consumers institutions under BSP supervision, such as quasi- during the sale of credit products before and after the Truth banks, non-stock savings and loan associations, credit in Lending Act takes effect. (See box 3.1). 97 card companies, investment houses, and pawnshops. It also issued a circular for other credit providers not A key lesson from BNM was to involve all key players covered by BSP issuances, such as NGOs and in-house in revising the disclosure information requirements and financiers that include retailers. BSP also harmonized the practices to ensure successful adoption. Development and policy with the Securities and Exchange Commission, adoption of the new BSP disclosure system involved a broad the Insurance Commission, and the Cooperative consultation process with credit providers, and review by Development Authority. the banking association and the NGO MFIs, who are not under the jurisdiction of the BSP. The different jurisdictions • BSP collected baseline data on the state of transparent over financial institutions that provide credit also required lending practices in the market prior to the effective date the development of memorandums of understanding of the regulation. To gauge the impact of the regulation, between BSP and the regulators responsible for cooperatives another round of evaluation will be conducted one year and for NGO MFIs where these regulators committed to later. The results of the research will be considered by the BSP to inform future policis. 37 Progress in Responsible Financial Inclusion BSP also harmonized the policy with the Securities and they are considered a lower risk. FCAG sees onsite Exchange Commission, the Insurance Commission, and examination and use of market surveillance tools as key the Cooperative Development Authority. to fulfilling its mandate. BSP is seeking to change the FCAG mandate by reorganizing functions and securing Success Factors and Challenges a legislative amendment, if necessary. The proposal for • A main success factor was the previously established this change has been submitted. Hopes are high that the relationship between BSP and FSPs in the Philippines. approval will be granted next year. There was a history of frequent consultation and outreach. BSP’s emphasis on coordination and harmonization of Key lessons include: supervisory and regulatory methods with the creation • Learn from peers. Even though the process and of the Financial Sector Forum in 2004 enabled the institutional mandates may be different, practices and organization of stakeholders, who were accustomed to policies can be relevant when adapted to the context. working together and harmonizing regulatory reporting Peers are also forthcoming about how they addressed requirements. challenges and can provide helpful advice. • AFI’s ability to support targeted exchanges among • Involve all stakeholders in the process of review and members allowed BSP to exchange ideas and discuss comment when a new regulation will affect their current plans with a peer who had experienced obstacles and practices. Stakeholder consultation facilitates adoption. accomplishments in the design and implementation of If a mechanism exists to accomplish consultations, the a new disclosure system. process is expedited. • BSP notes that supervision is one of the most effective • Ensure a comprehensive regulatory framework for functions of consumer and market conduct regulation. all FSPs, including banks, NGOs, cooperatives, and BSPs dedicated consumer protection unit, FCAG, is pawnshops. To ensure a comprehensive approach, unable to provide supervision based on its mandate. For engage with the appropriate regulatory authorities in supervision, FCAG must pass the possible violation to other sectors of the financial services industry, such the examination group. The examination group follows as insurance commissions, cooperative development a risk-based approach to supervision, and consumer authorities, and industry self-regulatory bodies, including protection concerns are not always addressed because MFI networks. Box 3.1: The Phillipines’ Truth in Lending Act The Truth in Lending Act protects Philippine citizens from a lack of awareness to the true costs of credit to the customer by ensuring a full disclosure of such costs and other terms and conditions with a view to preventing the uninformed use of credit. As such, a disclosure statement is a required attachment to the loan contract. It must include, at a minimum, the following information: • Total amount to be financed • Finance charges and all other charges incident to the loan • Net proceeds of the loan • Schedule of payments • The percentage that the finance charge bears to the total amount to be financed expressed as an effective interest rate (EIR) The borrower has a right to demand a copy of the disclosure statement. Source: Philippine Truth in Lending Act, Republic Act 3765. 38 Chapter 3: Case Studies • Seek ways to revise past mandates that may limit desired institutions), and the Small Industries Development new directions. Mandates may need to be revised given Bank of India (SIDBI), a government body and major advances in technology or policy emphasis on responsible funder of the sector; financial inclusion. • International organizations, credit bureaus, and • Maintain ideals as a learning institution. BSP stresses investors including Michael and Susan Dell Foundation the importance of continual learning to respond to (MSDF), Americans for Community Co-operation in innovations in financial services. Field visits for policy Other Nations (ACCION), ACCESS Development makers, seminars and active engagement with FSPs Services, Smart Campaign, High Mark Credit and their associations, and communications campaigns Information Services Ltd., and Equifax; and for the public are equally important. These learning • Large and strategic MFIs including Ujjivan Financial experiences keep BSP open to new ideas and prepared to Services Ltd., Grameen Financial Services Ltd., Utkarsh respond. Microfinance Ltd., Shree Kshetriya Dharmasthala Rural • Collect baseline data and design systems to measure Development Project (SKDRDP), Arohan Services Ltd., impact. These efforts can inform future policy directions CASHPOR Micro Credit, Suryodaya Microfinance and reforms. Ltd., Swadhaar Financial Services Ltd., Intellecash (MFI incubator), and FWWB Ananya. India: A Comprehensive Approach across IFC convened key sector institutions by setting up all Three Pillars of Responsible Finance the Indian Responsible Finance Forum. It successfully Context facilitated the adoption of a harmonized code of conduct for the Indian microfinance sector and supported credit Seeds of IFC’s Responsible Finance Program in India were bureaus’ efforts to link over 65 million records to help MFIs planted in the Microfinance Credit Reporting Initiative address issues of multiple lending and over-indebtedness in 2009. This initiative aimed to reduce the significant among clients in India. The forum now serves as a platform information asymmetry among microfinance borrowers for key stakeholders (lenders, investors, donors, industry and lenders by supporting increased linkages between associations, and experts) to exchange ideas and determine MFIs and credit bureaus. In the wake of the Indian Andra activities to implement responsible finance principles across Pradesh microfinance crisis of 2010, IFC developed the the sector. $3.1 million Responsible Finance Program as a comprehensive crisis response to strengthen the At the institutional level, IFC partners worked directly microfinance sector by emphasizing a customer-centric with the large MFIs to adopt client protection principles. approach in institutional operations, raising awareness Ujjivan Financial Services, one such strategic MFI, is a among decision makers and stakeholders, and uncovering market leader today in developing client financial awareness the reputational risks facing the sector. The program was modules and has seen a change in the way clients select and an early and comprehensive effort covering three levels of service products and provide accurate financial information. intervention: sectoral, institutional, and end-client. In partnership with the Smart Campaign, industry-wide capacity building has been conducted for MFIs and service Objectives provides on the Client Protection Principles (CPP). In addition, the Smart Campaign’s largest program covering At the sectoral level, partnerships were forged with: in-depth assessments with over 20 Indian MFIs is underway • Industry-wide networks and associations, including with further capacity building interventions planned in up India’s Micro Finance Institutions Network (MFIN), to half of the institutions assessed. which covers the largest MFIs serving the sector (more than 80 percent of the market), and the information At the client level, a comprehensive review of over 60 association Sa-Dhan, whose members include the financial education programs targeted at low-income entire MFI sector (NGOs, trusts, nonbank financial segments was completed in partnership with M-CRIL, one 39 Progress in Responsible Financial Inclusion of India’s leading microfinance rating agencies. Findings institutions as its members, commissioned a study of this review will inform IFC’s support in developing with IFC support on benchmarking human relations appropriate and sustainable financial literacy models. practices across the microfinance sector. MFIs are using These models, which are intended to build client capacity the findings from this study to guide internal policies in making sound financial decisions, are expected to be and ensure greater standardization across the industry. piloted and rolled out across 10–15 institutions that have • Tackling over-indebtedness through credit reporting. an estimated outreach to 2 million clients. Over 95 million records are now available with the largest credit bureau in India, High Mark, covering more than Results 90 percent of the market. These records will help MFIs For the Indian microfinance sector to recover from the crisis, assess client repayment capacity and address issues of a series of multidimensional yet interlinked interventions multiple lending and over-indebtedness among clients by different stakeholders was necessary. At a time when the in India. The MFI Ujjivan has launched a widespread sector needed cohesive and unified action to counteract campaign on client awareness for credit reporting, and the negative impacts of the crisis and when most MFIs MFIN is now designing and disseminating a credit were barely able to stay afloat, the institutions that came bureau awareness toolkit for borrowers in India. together under the Responsible Finance Forum helped • Complementing risk management with responsible advance responsible microfinance initiatives at the sectoral, finance. IFC is also supporting several Indian institutions institutional, and client levels. Five major initiatives were: to formulate a customized risk management strategy • Harmonizing a Code of Conduct for the sector. India’s based on a risk management diagnostic and is building Responsible Finance Forum succeeded in facilitating the capacity in the sector for increased understanding of risk adoption of a harmonized code of conduct by nearly 90 management and its link to responsible finance. percent of the MFIs in the country. The code of conduct provides a set of robust guidelines to help design systems The Responsible Finance Program won the Skoch Financial and processes for recruiting and training, staff conduct, Inclusion Award this year for its work on advocacy and was client protection, and product pricing. recognized for being among the top 50 institutions working on financial inclusion in India. The Skoch Financial • Implementing responsible finance in practice. SIDBI, Inclusion Award recognizes best practices from the banking MFIN, and Sa-Dhan are working with MFIs to support and financial services sector to promote inclusive growth in capacity building to help institutions implement the urban and rural India. code of conduct. Smart Campaign, with IFC support has facilitated six CPP training sessions, covering Success Factors and Challenges 56 MFIs, which constitute more than 90 percent of the sector. Through this partnership, IFC expects to • Despite the India crisis, many MFIs still view reach 200,000 more clients. MFIs are working on responsible finance as a cost rather than an implementation and changes in policies and procedures investment. A change in mindset to embed responsible in line with assessment findings. Ujjivan, CASHPOR, finance throughout the operations of an institution for and Grameen Financial Services are among the first maximum effect is required. The previous challenge also Smart certified institutions in the world. applies to financial education. A review of more than 60 initiatives in financial education across India showed • Highlighting emerging good practices. The forum also that although there is a clear need to implement financial helped create efficient communication channels between education/literacy/awareness initiatives, typically these policy makers and the media. It supported national initiatives require substantial upfront investment and are conferences to facilitate stakeholders’ interaction and costly to implement and difficult to scale in a one-size- commissioned several studies on trends, needs, and best fits all approach. practices within the sector. For instance, MFIN, the industry association with the largest nonbank financial 40 Chapter 3: Case Studies • MFIs need technical assistance and capacity-building • Finally, there remains a need for advocacy work support to help them implement responsible finance across stakeholders (national and state government, principles. MFIs need support to build the necessary Reserve Bank of India (RBI), India’s Central Bank, internal capacity resources, systems, and processes to banks, development finance institutions, investors, fully integrate responsible finance practices within and across larger and smaller MFIs). Key stakeholders, operations. such as lenders and investors, are starting to incorporate responsible finance practices as part of their due diligence and selection processes, and there is a need for other funders, investors, and stakeholders to follow suit. 41 CHAPTER 4 Microinsurance: Emerging Focus “Insurance is a business of claims payments and not of premium social protection mechanisms. There are four dimensions of payments. The payment of a claim is when the insurance social performance in microinsurance: product becomes tangible and when the client decides whether • Product value: The product provides the client with we are selling a dream or a nightmare.” Negros Women for appropriate and effective risk coping mechanisms Tomorrow Foundation, Philippines • Client protection: The insured are treated fairly and Recently, the industry called attention to the importance of respectfully providing a suite of appropriate financial products to poor and • Inclusion: The product aims to include the less privileged low-income people to enhance opportunity and reduce risk. With the publication of the “Social Performance Indicators • Socially responsible management: The micro-insurer’s for Microinsurance” in March 2013, the Microinsurance institutional system enables a socially responsible Network (MIN) advances principles and standards setting. management.101 This initiative, complemented by Smart Campaign’s effort and the Microinsurance Network’s Consumer Protection A study in the Philippines and Colombia, commissioned Task Force, resulted in the development of “Smart by the Microinsurance Network proposes an analytical Insurance,” a toolkit to guide incorporation of the client framework and provides recommendations and an agenda protection principles into microinsurance. The indicators for the future.102 are a result of a two-year sector-wide consensus-building process, led by microinsurance practitioners representing Consumer Protection Regulation different countries, organizations, and product lines. Governments should engage stakeholders to assess consumer protection needs and to share the burden of Social performance for microinsurance means the effective monitoring measures to protect consumers. Tracking results design and delivery of products that create value for low- and customer awareness is critical to the effectiveness and income people by allowing them to more effectively manage capacity of delivery channels to offer insurance. Monitoring risk. Microinsurance targets vulnerable and financially efforts are invaluable in understanding which of the excluded people who are exposed to relatively high levels of disclosures, processes, and educational messages work well. risk, such as illness, death, natural disaster, crime, or crop failure. If well designed and delivered, microinsurance can Capacity building within governments is often needed at provide a formal and dependable coping mechanism to the regulatory and supervisory level. Insurance regulators reduce a household’s vulnerability to risk. Measuring social and supervisors may be understaffed or under-resourced performance and using it as a management tool can help to develop appropriate regulations and to supervise achieve these goals.100 appropriately. In the case of microinsurance consumer protection, which involves new products, new consumers, Social performance for microinsurance recognizes that the and innovative designs and delivery channels, these primary goal of the microinsurance business is not profit problems are often exacerbated. The field is still new maximization, but setting up risk mitigation mechanisms enough that regulators and supervisors have few established for the poor, who do not have access to formal insurance or best practices. 43 Progress in Responsible Financial Inclusion Financial Institutions’ innovative approaches in microinsurance to build capacity at the insurer level (see Box 4.1). Delivery channels can Self-Regulation provide support in this area, especially those who have In the absence of consumer protection regulation for relationships and experience with the target consumers. insurance, how well market players respond to consumer The joint efforts of some insurers and delivery channels in protection varies according to their relationships to low- the Philippines to develop formal microinsurance products income consumers and their incentives to represent based on this knowledge and often modeled on informal consumer interests. This role also highlights the tensions and insurance products provide an excellent example of this synergies in protection regulation, which can be restrictive, concept. and development over time of a deeper market with a level playing field. Facilitating broad access to insurance may Financial Education involve providers that are less stable, less trustworthy, or less likely to represent the interests of the consumer. Consumers need to be engaged as active participants in protecting themselves. The responsibility for protection Where nontraditional delivery channels and MFIs are that is left to consumers depends on the level of consumer active in providing insurance to their customers, additional financial capability, the complexity of products and consumer protection measures may be appropriate, processes involved, and on the capacities, responsibilities, including efforts to ensure that consumers understand and and incentives of other parties. Consumers must have clear know how to use products before they purchase them. At information about products and processes at the appropriate a minimum, some information should be disclosed prior to times. Many consumers need additional capacity building, sale. These efforts may be difficult when delivery channels primarily through a range of financial education initiatives. are unlicensed, and when some channels, such as retail These initiatives should be an integral part of the product outlets, can provide little verbal information to customers. offerings as the 2011 Landscape Study on Micro Insurance Written disclosures are an imperfect solution, even if they are concludes. 103 ,104 simple and in clear language. However, written disclosures can at least alert consumers to the fact that the products Broad financial and insurance education efforts often involve some complexity. They can be especially effective led by governments or industry associations can improve when combined with market-wide consumer education consumer awareness and disseminate information. These efforts about insurance and key insights as to what to look efforts are most effective when they involve government, for when considering insurance. donors, and industry tapping into the strengths of different parties. Governments often have the “purest” incentives to Where delivery channels lack the capacity or appropriate educate consumers in a way that does not promote either incentives to carry out consumer protection responsibilities, insurance generally or specific products, but they often lack it makes sense to insist that the insurer work with an the expertise in developing effective messages, budgets, and intermediary to ensure accountability and clarity about channels to deliver those messages. Insurers and delivery product features and processes. Although insurers may be channels can bring a better understanding of insurance less attuned to the needs of low-income customers, they products and of low-income consumers. Donors can bring know the details of their insurance products and processes. funding (which is always a challenge in the case of public (See case study on Allianz in Chapter 3.) goods such as education) and experience and best practices from other contexts. Insurer support in training staff, At the insurer level, capacity-building is often needed to delivery channels, developing appropriate materials, and understand the needs of low-income consumers, including acting as an ongoing resource can be helpful in building how they value insurance products. Insurers lack experience capacity. with the low-income market and struggle to design products that meet consumers’ risk management needs Donors and other international stakeholders can be helpful while accounting for their ability and willingness to pay. in developing and sharing practices, supporting regulatory IFC’s Global Index Insurance Facility (GIIF) is piloting developments, and building expertise within government 44 Chapter 4: Microinsurance: Emerging Focus Box 4.1: Global Index Insurance Facility Innovation in insurance is emerging, demonstrated by Innovation is not only key for the products on offer, but recent results of the Global Index Insurance Facility (GIIF), also in the way they are marketed and sold to reach a program managed by IFC and jointly implemented with clients who are often scattered in rural and hard-to- the World Bank, and financed through donor funds from reach areas. Africa and other parts of the developing the European Union, Japan, and the Netherlands. GIIF is world need more innovation, better products, and an pioneering the development of an agricultural insurance increasing focus on the needs of farmers, small business market for small farmers and pastoralists in Africa. owners, and consumers at the base of the economic Working closely with insurance companies, meteorological pyramid. Index insurance bears the promise to become departments, banks, microfinance institutions, a breakthrough because the measurable indices make governments, farm cooperatives, and agribusinesses, the it easily standardized. The product also demonstrates program helps expand access to index-based insurance that well-targeted and appropriate solutions can find to farmers and pastoralists, compensating credit willing consumers on a scale that opens new markets, providers and/or farmers for losses that happen because expands economic opportunities, and delivers longer- of adverse weather conditions. The innovative aspect of term development impact for the people who need it index insurance is that payouts are made as soon as the most. Most importantly, farmers are now learning that predefined statistical indices are triggered, irrespective of index insurance can be trusted and unfavorable weather the actual loss and without having to wait for onsite visits conditions need not have such a destructive effect on to farms and lengthy claims to be settled. Over 53,000 their livelihood. farmers in Kenya and 21,000 farmers in Rwanda have benefited from the program. agencies to allow them to supervise adequately. Caution pertinent. There are now more than 500 million should be taken in assuming that a “best practice” exists in microinsurance consumers and that number keeps growing. protecting consumers in microinsurance. Most countries Innovations are taking place in the market to bring down have new markets, with regulation typically following rather costs, safeguard profits, achieve affordability and extend than leading market activities. the reach of microinsurance. However, to sustain growth and achieve scale and sustainability, consumers must experience true value. To meet this challenge, the delivery Responsible Finance Forum IV – Focus on of microinsurance needs to be responsible. Microinsurance At Responsible Finance Forum IV, June 24-25, 2013 Key Takeways from the RFF IV in Berlin, hosted by the German Federal Ministry for Economic Cooperation and Development (BMZ) and the Consumer Protection Regulation Federal Financial Supervisory Authority (BaFin), 85 high- ranking participants from 23 countries exchanged ideas, • Innovations are necessary to facilitate market shared experiences and presented initiatives to advance development. The IAIS acknowledged that supervisory the agenda for responsible finance in emerging insurance authorities are faced with a complex dilemma: how markets. The RFFIV was organized in collaboration with to effectively protect consumers without threatening the Access to Insurance Initiative (A2ii), CGAP, IAIS, the availability of needed services and innovations IFC, the ILO, MIN, the Ministry of Foreign Affairs of the that promote the development of the microinsurance Netherlands, and Munich Re Foundation. market. The IAIS and the A2ii are investing in building supervisory capacity to help supervisors to meet both of The timing of the debate on consumer protection in these challenges without overlooking the Insurance Core emerging insurance markets could not have been more Principles (ICPs). 45 Progress in Responsible Financial Inclusion • Supervisors from emerging insurance markets have Financial education strategies are different from marketing adopted different approaches to protect consumers strategies but it is necessary to find ways of linking education in various areas, such as formalization of insurance with platforms that make products available for potential providers and distribution channels, product regulation consumers. and robust engagement on financial education. Building financial capabilities is a long-term and complex • Regulators and supervisors need to consider the stage of process because it requires behavioral change. Localized development of the insurance market in order to choose context is important. Financial education therefore requires the most appropriate consumer protection strategies. efforts by all stakeholders. • Strengthening the ability of distribution channels to actively protect consumers is often essential, and it is Conclusions typically desirable to bring these channels under the insurance regulation. In any case (and particularly when The three pillars of responsible finance are as valid for distribution channels are not licensed) it is important to insurance as they are for the other poverty- oriented financial ensure that insurers are held accountable for wrongdoing services. Joint efforts of policy makers, supervisors, industry, by distribution channels. development partners and other stakeholders are needed for further consumer protection in microinsurance. The Industry Initiatives sector needs to ensure real accountability and enforceability of existing regulations based on existing mandates and to • Consumers’ trust and confidence in insurance products tackle cost issues that arise with the adoption of consumer and providers is needed to achieve scale and sustainability protection measures. of microinsurance. The industry plays a crucial role in developing this trust, both through specific consumer The main challenge in consumer protection in protection measures and more broadly by offering microinsurance is to strike the right balance between understandable, affordable, and valuable insurance effectively protecting the consumer and increasing access products as well as by providing unique and rapid claims to microinsurance by promoting the development of the administration. microinsurance market. Efforts to stimulate the market • Industry players have different experiences and scale of microinsurance and increase access to insurance approaches, as well as interesting initiatives for self- must be balanced against consumer protection needs, but regulation and tailoring grievance mechanisms. in the long term there are synergies between the two. Given that effective consumer protection promotes stability, value, • The relationship between industry self-regulation and and trust in microinsurance, scale and access goals will also consumer protection through regulation is intertwined ultimately benefit from consumer protection. and there are strong possible synergies between the two. We must empower consumers in order to build confidence Financial Capabilities and trust, and ensure that they can play an active role in It is important, though difficult, to measure impact of protecting themselves and using insurance effectively. To financial education efforts on consumers’ understanding do so, it is important to understand who the consumers and ability to make good decisions about insurance. are, what knowledge and capacity they already have, and what information and skills could help them play a more active role. 46 CHAPTER 5 Looking Forward Microfinance has grown rapidly over the last few decades, Consumer Protection Regulation expanding access to financial services for the poor across the Lessons from initiatives featured in this report in Ghana, world. With half a billion of the world’s poorest living in India, and the Philippines show the power of implementing India alone, six hundred million across South Asia and when comprehensive regulatory regimes across the financial combined with the over four hundred million poor in Africa, sector to strengthen and broaden responsible finance. This the poverty numbers remain staggering. With low defaults, approach will help ensure that financial services providers high returns and large unmet demand leading to expansion follow the same rules and standards. The future agenda and growth, the top-tier microfinance institutions matured includes working on comprehensive regulatory frameworks into a high-return asset class. Mainstream capital flocked to that include all providers of financial services, including the sector, enticed by the profitability and growth, giving banks and nonbank financial institutions. rise to increased number of institutions offering small loans to clients. Governments such as China are developing new consumer protection regulations, and involving industry stakeholders Intense competition has provoked over-indebtedness and in the process to hear their views and share lessons. A future led to crises in countries such as Bosnia and Herzegovina, agenda looks into the constraints of effectively supervising India, and Nicaragua, while signs of overheating are and enforcing consumer protection regulation, which emerging in other markets. The ongoing financial crisis often lags behind initial reforms. Innovative research at in more developed countries such as in Western Europe the consumer level is also essential for regulators to design has underscored the importance of accountability and disclosure reforms and other effective measures to improve transparency for a more stable and resilient financial services market conduct, fair treatment, and effective recourse. A sector, beyond microfinance. future agenda could include further developing tools on effective methodologies.105 Today, in many countries, microfinance clients now have access to a number of institutions willing to offer loans. While many institutions have added payment systems, Financial Institutions’ Self-Regulation education and other loans and savings to their services mix, Global microfinance industry stakeholders are engaged the tried and true microcredit remains the main driver for in creating a new vision and next steps.106 An updated most MFIs. The developing world needs more innovation, statement of shared vision includes the commercial financial better products, and an increasing focus on the needs of end sector. Challenges to bring about this vision include further customers, small business owners, and consumers at the base awareness raising, changing incentives, building capacity to of the economic pyramid. By embedding the principles of implement new solutions, and expanding the scope of work Responsible Finance into core delivery of financial services, beyond microfinance to the broader financial market and the financial institution is able to appropriately manage risk, more purely commercial players. These challenges form balance profitability with inclusive finance, and contribute the basis of a future priority agenda to deepen responsible to long-term sustainability and wider systemic growth. This finance practices within the fabric of the financial sector. chapter takes a look at a future agenda critical to maintain progress toward responsible financial inclusion. 47 Progress in Responsible Financial Inclusion A future agenda for industry self-regulation looks at the introducing these three principles as fundamental for a following, namely to: paradigm shift in finance.”111 GABV member banks are already discussing what is needed to make the financial • Embed responsible finance principles and practices system more people oriented and stable and what more cohesively within institutions’ operations,107 stakeholders including banks, regulators, and governments including the use of credit bureau reporting to mitigate have to do to make this happen. over-indebtedness,108 to tackle some of the issues underpinning the latest financial crises including A future agenda also calls on the broader industry to asymmetric information between borrowers and lenders harmonize the definitions of standards, principles, practices, leading to adverse selection, credit rationing, and moral indicators, and language of the different global initiatives hazard. with the established organizations highlighted earlier in the • Ensure complementarity of risk management and report (e.g., Smart Campaign, MIX Social and Financial responsible finance in operations.109 Responsible Performance Reporting Standards, Universal Standards for Finance and risk management are two sides of the Social Performance Management); and coordinate multiple same coin. Combined they define a set of standards, relationships with partner organizations efforts for effective systems and processes to assess and monitor borrower capacity building and training initiatives at the sector level. creditworthiness and provide early warning signals on potential risks. While responsible finance focuses on Investors Well-Positioned in the end customer as consumers of products and services Responsible Market Building provided by financial institutions that are growing/ expanding; risk management focuses on the financial Responsible funders are well positioned to build broader stability of the institutions (growth, products, services) market capacity for responsible finance, particularly those themselves. It is clear that an emphasis on both is with substantial capacity for advisory work or grants for necessary for long term sustainable growth. capacity building and “public goods” work. This healthy • Strengthen corporate governance standards of financial trend is worthy of continued dialogue among development institutions, through harmonized industry standards and finance institutions and other investors. In Chapter 3, practices based on regulation and mutually reinforcing this report featured IFC’s initiatives in India, Bosnia and self-regulation, such as the common codes of conduct Herzegovina, and Eastern Europe and Central Asia, as established between associations in India. well as BMZ and GIZ’s initiatives in China and Ghana. The future agenda includes continued work about how • Engage financial services industry associations, such investors engage in responsible finance market building, as those serving bankers, insurers, and cooperative sharing results of experience, and expanding efforts to other development authorities in bringing responsible finance countries. principles and practices to their members, such as the work of IAIS. In 2013, AFD and FMO began work with the Cambodia Microfinance Association (CMA) and several leading MFIs Several mainstream financial institutions, such as the and Banks to develop a client protection certification members of the Global Alliance for Banking on Values process, for the market as a whole, not only their individual (GABV), the World Savings Bank Institute and the investees. The effort focuses on providing technical European Savings Bank Group110 are continuing to build assistance to upgrade systems and practices for selected on past lessons from microfinance and the global financial institutions that cover over 80 percent of the microfinance crises. Their initiatives also reinforce the basics of doing market. The effort complements IFC’s work since 2006 to good business. Reflecting this vision, the GABV released strengthen the financial infrastructure for credit reporting the Berlin Declaration in March 2013, which calls “for in Cambodia, including ongoing capacity building support a fundamental shift in how banks operate to make them for institutions committed to embedding responsible more transparent, sustainable and diverse. GABV believes finance practices. 48 Chapter 5: Looking Forward “Under what circumstances can a self-regulatory initiative regarded as desirable but optional, to one where it is seen like this be effective?” AFD and FMO believe such initiatives as required.”114 can be effective if there is a transparent and consistent standard to measure compliance and a credible mechanism Financial Capability Gaining New Ground to ensure that it can be enforced. Smart Certification in New Places provides the standard. “What about enforcement?” A key issue is whether investors can create strong incentives New techniques in delivering financial education, as well for responsible practices by building them into their as established ones have created a rich experiential base policies and financing structures – that is, “will they say for further innovation. The diversity of consumers and no when practices are inadequate and reward providers providers will support emerging efforts to deliver financial with stronger responsible practices?” As the Principles for education messages through multiple channels including Investors in Inclusive Finance (PIIF) pilot reporting notes, cell phones, radios, TV, and social media. New ways to stage all investors who took part in the pilot have endorsed the and reinforce themes will be developed to foster continuous Client Protection Principles, and nearly all include client learning. And, because managing money is a skill that is in protection measures in investment policies, due diligence high demand and short supply, financial education untied processes and financing agreements.112 The positive to consumer protection or specific customer relationships momentum established by investors in post crisis and will continue to be embraced far beyond the financial heated markets bodes well for achieving the future agenda. services industry. Corporate employees, factory workers, union members, and farm workers are likely consumers The enforcement mechanism appeals to the weight and of financial education in the future. (See the Bosnia and momentum of dominant market practices and dominant Herzegovina case study in Chapter 3 as an example.) The market players – both investors and the financial service industry begins to accept the perspective that the goal of providers. In Cambodia, CGAP blogger Daniel Rozas financial capability is to help people manage better their noted, “DFIs are funding leaders in the market and in livelihoods and well-being. a perfect position to kick-start enforcement of client protection by mandating that MFIs become Smart A complementary vision for the future sees financial Certified as a precondition for investment. Because MFIs education as a public good tied to the formal education maintain multiple funding relationships, the impact of such system. The development of national financial education a mandate would quickly propagate through the market.113 strategies include financial and social policies and involve public and private stakeholders. Governments have also “The rationale for effectiveness is based on reaching critical initiated national financial education strategies, some mass. Reaching critical mass of certified MFIs would have of which incorporate rigorous monitoring and impact two important outcomes: first, it would isolate the few measurement. Ministries of Education are being engaged remaining large MFIs unaffected by the mandate, at which to incorporate financial education into their national point it’s likely that they would choose to become Smart school curricula. As detailed in this report, a future agenda Certified rather than risk being singled out in front of their includes more experimentation with innovative ideas that regulators, politicians, and the local media. Second, as work and can operate at scale, engaging Ministries of the mandate is rolled out across more countries, the same Education to confer about what it would take to integrate dynamic would emerge among funders and investors, whose financial education into school curricula, and involving portfolios would become increasingly populated by Smart nongovernmental stakeholders to support the process. Certified MFIs. At that point, it’s likely that investors would themselves start to apply the mandate rather than be singled Several recommendations for the future agenda are: out for having lower rates of Smart Certification than their • Incorporate what is known about learning and behavior competitors. In effect, by kick-starting the process, the change into financial education/literacy/capability design. original mandate could credibly push the microfinance Interventions aimed at increasing financial capability sector from equilibrium where Smart Certification is 49 Progress in Responsible Financial Inclusion should make use of insights about teachable moments, past experience with pilots and innovative initiatives that cultural influences, and changing lifecycle needs. have produced results. The agenda focuses on scaling up, continued research and evaluation of efforts and developing • Support the delivery of capability-building messages. practical means to coordinate harmonize and implement Further research is needed to understand the most efforts among pillars and within the industry. effective ways that technology can be used to support financial capability. AFI’s and OECD/INFE’s peer-to-peer working groups • Continue developing reliable methods for measuring and subgroups have been effective among policy makers financial capability levels and effectiveness of and regulators. Recent research and experience in financial interventions, including indicators that measure and education initiatives at the client level show the cost- track financial capability levels at the national level, effectiveness of some high-touch, but nontraditional coupled with studies tracking the impact of various methods of communicating messages effectively. On interventions. the industry self-regulatory front, Smart Campaign • Build financial education within school curricula to certification opens new opportunities for industry self- promote a basic level of financial literacy across the regulation. Capacity-building efforts are equally important population of a country. Further research is needed to to ensure more accredited assessors and raters are trained develop best practices in this area and ensure that they and more equitably distributed to regions. At the financial are relevant to country context. service provider’s level, incorporating new responsible finance practices almost always requires a change in • Deepen understanding of the business case for financial systems, increased staff development, and capacity education. More research, based on practice, is also building at various levels of the organization, as the India needed on how to make financial education efforts case documents. Chapter 4 notes that new players in the sustainable and scalable. microinsurance market often do not understand low- income customers and have difficulty designing products Building Capacity Across the Pillars of that respond to their needs. More recent progress has been Responsible Finance made in calling attention to the importance of consumer protection, developing guiding principles, and setting Every chapter of this report highlights the need for concerted standards. Going forward, these efforts taken altogether capacity building across the three pillars of responsible are critical to reinforce a solid foundation for the future of finance: for consumers, for retail financial service providers, responsible financial inclusion. for support networks, and for government agencies. The future agenda calls for efforts to deepen and broaden 50 References ADA (Appui au Développement Autonome), BRS (Belgian CGAP (Consultative Group to Assist the Poor). n.d. Global Raiffeisen Foundation), Microinsurance Network. 2013. Standard-Setting Bodies and Financial Inclusion for the Poor: “Social Performance Indicators for Microinsurance.” Toward Proportionate Standards and Guidance. http://www. 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[“Global Responsible Finance Program”] Presentation Finance Corporation, closing presentation, April. at Investor Roundtable, FinNet Conference, “The Financial Inclusion Challenge: Holistic Solutions for Scale and ———. 2013a. “Access to Finance Review 2012.” January. Impact.” February 19-20, World Bank, Washington, D.C. ———. forthcoming in 2013 “Global Responsible Finance GBAV (Global Alliance for Banking on Values). 2013. Diagnostic Tool for Advisory and Investment Services.” “Berlin Declaration 2013: Transforming the Financial System for Stability and a Focus on People.” March, IFC, CGAP, and BMZ (International Finance Corporation, Berli. http://www.triodos.com/downloads/about-triodos- Consultative Group to Assist the Poor, and Federal bank/global-alliance-for-banking-on-values/berlin- Ministry for Economic Cooperation and Development, declaration-2013.pdf Germany). 2011. “Advancing Responsible Finance for Greater Development Impact: A Stock-Taking of Strategies GFPI and CGAP (Global Partnership for Financial and Approaches among Development Agencies and Inclusion and Consultative Group to Assist the Poor). n.d. Development Finance Institutions.” Consultation Draft, “Global Standard-Setting Bodies and Financial Inclusion for January 27. the Poor toward Proportionate Standards and Guidance.” White paper prepared by CGAP on behalf of the G-20’s Laboul, Andre. 2012. “National Strategies for Financial Global Partnership for Financial Inclusion. Consultative Education.” Presentation at the Colombia-OECD-World Group to Assist the Poor. Bank Conference on Financial Education. October 31, Cartagena, Colombia. Grifoni, A. and F. Messy. 2012. “Current Status of National Strategies for Financial Education: A Comparative Analysis MasterCard Foundation, Microfinance Opportunities, and Relevant Practices.” OECD Working Papers on and Genesis Analytics. 2011. “Taking Stock: Financial Finance, Insurance and Private Pensions No. 16. OECD Education Initiatives for the Poor.” Global Study on Publishing. http://dx.doi.org/10.1787/5k9bcwct7xmn-en Financial Education. and OECD/INFE update in 2013 - Current status of national strategies for financial education OECD/INFE Giné, X., Cuellar. M, Mazer, R., 2013. “The Quality Comparative Analysis and Relevant Practices. of Financial Services: Evidence from an Audit Study in Mexico” 52 References MFO (Microfinance Opportunities). “Financial Capability Reddy, Rekha. 2012. “Lessons from Colombian and Index Toolkit.” www.microfinanceopportunities.org Mexican Financial Capabilities Surveys.” Presentation at the Colombia-OECD-World Bank Conference on Financial MIA (MicroInsurance Academy), Microinsurance Education, Columbia, October. Network and ILO’s (International Labour Organisation) Microinsurance Innovation Facility. 2011. “A Landscape SEEP Network. 2012. Codes of Conduct and the Role of Study on Micro Insurance Education”, India Microfinance Associations in Client Protection, by Cara S. Forster in the series, “Advancing Microfinance through Micro-Credit Ratings International Ltd. 2012. “Financial Association Leadership: Promoting Standards of Practice.” Awareness Scoping Initiative.” Study for IFC and GIZ, http://www.seepnetwork.org/codes-of-conduct-and-the- August. role-of-microfinance-associations-in-client-protection- resources-345.php OECD (Organisation for Economic Co-operation and Development). 2011.”G-20 High-Level Principles on Stein, P., B. Randhawa, and N. Bilandzic. 2011. Toward Financial Consumer Protection.” October. www.oecd.org Universal Access, Addressing the Global Challenge of Financial Inclusion. Washington, D.C.: International Finance OECD and INFE (International Network on Financial Corporation. Education) 2012. “High-Level Principles on National Strategies for Financial Education.” http://www.oecd.org/ The MasterCard Foundation, Microfinance Opportunities, daf/fin/financial-education/OECD_INFE_High_Level_ and Genesis Analytics. 2011. Taking Stock: Financial Principles_National_Strategies_Financial_Education_ Education Initiatives for the Poor. http://www.mastercardfdn. APEC.pdf org/pdfs/TakingStockFinancial.pdf Pearce, Douglas and Claudia Ruiz Ortega. 2012 “Financial World Bank. 2011. Impact Evaluation of Brazil’s School Inclusion Strategies Reference Framework.” Financial Based Financial Education Program. Preliminary Results. Inclusion Practice of the World Bank, Prepared for the www.worldbank.org. G-20 Mexico Presidency. World Bank. 2012a. “Financial Inclusion Strategies Reference PRI (Principles for Responsible Investment) 2012a. Framework.” Paper prepared by the World Bank for the Principles for Investors in Inclusive Finance (PIIF) Info G-20 Mexico Presidency. June. http://siteresources. Pack. May. http://www.unpri.org/ worldbank.org/EXTFINANCIALSECTOR/Resources/ 282884-1339624653091/8703882- ———. 2012b. Responsible Investment in Inclusive Finance: 1339624678024/8703850-1339624695396/FI- Principles for Investment in Inclusive Finance Case Studies. Strategies-ReferenceFramework-FINAL.pdf The Global Compact and UNEP Finance Initiative. https:// www.incofin.com/en/publication/principles-investors- World Bank. 2012b. Good Practices for Financial inclusive-finance-case-studies Consumer Protection. http://siteresources.worldbank. org/EXTFINANCIALSECTOR/Resources/282884- PRI and CGAP (Principles for Responsible Investment 1339624653091/8703882-1339624678024/8703850- and Consultative Group to Assist the Poor). 2013. “PIIF 1340026711043/8710076-1340026729001/ Signatories’ Report on Progress Based on Pilot PRI FinConsumerProtection_GoodPractices_FINAL.pdf Reporting Framework 2012.” http://www.unpri.org/ viewer/?file=wp-content/uploads/20130226PIIFSignatorie World Bank and Russia Trust Fund, 2013. “Making Sense sReportonProgress.pdf of Financial Capability Surveys around the World: A Review of Existing Financial Capability and Literacy Measurement Instruments.” www.responsiblefinance.worldbank.org, www. finlitedu.org 53 Progress in Responsible Financial Inclusion World Bank and Russia Trust Fund, 2013 Holzmann, Zimmerman, Emily, Magnoni, Barbara, and Camargo, Mulaj, Perotti 2013. “Financial capability in low- and middle- Andrea. 2013. “Pure Intentions: and Practice: Challenges and income countries: measurement and evaluation”, A report on Good Practices in Consumer Protection in Microinsurance.” the World Bank’s research program and the knowledge from Commissioned by the Microinsurance Network, BMZ and the Russia Financial Literacy and Education Trust Fund. GIZ. World Bank and Russia Trust Fund, 2013 Yoong, Mihaly, Zottel, Siegfried, Valeria Perotti, and Tillmann Heidelk. Bauhoff, Rabinovich, Hung 2013 “A toolkit for the evaluation 2013. “Paving the Road to Better Financial Decision-Making of financial capability programs in low- and middle-income in Tajikistan.” World Bank. http://documents.worldbank. countries”, World Bank toolkit from the Russia Financial org/curated/en/2013/05/17966051/paving-road-better- Literacy and Education Trust Fund includes: “The Impact financial-decision-making-tajikistan of Financial Literacy through Feature Films: Evidence from a Randomized Experiment in Nigeria” 54 Endnotes 1. This report refers to clients, consumers, and customers by bank officials. See Almazan 2010 and studies by the and uses these terms as in the original source documentation. IFMR www.ifmr.ac.in and MicroSave, www.microsave. When no source document is cited directly: “client” is org. The more recent reference, CGAP and IFMR Trust generally used to refer to an individual, group of individuals, 2012, provides an encouraging note that well-designed or a firm (as in the case of investors) who have established financial capability interventions — including information a direct relationship with the financial service provider or and quality engagement between clients and bank agents investor; “customer” is used to refer to individuals who buy — brought about improvement in banking activity and services or products, the focus being on the transaction; and savings. “consumer” is used to refer to a segment of the population, as in “consumers of financial services” or “consumer 10. Ibid. protection.” 11. See Alliance for Financial Inclusion website, “What is 2. IFC, CGAP, and BMZ 2011. the Maya Declaration?” http://www.afi-global.org/maya- declaration. 3. Responsible Finance Forum III, hosted by IFC, April 2012, “Executive Summary and Key Takeaways.” 12. http://responsiblefinance.worldbank.org/events/~/ media/GIAWB/FL/Documents/Misc/Event-Global- 4. IFC, CGAP, and BMZ 2011. survey-on-consumer-protection-and-financial-literact.ashx 5. This definition of financial education was endorsed by 13. World Bank 2012a. OECD Governments in 2005 and G-20 leaders in 2012. 14. See CGAP website, “Implementing Consumer 6. IFC, CGAP, and BMZ 2011; Stein, Randhawa, and Protection in Emerging Markets and Developing Bilandzic 2011,30; CGAP 2011, 2-3. Economies”, A Technical Guide for Bank Supervisors, Denise Dias, 16 August 2013 and others. 7. CGAP and IFMR Trust 2012; World Bank 2012a; and Citi-Foundation 2012. 15. GFPI and CGAP n.d. The G20 Leaders have acknowledged the increasing engagement of global 8. This report is based on a survey of the responsible finance standard-setting bodies regarding financial inclusion for the community of practice, including organizations, industry 2.5 billion people around the world without access to formal associations, investors and donors, and global support financial services. (October 2012) First GPFI Conference networks. See “about this report” in front matter. on Standard Setting Bodies and Financial Inclusion. 9. In India, estimates of the large number of inoperative 16. Cenfri 2012. “no-frill” accounts range from 87 percent to 95 percent. Account holders do not use accounts because they have little 17. See AFI website, http://www.afi-global.org/policy- information on transaction costs and fear poor treatment initiatives/mobile-financial-services. 55 Progress in Responsible Financial Inclusion 18. Smart Campaign Assessment and Certification significant experience of the Credit Bureau Team of the Process tools and guidance, www.smartcampaign.org; International Finance Corporation. Microinsurance Network’s “Social Performance Indicators,” www.microinsurancenetwork.org; Social Performance 29. OECD 2011. Task Force’s “Universal Standards for Social Performance Management,” www.sptf.info/spmstandards/universal- 30. For example, the Smart Campaign CPPs, AFI, CGAP/ standards. World Bank work and guidance, among others 19. CGAP 2010. CGAP’s guide for investors includes 31. See AFI experience individual investor’s guidelines, checklists, and tools for responsible finance, social performance, and client 32. GCAP and CGAP n.d. protection. 33. For more detail on policies and practices, please refer 20. IFC 2012b and IFC 2012c. to GCAP and CGAP n.d. 21. AVOID Investor Group, draft guidelines presented at 34. Global Standard-Setting Bodies and Financial the Social Performance Task Force Investor Meeting, June Inclusion for the Poor: Toward Proportionate Standards 2013. and Guidance. (nd) http://www.gpfi.org/sites/default/files/ documents/CGAP.pdf. For more detail on policies and 22. Dannet 2013. practices, please refer to the document. 23. Citi Foundation 2012. 35. Pearce and Ortega 2012. This reference framework was prepared at the request of the Mexico G-20 Presidency. It 24. Consumers International 2012; MFO and the Russia builds on and profiles: country models and examples, the Trust Fund, “Financial Literacy and Educaton,” www. work of the GPFI through its four subgroups (Principles for finlitedu.org. Innovative Financial Inclusion and Standard Setting Bodies Engagement, SME Finance, and Financial Inclusion Data 25. Key challenges are identified from experience and Measurement, Financial Consumer Protection and implementing responsible finance initiatives. These Financial Literacy), the Alliance for Financial Inclusion challenges, as well as other references in this report come (AFI), IFC, CGAP, the World Bank, UNCDF, Asia- Pacific from responses to the RFF Global Mapping exercise, July- Economic Cooperation (APEC), and others. February 2013 (see “About this Report” in front matter). 36. World Bank 2012b. 26. IFC FinNet 2013, Session on “Progress in Responsible Finance: Two Views From Inside Out”, February 2013. 37. Citi Foundation 2012. Bridging the Gap, cautions that “–“a chasm that exists between those who have skills and 27. Russia Trust Fund, DFID Africa Financial Education knowledge to responsibly engage with a formal financial Fund. system… and those who have not.” The research suggests that between 500 million and 800 million of the world’s 28. The report has been prepared by a Task Force low income earners have access to finance, but 75 percent coordinated by the World Bank, with support from the Bank have not been offered the skills and knowledge needed to for International Settlements. The Task Force comprises make informed financial decisions. The study cautions that representatives from central banks and other financial and the gap is set to widen and will likely become increasingly privacy regulators, from multilateral organizations involved difficult to fill. in credit reporting and from international credit reporting service providers. The Task Force also benefited from the 38. Citi Foundation 2012. 56 Endnotes 39. Reddy 2012; Anagol et al. 2012. 50. PRI 2012b. Lessons from the Case Studies come from Incofin, Triple Jump, Blue Orchard, Triodos, Finance in 40. AFI 2011. CEMC Working Group Motion, Grassroots Capital and Caspian, Oikocredit, SNS, and responsibility. 41. AFI, www.afi-global.org 51. PRI 2012b. 42. To develop certification, the Smart Campaign and its task forces translated the seven principles into 30 specific 52. FMO 2013. standards of practice within organizations. The standard- setting process drew on norms, values, and practices already 53. IFC 2013a. present within microfinance, but not always formally recognized. See E. Rhyne, Huffington Post Blog, January 25, 54. IFC 2013a. 2013. 55. This financial education definition was endorsed by 43. The Working Group comprises eight global organizations OECD governments in 2005 and G-20 leaders in 2012. that have more than 250 microfinance affiliates, subsidiaries, and partners in over 70 countries, supporting more than 40 56. World Bank and Russia Trust Fund 2013. million clients. 57. Cohen and Nelson 2011. 44. Microfinance CEO Working Group statement, January, 2013. 58. OECD/INFE 2012. 45. SEEP Network 2012. SEEP supports over 60 MFAs 59. Grifoni and Messy 2012. to establish, disseminate, and enforce codes of conduct for their MFI members. Most of the discussion in the text 60. Holzmann, Mulaj, Perotti 2013. “Financial capability comes from the SEEP paper referenced. in low- and middle-income countries: measurement and evaluation”, A report on the World Bank’s research program 46. SEEP Network 2012. and the knowledge from the Russia Financial Literacy and Education Trust Fund. 47. PRI 2012a. A group of investors developed PIIF together with the United Nations-backed Principles for Responsible 61. OECD/INFE 2012. Investment (PRI), CGAP, and other key industry players. The Dutch Ministry of Foreign Affairs provided grant funding 62. Russian Trust Fund, http://www.finlitedu.org/ to enable the PRI to establish the PIIF, and additional support came from Incofin, Nederlandse Financierings- 63. See OECD/INFE outputs of the Russian Trust Fund Maatschappij voor Ontwikkelingslanden N.V (FMO), on financial literacy and education at http://www.oecd. Grassroots Capital Partners, Caspian, OikoCredit, PGGM org/daf/fin/financial-education/6%20-%20Summary%20 Vermogensbeheer B.V. (PGGM), SNS Impact Investing Records%20-%20Russia%20WB%20OECD%20 and Triodos Investment Management. Trust%20Fund%20Dissemination%20Conferences%20. pdf 48. PRI and CGAP 2013. This section reports findings from this 2013 “Report on Progress.” 64. International Gateway for Financial Education: http://www.financial-education.org/home.html 49. Symbiotics Research and Advisory. 2012. “ Symbiotics MIV Survey: Market Data & Peer Group Analysis.” July. 65. Grifoni and Messy 2012 and OECD/INFE update http://www.microfinancegateway.org/p/site/m/template. in 2013. rc/1.9.59392/ 57 Progress in Responsible Financial Inclusion 66. Banco Central do Brasil 2012; World Bank 2011. 81. Chris Dunford, “Freedom from Hunger,” Center for Financial Inclusion blog, May 15, 2012. http://cfi-blog. 67. For a range of impact studies, see www.finlit.edu. org/tag/chris-dunford/ 68. Holzmann, Mulaj, Perotti 2013. “Financial capability 82. Holzmann 2010. in low- and middle-income countries: measurement and evaluation”, A report on the World Bank’s research program 83. MasterCard Foundation et al. 2011. and the knowledge from the Russia Financial Literacy and Education Trust Fund. 84. See Russia Trust Fund, “Two Efforts in Financial Capability Measurement,” blog, 2013 69. Yoong, Mihaly, Bauhoff, Rabinovich, Hung 2013 “A http://www.finlitedu.org/measurement/ and OECD, toolkit for the evaluation of financial capability programs “Measuring Financial Literacy: Pilot Results from 14 in low- and middle-income countries”, World Bank toolkit Countries,” http://www.oecd.org/daf/fin/financial- from the Russia Financial Literacy and Education Trust education/measuringfinancialliteracy.htm Fund includes: “The Impact of Financial Literacy through Feature Films: Evidence from a Randomized Experiment in 85. IFC 2012a. Nigeria” 86. IFC 2012a. 70. The MasterCard Foundation, Microfinance Opportunities, and Genesis Analytics 2011. The text, 87. Finscope 2010 Survey, Boakye, Amankwah, Abstract framework, and cases presented in this section are from from “Determinants of the demand for financial Products this stocktaking report. in Ghana” http://www.microfinancegateway.org/gm/ document-1.9.59150/Determinants_CB.pdf 71. Zottel et al. 2013 provides an empirical illustration of the positive relationship between financial knowledge and 88. Finscope 2010 Survey financial inclusion (e.g. p. 43). 89. Bank of Ghana deals with a Tier System of Licensing 72. Zottel et al. 2013. based on an organization’s or company’s capital base. There are 4 Tiers, with Tier 4, no capital base is required. 73. Micro-Credit Ratings International Ltd. 2012. 90. Burki 2009. 74. MFO; Consumers International 2012. 91. Chen et al. 2010. Portfolio at risk (PAR) of around 2 75. Consumers International 2012, percent in 2008 rose to an average PAR of 13 percent by 2009. 76. Citi Foundation 2012. 92. Thirty member MFPs covering 98 percent of the 77. Laboul 2012. market by volume. 78. Citi Foundation 2012. 93. The number of times a match is made with an existing record inside the bureau. 79. MasterCard Foundation and others 2011. 94. See, for example, MFO n.d. 80. Citi Foundation 2012. 95. BSP 2012. 96. BSP 2011a. 58 Endnotes 97. BSP 2011b. 106. IFC forthcoming 2013. 98. BSP 2012. 107. IFC 2012c. 99. BSP 2012. 108. IFC 2012b. 100. ADA et al. 2013. 109. Global Alliance for Banking Values, www. http:// www.gabv.org. World Savings Bank Institute and European 101. ADA et al. 2013. Savings Bank Group: http://www.savings-banks.com/ PortalHome.aspx; 102. Zimmermanet al. 2013. 110. GBAV 2013. 103. MIA et al. 2011. 111. See Chapter 2, PRI and PIIF. 104. CGAP 2012. 112. Daniel Rozas, “Can Self-Regulation Protect 105. In May 2012, IFC and The MasterCard Foundation Microfinance Clients?” CGAP blog, February 7, 2013 launched a partnership to improve financial services for an estimated 5.3 million people in Sub-Saharan Africa. 113. Daniel Rozas, “Can Self-Regulation Protect Through this new $37.4 million partnership, IFC and Microfinance Clients? CGAP blog, February 7, 2013 the MasterCard Foundation will help microfinance banks expand more rapidly and develop new products and cost- 114. MasterCard Foundation et al. 2011. effective delivery channels, while expanding coverage in new, often hard-to-reach locations. In January 2013, the 115. These are draft recommendations are from the CFI Ford Foundation hosted a day-long retreat for the CEOs, 2020 Working Group on Financial Capability, and are executive directors, and other senior staff of major initiatives broadly representative of thinking about an agenda for the that directly support inclusive, responsible finance. future. MFTransparency, the Center for Financial Inclusion, the Smart Campaign, the MixMarket, the Seal of Excellence, the Social Performance Task Force, the Principles for Investors in Inclusive Finance, and CERISE were represented. IFC 2012 59 Compendium of Global Mapping Survey Respondents 2013 Compendium of Global Mapping Survey Respondents 2013 Contents Intergovernmental Organizations...................................................................................................... 65 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)................................. 65 Donors and Investors........................................................................................................................... 66 THE AFRICAN DEVELOPMENT BANK (AfDB)........................................................................................ 65 ASIAN DEVELOPMENT BANK (ADB).................................................................................................... 66 AUSAID.............................................................................................................................................. 67 BAMBOO FINANCE............................................................................................................................ 67 BLUE ORCHARD................................................................................................................................. 67 BMZ: GERMAN MINISTRY FOR ECONOMIC COOPERATION AND DEVELOPMENT................................ 68 THE CALVERT FOUNDATION............................................................................................................... 69 CITI FOUNDATION.............................................................................................................................. 69 DEUTSCHE BANK............................................................................................................................... 70 DFID – THE DEPARTMENT FOR INTERNATIONAL DEVELOPMENT, UNITED KINGDOM........................... 71 DUTCH MINISTRY OF FOREIGN AFFAIRS............................................................................................. 72 DEVELOPING WORLD MARKETS (DWM)............................................................................................. 72 FINANCE IN MOTION.......................................................................................................................... 72 FMO: THE DUTCH DEVELOPMENT BANK............................................................................................ 73 FORD FOUNDATION........................................................................................................................... 74 BILL & MELINDA GATES FOUNDATION................................................................................................ 74 GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH)....................................... 74 GRAMEEN FOUNDATION.................................................................................................................... 75 GRASSROOTS CAPITAL MANAGEMENT (GCM).................................................................................. 76 HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC)................................................................ 76 INTER-AMERICAN DEVELOPMENT BANK (IDB)............................................................................................77 INTERNATIONAL FINANCE CORPORATION.......................................................................................... 78 KfW ENTWICKLUNGSBANK................................................................................................................ 79 MASTERCARD FOUNDATION.............................................................................................................. 80 MICHAEL AND SUSAN DELL FOUNDATION......................................................................................... 81 61 Progress in Responsible Financial Inclusion MICROCREDIT ENTERPRISES............................................................................................................... 81 MULTILATERAL INVESTMENT FUND (MIF)............................................................................................ 82 OIKOCREDIT INTERNATIONAL............................................................................................................. 82 OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC).................................................................... 83 RESPONSABILITY................................................................................................................................ 84 SAVINGS BANKS FOUNDATION FOR INTERNATIONAL COOPERATION (SBFIC)...................................... 84 SHOREBANK INTERNATIONAL (SBI)..................................................................................................... 85 SNS IMPACT INVESTING..................................................................................................................... 86 TRIODOS INVESTMENT MANAGEMENT.............................................................................................. 86 TRIPLE JUMP....................................................................................................................................... 87 UNITED NATIONS CAPITAL DEVELOPMENT FUND (UNCDF)................................................................. 87 UNSGSA............................................................................................................................................. 88 WORLD BANK GROUP........................................................................................................................ 88 International Support Networks........................................................................................................ 89 ALLIANZ SE........................................................................................................................................ 89 CENTER FOR FINANCIAL INCLUSION at ACCION – SMART CAMPAIGN............................................... 90 CERISE (Comité d’Echanges de Réflexion et d’Information sur les Systèmes d’Epargne-crédit)............. 90 CONSULTATIVE GROUP TO ASSIST THE POOR (CGAP)........................................................................ 91 DÉVELOPPEMENT INTERNATIONAL DESJARDINS (DID)........................................................................ 92 FINMARK TRUST................................................................................................................................. 92 GLOBAL IMPACT INVESTING NETWORK (GIIN)/ IMPACT REPORTING AND INVESTMENT STANDARDS (IRIS)......................................................................................................... 93 MF TRANSPARENCY........................................................................................................................... 94 MICROINSURANCE NETWORK........................................................................................................... 94 MICROFINANCE INFORMATION EXCHANGE INC. (MIX)...................................................................... 95 SEEP NETWORK.................................................................................................................................. 95 SOCIAL PERFORMANCE TASK FORCE (SPTF)....................................................................................... 96 TRIODOS FACET................................................................................................................................. 96 UN PRINCIPLES FOR RESPONSIBLE INVESTMENT (PRI) INITIATIVE......................................................... 97 National Support Networks................................................................................................................ 97 AZERBAIJAN MICRO-FINANCE ASSOCIATION..................................................................................... 97 MICRO FINANCE INSTITUTIONS NETWORK (MFIN).............................................................................. 98 62 Compendium of Global Mapping Survey Respondents 2013 Research, Advocacy and Consulting Organizations.......................................................................... 98 CHEMONICS INTERNATIONAL............................................................................................................ 98 ECONOMIST INTELLIGENCE UNIT (EIU)............................................................................................... 98 GLOBAL ALLIANCE FOR BANKING ON VALUES (GABV)....................................................................... 99 MICROCREDIT SUMMIT CAMPAIGN................................................................................................... 99 MICROFINANCE OPPORTUNITIES (MFO)........................................................................................... 100 Rating Agencies................................................................................................................................. 100 M-CRIL............................................................................................................................................. 100 MICRORATE..................................................................................................................................... 101 THE RATING INITIATIVE..................................................................................................................... 101 Microfinance Institution Affiliate Networks International FSPs.................................................... 102 FOUNDATION FOR INTERNATIONAL COMMUNITY ASSISTANCE (FINCA) INTERNATIONAL................ 102 MEDA.............................................................................................................................................. 102 OPPORTUNITY INTERNATIONAL........................................................................................................ 103 Financial Services Providers.............................................................................................................. 103 MCC MIKROFIN............................................................................................................................... 103 MICRO CREDIT FOUNDATION: EKI.................................................................................................... 103 MICRO CREDIT FOUNDATION: LIDER................................................................................................ 103 63 Compendium of Global Mapping Survey Respondents 2013 This compendium includes organizations that responded information, security, and choices they need to fully to the Responsible Finance Survey 2013 and participants participate in financial markets. in previous Responsible Finance Forums. It is not a comprehensive list of the many organizations involved In February 2011, the Group of Twenty (G-20) called on in responsible finance. Organizations are grouped as: the OECD, the Financial Stability Board (FSB), and other intergovernmental organizations, donors and investors, relevant international organizations to develop common support networks, national support networks, research principles on consumer protection in the field of financial advocacy and consulting organizations, rating agencies, services. In October 2011, G-20 finance ministers and microfinance institutions affiliates, and financial service central bank governors endorsed the  G-20 High-Level providers. Principles on Financial Consumer Protection  and called for further work on implementation. The OECD-led Task Force on Financial Consumer Protection, which is open to Intergovernmental Organizations all G-20 and FSB members, other relevant international ORGANISATION FOR ECONOMIC CO- organizations, and standard developers, developed key OPERATION AND DEVELOPMENT (OECD) principles for financial consumer protection. The task force membership includes 33 countries and 10  international Country: 34 member countries organizations. Type of organization: Intergovernmental Introduction: The mission of the Organisation for OECD developed a financial education database, the Economic Co-operation and Development is to promote International Gateway for Financial Education, which policies to improve the economic and social well-being serves as a global clearinghouse on financial education, of people around the world. OECD provides a forum in providing access to a comprehensive range of information, which governments can share experiences and seek solutions data, resources, research, and news. to common problems and works with governments to Searchable database: http://www.financial-education.org/ understand drivers of economic, social, and environmental program.php?debut=20; change. OECD measures productivity and global flows Financial education documents: http://www.oecd.org/daf/ of trade and investment and analyzes and compares data financialmarketsinsuranceandpensions/financialeducation/ to predict trends. It sets international standards on a wide range of issues  from agriculture and tax to the safety of chemicals. Donors and Investors THE AFRICAN DEVELOPMENT BANK Responsible Finance Initiatives: Regulation for Consumer (AfDB) Protection, Responsible Practices by Financial Providers, Financial Capability Countries: Africa, headquartered in Nigeria Type of organization: Public, development finance institution (DFI) The OECD Directorate for Financial and Enterprise Affairs is working on how to enhance financial consumer Introduction: The African Development Bank Group spurs protection, which includes determining what is required sustainable economic development and social progress in its to help consumers gain the confidence, knowledge, regional member countries (RMCs), thereby contributing to 65 Progress in Responsible Financial Inclusion poverty reduction. The Bank Group mobilizes and allocates private enterprises. http://www.afdb.org/en/topics-and- resources for investment in RMCs and provides policy sectors/initiatives-partnerships/fund-for-african-private- advice and technical assistance to support development sector-assistance/ efforts. The Making Finance Work for Africa Partnership is a Responsible Finance Initiatives: Regulation for Consumer Group of Eight (G-8) initiative launched in October 2007. Protection Its mission is to establish a common platform to harmonize and facilitate financial sector development and knowledge Investments: The African Development Bank (AfDB) sharing in Africa. http://www.afdb.org/en/topics-and- allocated 324.1 million in private sector investments to sectors/initiatives-partnerships/making-finance-work-for- the financial sector, including to the Development Bank of africa-partnership/ Southern Africa and the West African Development Bank. Two African insurance institutions, ZEP-Re and Africa-Re, ASIAN DEVELOPMENT BANK (ADB) were supported by equity investments. These investments Countries: Asia, headquartered in Manila will help strengthen the insurance sector in Africa, which is Type of organization: Public, DFI. generally underdeveloped, and boost its share of the global Introduction: The Asian Development Bank (ADB) insurance market. Local financial institutions in Mali, is dedicated to improving people’s lives in Asia and the Namibia, Nigeria, and Uganda were provided with letters Pacific. Its mission, in partnership with developing member of credit, primarily for lending to domestic micro, small, countries and other stakeholders, is to target investments and medium enterprises. http://www.afdb.org/en/topics- to alleviate poverty and create a world in which everyone and-sectors/sectors/private-sector-development/ can share in the benefits of sustained and inclusive growth, mainly through investment in infrastructure, health care African Financial Market Initiative: The AfDB recently services, and financial and public administration systems, or launched this initiative to develop African capital markets by by helping nations prepare for the impact of climate change building relationships among financial market stakeholders or better manage their natural resources. The main devices in Africa and contributing to setting up a transparent and well- for assistance are  loans,  grants, policy dialogue, technical documented statistical environment for the financial markets assistance, and equity investments. to improve countries’ borrowing terms in local currency. http://www.afdb.org/en/topics-and-sectors/initiatives- Responsible Finance Initiatives: Regulation for partnerships/african-financial-markets-initiative-afmi/ Consumer Protection The Enhanced Private Sector Assistance Initiative: Capacity Development for Financial Regulators. ADB This multicomponent, multidonor partnership for supports policy actions agreed to under the Post Program resource mobilization and development will support Partnership Framework of the Financial Market Regulation implementation of the AfDB’s Strategy for Private Sector and Intermediation Program, Subprogram 2 (FMRIP-02). Development. http://www.afdb.org/en/topics-and-sectors/ Its impact will, therefore, mirror that of FMRIP-02, initiatives-partnerships/enhanced-private-sector-assistance- which is an increase in the contribution of the nonbank for-africa-epsa-initiative/ financial sector to economic growth. The outcome of ADBs technical assistance will be a deeper, more diversified, The multidonor Fund for African Private Sector and more resilient financial sector. More information: Assistance: This fund provides untied grants for technical http://www.adb.org/projects/44255-012/main assistance and capacity building to African governments, regional economic communities, intergovernmental Strategic Framework for Financial Inclusion. This project organizations, business associations, market regulatory will support government initiative’s to promote financial institutions, business development service providers, inclusion through a highly consultative process among business training and research institutions, and public- the concerned government agencies, banks, development 66 Compendium of Global Mapping Survey Respondents 2013 partners, and saving and credit groups to improve the BAMBOO FINANCE policy, supervision, and regulatory environment for a wider Country: Global and deeper inclusion of the low-income population to Type of organization: Private, Investor safe and affordable financial services. More information: http://www.adb.org/projects/45128-001/main Introduction: Bamboo Finance has been participating in the Social Performance Task Force‘s (SPTF) over- More information: http://www.adb.org/projects/ indebtedness working group, which it co-facilitated search/21271 in the first half of 2012. Bamboo Finance encourages microfinance institutions to undergo a third-party rating, AUSAID using its proprietary social performance scorecard, ASPIRE, Country: Australia, with projects in the Pacific, which includes a (scored) question on the existence of Asia, and Africa social and financial ratings. Additionally, third-party Type of organization: Public, donor/DFI ratings are used to assess microfinance institutions in due diligence and monitoring processes, valuing the reports Introduction: The Australian Government’s overseas aid as a source of additional information to help investors program (AUSAID) is improving the lives of millions of form investment and divestment decisions. A code of people in developing countries. Australia is working with conduct constitutes an important contribution to having the governments and people of developing countries to all players abide by the same standards. More information: deliver aid where it is most needed and most effective. http://www.bamboofinance.com Australian aid has wiped out polio from the Pacific and has resulted in more than 1.5 million children being immunized against measles and polio in Papua New Guinea. AUSAID BLUE ORCHARD also helped build the first bridge across the Mekong River Countries: Belgium, Luxembourg in East Asia, boosting economic opportunities for millions Type of organization: Private, Investor of people living in the region. In Africa, AUSAID’s water Introduction: BlueOrchard is a commercial microfinance supply and sanitation programs are providing clean water investment company. Its mission is to empower the poor for nearly 500,000 people in Tanzania, South Africa, worldwide and improve their quality of life by enabling them Mozambique, and Zimbabwe. to participate in income-generating activities. BlueOrchard achieves this by developing and managing innovative and Responsible Finance Initiatives: Responsible Practices by attractive financial products and services that invest in Financial Providers, Financial Capability microfinance institutions that support millions of small Financial Services for the Poor: A strategy for the enterprises in low-income regions worldwide. At the same Australian aid program 2010–15. This strategy sets out time, its investment products generate profitable returns for how Australia will broaden its focus on expanding access its investors.. to financial services to help poor people improve their standard of living. It involves projects in all three areas of Responsible Finance Initiatives: Responsible Practices by responsible finance. Financial services are increasingly being Financial Providers seen as important to poverty reduction and achievement of the Millennium Development Goals. By borrowing, saving, Dexia Micro-Credit Fund (DMCF). DMCF is the or buying insurance, poor people can plan for their future world’s first private fully commercial microfinance fund beyond the short term. They can build up assets, set up designed to finance microfinance institutions. It offers the small businesses, insure against crop losses, and invest in opportunity to invest in a highly successful vehicle managed their children’s education and their family’s health. Over by BlueOrchard and Dexia, two leading pioneers in the the next few years, Australia will have doubled spending to microfinance sector, and to achieve attractive returns while increase access to financial services and broadened its efforts improving the lives of the working poor. More information: in line with the geographic reach of the aid program. http://www.blueorchard.com/jahia/Jahia/pid/512. More Information: http://www.ausaid.gov.au/ Publications/Pages/3645_1909_4834_7583_9490.aspx 67 Progress in Responsible Financial Inclusion The Microfinance Enhancement Facility (MEF), Responsible Finance Initiatives: Regulation for Consumer launched in February 2009 by IFC and the KfW, is designed Protection, Responsible Practices by Financial Providers, to support the growth of more than 100 microfinance and Financial Capability institutions across 40 countries and to generate healthy returns for investors. More information: http://www. Financial Systems Development and Responsible Finance: blueorchard.com/jahia/Jahia/pid/512. • Every year, Germany makes on average €150 million available in new funding commitments from the federal The Microfinance Growth Fund (MiGroF) for Latin budget for financial systems development. Germany is America and the Caribbean is a response to U.S. President currently operating in 85 countries with 247 financial Obama’s announcement at the Summit of the Americas systems development projects and programs. in April 2009. The Inter-American Development Bank’s Multilateral Investment Fund (IDB/MIF), the U.S. • All implementing organizations of BMZ have a strong Government’s Overseas Private Investment Corporation focus on the three pillars of responsible finance: KfW (OPIC), the Inter-American Investment Corporation Entwicklungsbank encourages the financial institutions (IIC), BlueOrchard, and other international investors it supports to adopt fair and transparent practices with signed a memorandum of understanding on September their customers and good corporate governance, as 30, 2009 to establish a microfinance facility that will board members of such institutions. GIZ, Deutsche provide up to $250 million to microfinance institutions Gesellschaft für Internationale Zusammenarbeit (GIZ) in Latin America and the Caribbean. More information: GmbH, advises its partners, central banks, ministries http://www.blueorchard.com/jahia/Jahia/pid/474 of finance, consumer protection agencies, microfinance associations and other stakeholders, to apply an BlueOrchard also offers expert financial advisory integrated approach based on the three pillars of services to microfinance organizations that are seeking to responsible finance. Sparkassenstiftung für internationale raise capital from investors globally or who need expert Kooperation (Savings Banks Foundation for International advice on  financial transactions and issues, such as asset Cooperation; SBFIC) provides capacity building for and liability management and structuring and valuation financial institutions regarding responsible treatment advice on an acquisition or merger transaction, or of customers and prevention of overindebtedness and assistance with portfolio restructuring. More information: supports its partners in improving the financial literacy http://www.blueorchard.com/jahia/Jahia/pid/362 of their clients. More information can be found in this Annex under KfW Entwicklungsbank, GIZ, and SBFIC. BMZ: GERMAN MINISTRY FOR ECONOMIC • In 2010, BMZ initiated the Responsible Finance Forum COOPERATION AND DEVELOPMENT (RFF), a Community of Practice, with the International Country: Germany, with international projects Finance Corporation (IFC), the Consultative Group Type of organization: Public to Assist the Poor (CGAP) and other partners and Introduction: BMZ is the German Ministry for Economic hosted the RFF in 2010 and 2013. BMZ will continue Cooperation and Development. It develops the guidelines to strengthen international knowledge exchange on and the fundamental concepts on which German responsible finance. development policy is based. BMZ devises long-term • BMZ also supports the Alliance for Financial Inclusion, strategies for cooperation with various players and defines the Partnership Making Finance Work for Africa, the the rules for implementing that cooperation, forming a Access to Insurance Initiative, the Microinsurance foundation for developing shared projects with partner Network and CGAP, all of which have a strong focus on countries and international development organizations. All responsible finance in their work. efforts are informed by the United Nations’ Millennium Development Goals, which ambitiously aim to halve More information: http://www.bmz.de/en/what_we_do/ poverty in the world by 2015. issues/wirtschaft/nachhaltige_wirtschaftsentwicklung/ finanzsystementwicklung/index.html 68 Compendium of Global Mapping Survey Respondents 2013 THE CALVERT FOUNDATION and test financial inclusion innovations with potential to achieve scale and support leadership and knowledge- Country: United States Type of organization: Private, Foundation building activities. Through a “more than philanthropy” approach, Citi puts the strength of its business resources Introduction: The Calvert Foundation is a nonprofit and people to work to enhance philanthropic investments organization offering community investments. Its mission and help improve communities. More information: https:// is to maximize the flow of capital to disadvantaged www.citigroup.com/citi/foundation/ communities to create a more equitable and sustainable society. By creating innovative financial products and Responsible Finance Initiatives: Financial Capability services, the foundation participates in financial instruments that directly serve communities. The Calvert Foundation Center for Financial Services Innovation’s (CFSI) has multiple projects and investments in the microfinance Financial Capability Innovation Fund: To reduce the sector on affordable housing and small businesses. number of unbanked households in the United States and improve consumer financial decision making, the Citi Responsible Finance Initiatives: Responsible Practices by Foundation is the lead funder for CSFI. CFSI supports Financial Providers, Financial Capability non-profit-led projects designed to help consumers better manage their finances and achieve financial prosperity. Ensuring families have safe and affordable homes These projects promote financial capability by leveraging programs: For 15 years, the Calvert Foundation has been technology, applying behavioural economics concepts, and striving to make affordable housing available for families closely combining relevant, timely, actionable, and ongoing across the country, and it remains committed to ensuring messaging with access to high‐quality financial products that families have access to safe and affordable homes and services. despite current economic conditions. More information: http://www.calvertfoundation.org/who-we-help/our- Bridging the Gap: The Business Case for Financial portfolio/affordable-housing Capability: Partners for Sustainable Development (PSD) and the Monitor Group’s Inclusive Markets Initiative Responsible finance in microfinance, CDFIs/small (Monitor) conducted research to understand how the businesses: Calvert Foundation helps make loans integration of microfinance and financial education activities available for small businesses and microlenders, provides can drive financial inclusion and support microfinance job training and daycare facilities, gets families into institutions’ business development and responsible affordable homes, and teaches people how to set up finance goals. savings and checking accounts. More information: http://www.calvertfoundation.org/who-we-help/our- The Inter-American Development Bank’s Financial portfolio/cdfis Innovation and Research Fund: This fund was launched to test and evaluate new business models that deliver asset More information: http://www.calvertfoundation.org/ building products to recipients of conditional cash transfers who-we-help/our-portfolio/microfinance (CCTs) across Latin America and the Caribbean. At least 17 countries in the region are implementing government CCT programs, designed to provide low-income families CITI FOUNDATION with monthly income transfer payments if they agree to Country: United States make certain behavioral choices, such as, keeping their Type of organization: Private, Investor children enrolled in school. Introduction: The Citi Foundation supports the economic empowerment and financial inclusion of low- to moderate- Neighbor Works, a Citi Financial capability income people in communities where Citi Bank operates demonstration project: Citi Foundation and Neighbor and works collaboratively with a range of partners to design Works America launched a $5 million project to deliver financial capability and coaching in local communities, 69 Progress in Responsible Financial Inclusion enabling 65,000 low- income Americans to build their the world with a market share of 21 percent. It has many savings, pay down their debt, and better manage their projects on corporate social responsibility and sustainability. finances. The initiative is expanding the skills of 400 Responsible Finance Initiatives: Responsible Practices by financial education practitioners to adopt a new approach Financial Providers that combines relevant financial information with ongoing coaching and access to financial products. Lowering the cost to develop and sustain affordable housing: Deutsche Bank Americas Foundation hosted a Local Initiatives Support Corporation Financial conference to address the need for innovation in affordable Opportunity Centers: Citi Foundation is a lead funder, housing and announced a design competition to award helping Local Initiatives Support Corporation (LISC) build $250,000 in low-interest capital to build an innovative, a national network of Financial Opportunity Centers in affordable housing model. More information: https://www. underserved neighborhoods to help families build income db.com/usa/content/en/2437.html and assets by bundling career services, financial coaching services, and access to public benefits. The centers help The Deutsche Bank Start-Up Fund provides early stage, residents move into living wage jobs and respond to specific commercially focused microfinance institutions with loan financial challenges such as unmanageable debt or housing capital to expand lending activities. This fund is capitalized affordability issues. Ongoing financial coaching helps through grants and soft funding. https://www.db.com/usa/ clients develop a financial plan and stay on track to achieve content/en/1170.html their long-term financial goals. Early results showed that 40 percent of participants improved their credit score, 72 The Deutsche Bank Microcredit Development Fund percent increased their net income, and 71 percent reduced (DB MDF) provides catalytic financing to microfinance their debt. institutions to attract resources on a leveraged basis from local commercial banks. This fund is capitalized through Improving results and impact in national financial grants and soft funding. More information: https://www. education strategies: Citi Foundation is funding partners db.com/usa/content/en/1173.html around the world to help develop national strategies and incorporate financial capability training into national The Global Commercial Microfinance Consortium curriculums. In Brazil, Citi Foundation funded a financial provided long-term, local currency funding at commercial education pilot in high schools. Similar efforts are taking rates to established microfinance institutions. This fund place through Young Enterprise Trust/Junior Achievement was capitalized mainly through institutional investors. in New Zealand and the National Institute of Education in More information: https://www.db.com/usa/content/en/ Singapore. Aflatoun International is embedding the social 1177.html and financial education model in national teacher training institutes and as part of national strategies in Kenya and DB Microfinance Invest No.1 provides the first Jordan. The Aflatoun model is being adopted in India, microfinance investment fund for German investors. This Peru, and Uganda. fund is capitalized through investments from high net worth clients, pension funds and foundations, KfW, and DEUTSCHE BANK Deutsche Bank. More information: https://www.db.com/ Country: Germany usa/content/en/1181.html Type of organization: Private, Investor FINCA Microfinance Fund is a $21.2 million fund Introduction: Deutsche Bank AG is a German global that has raised subordinated debt for seven affiliates of banking and financial services company with its headquarters FINCA International, a leading international microfinance in Germany. It employs more than 100,000 people in network with operations in more than 20 countries. over 70 countries and has a large presence in Europe, the More information: https://www.db.com/usa/content/en/ Americas, Asia-Pacific, and the emerging markets. In 2009, 1185.html Deutsche Bank was the largest foreign exchange dealer in 70 Compendium of Global Mapping Survey Respondents 2013 DFID – THE DEPARTMENT FOR Support to small businesses: DFID is supporting small INTERNATIONAL DEVELOPMENT, and medium enterprises by collaborating with commercial UNITED KINGDOM banks and multilateral partners to address the funding gap and perceived risk and high transaction costs faced by these Country: United Kingdom Type of organization: Public, DFI, donor enterprises. This initiative is designed to help over 200,000 small and medium businesses and to create over 1 million Introduction: Department for International Development new jobs. (DFID) is the department for international development of the U.K. Ministry of Foreign Affairs. When the DFID Microfinance facility for Sub-Saharan Africa: DFID was set up in 1997, it made fighting world poverty its recognizes microfinance as one of the established options top priority. This marked a turning point for Britain’s aid for delivering financial services to the poor. Building on program, which until then had mainly involved economic the lessons learned, DFID continues work to strengthen development. microfinance institutions and develop new products including microsavings and microinsurance. DFID, Responsible Finance Initiatives: Responsible Practices by in partnership with the World Bank, is developing the Financial Providers, Financial Capability Microfinance Capacity Building Facility (MICFAC) for Sub-Saharan Africa to increase access to affordable Development of the financial sector: DFID will help more and quality microfinance services by strengthening the than 50 million people access savings, credit, and insurance institutional, organizational, and human capacity of through programs to “deepen” the reach of the financial microfinance institutions. sector to serve the needs of poor people. DFID supports and encourages innovative financial- sector- deepening trusts Small business program: Finance is a critical ingredient for that work in partnership with governments, regulators, fostering micro, small, and medium business development, and financial service providers ranging from multinational which is constrained by high transaction costs and perceived banks to rural cooperatives. DFID also supports countries risks. DFID believes that the development of financial to reform and strengthen their financial sectors. Its market infrastructure and new financial instruments are Financial Sector Reform and Strengthening Initiative critical for attracting commercial players in to micro, small, (FIRST) provides targeted specialist help, supporting over and medium financing and achieving scale. In collaboration 300 projects across 80 countries. with other multilateral and bilateral agencies, DFID supports the development of effective regulation, essential Mobile banking: DFID, along with the Bill & Melinda market infrastructure (for example, credit bureau and asset Gates Foundation, support s the Consultative Group registries), and catalyzes new financial products. to Assist the Poor’s technology program, which aims to harness mobile phones and other technology to help 30 Financial education: Through innovative approaches to million people get better financial services. M-PESA is financial education pioneered by the Financial Education the  revolutionary mobile banking platform launched in Fund across Sub-Saharan Africa, DFID is working to build Kenya with DFID support. Four million Kenyans have the financial capability of poor people, empowering them bank accounts, but 10 million people in the country now to manage their finances effectively and understand their use the M-PESA money transfer service. By promoting consumer rights, protect themselves from financial abuse, innovation, the program can deliver at a scale that makes and use financial services responsibly. banking affordable for poor people. In Pakistan, it is supporting the mobile banking service, easypaisa. In just More information: http://www.dfid.gov.uk/What-we-do/ two years. easypaisa gained a larger footprint than all the Key-Issues/Economic-growth-and-the-private-sector/ banks in Pakistan combined and has processed over 10 Private-sector/Finance/ million transactions. 71 Progress in Responsible Financial Inclusion DUTCH MINISTRY OF FOREIGN AFFAIRS FINANCE IN MOTION Country: The Netherlands Country: Germany Type of organization: Public, donor Type of organization: Private, investor Introduction: The Dutch Ministry of Foreign Affairs Introduction: Finance in Motion is an alternative asset supports organizations globally which adopt responsible management firm exclusively focused on development finance practices. A second initiative is support of regulatory finance. It is one of the world’s leading asset managers in this frameworks and legislation that is truly effective and works field, advising funds with committed capital of approximately in practice. The focus is not only on words and paper, € 1.03 billion (as at December 31, 2011). Finance in which counts, but more on execution. More information: Motion offers a variety of services that covers the range http://www.government.nl/ministries/bz of micro, small, and medium institution finance, housing finance, and energy efficiency and renewable energy finance. DEVELOPING WORLD MARKETS (DWM) Country: United States Responsible Finance Initiatives: Responsible Practices by Type of organization: Private, Investor Financial Providers Introduction: Developing World Markets (DWM) is an Consumer Protection Principles: Finance in Motion is asset manager and investment bank dedicated to making a signatory to the Principles for Responsible Investment‘s socially positive investments to promote sustainable Principles for Investors in Inclusive Finance and has economic and social development on a global scale. It endorsed the Smart Campaign’s Client Protection believes that the private sector and capital markets can Principles. Finance in Motion uses these principles to guide and should be used to create positive economic and social general fund management, risk management, investment change, and are often the most effective catalysts for doing management, and technical assistance management services so. DWM primarily invests in microfinance Institutions. to alleviate its clients of many vitally important day-to-day tasks. Responsible Finance Initiatives: Responsible Practices by Financial Providers European Fund for Southeast Europe (EFSE): Initiated by KfW Entwicklungsbank with the support of various Global Microfinance Investment Program: DWM donors and international finance institutions, EFSE is advised ProCredit Holdings and arranged the first major one of the world’s largest development finance investment direct equity investment, $43 million, into a microfinance funds. EFSE’s main investment activity is the refinancing of institution by a mainstream asset manager, TIAA-CREF, selected partner lending institutions in the target region of the leading provider of retirement savings products and Southeast Europe and the European Eastern Neighborhood services in the academic, medical, and cultural fields, Region with senior or subordinated credit lines, whereby through its $100 million Global Microfinance Investment the borrower obliges himself or herself to onlend the Program (GMIP). ProCredit will expand its business, funds to the final target groups, including micro and enabling small-scale entrepreneurs in low-income countries small enterprises and low-income private households. More to build viable enterprises and create employment while, information: http://finance-in-motion.com/Mandates---- through its investment in ProCredit, TIAA-CREF is site.index.html_dir._nav.23_likecms.html fulfilling its mission of providing financial services for the greater good. More information: http://www.dwmarkets. Norwegian Microfinance Initiative’s Professional com/sustainable-capital/strategic-advisory.html Assistance Facility: The Norwegian Microfinance Initiative (NMI) is a public-private partnership initiative that invests in microfinance institutions in developing countries. NMI portfolio companies receive capacity-building support, including training and skills development in various areas, ranging from business and strategic planning to product 72 Compendium of Global Mapping Survey Respondents 2013 development, risk management, and social performance FORD FOUNDATION management training and capacity building. NMI has Country: United States, with grants internationally mandated Finance in Motion as the advisor for the Type of organization: Private, Foundation Professional Assistance Facility. As part of its advisory role, Finance in Motion is providing assistance in setting up and Introduction: Established in 1936, the Ford Foundation managing the facility. More information: http://finance- is an independent, global organization with a legacy of in-motion.com/NMI-Professional-Assistance-Facility-site. commitment to innovative leaders on the frontlines of social index.html_dir._nav.97_likecms.html change. The foundation provides grants to organizations in the United States, Latin America, Africa, the Middle FMO: THE DUTCH DEVELOPMENT BANK East, and Asia. More than $16.3 billion in grants have been distributed worldwide with 40,000 proposals received Country: The Netherlands annually and about 1,400 grants made each year. Type of organization: Private/public, DFI Introduction: FMO is the Dutch Development Bank, Responsible Finance Initiatives: Responsible Practices by which supports sustainable private sector growth in Financial Providers developing and emerging markets by investing in ambitious Improving Access to Financial Services: The goal of this companies. FMO believes a strong private- sector leads to grant initiative is to improve access to and the infrastructure economic and social development, empowering people to for innovative financial products and services for low- employ their skills and improve their quality of life. FMO income people. It focuses on helping financial institutions specializes in sectors where contributions can have the serve poor households by helping microfinance institutions highest long-term impact, that is, financial institutions, develop social performance management (SPM) systems that energy and agribusiness, food, and water. improve their ability to serve poor and low-income people, by strengthening the capacity of financial institutions to Responsible Finance Initiatives: Responsible Practices by use SPM systems, and by identifying new ways to reach Financial Providers very poor households. More information: http://www. fordfound.org/issues/economic-fairness/improving-access- FMO uses environmental and social performance and to-financial-services governance (ESG) goals, which incorporate principles similar to those of responsible finance. FMO incorporates Building Economic Security over a Lifetime: The goal ESG opportunities into business models, believing it is of this program promotes social protection programs that essential for both mitigating risk and creating development help low-income families achieve economic stability. This impact by working closely with clients throughout the grant initiative promotes public support for policies that entire process to help them reach ESG goals. They embed create universal and progressive savings accounts as well as ESG criteria in new investments, and their investment Social Security reforms that increase benefits for low-wage process adds value to their clients’ businesses by assessing, workers. implementing, and monitoring ESG practices. More information: http://www.fmo.nl/integrating-sustainability Internationally, the Ford Foundation concentrates on helping people accumulate savings through programs that FMO has signed the Principles for Investors in Inclusive combine matched savings services with conditional cash Finance. The principles stimulate investors or fund managers transfer programs (which reward low-income families to invest in inclusive finance and act in the long-term for adhering to the requirements of a “social contract”) interests of their clients. While upholding their fiduciary to create permanent financial assets for poor households. responsibility, by signing the principles, they commit to More information: http://www.fordfound.org/issues/ adhering to and promoting principles on the following economic-fairness/building-economic-security-over-a- topics: range of services, client protection, fair treatment, lifetime responsible investment, transparency, balanced returns, and global standards. More information: http://www.unpri.org/ files/2011_01_piif_principles.pdf 73 Progress in Responsible Financial Inclusion BILL & MELINDA GATES FOUNDATION decisions in the short run. Research is also conducted and innovations are nurtured that could—in the medium to Country: United States, with international projects Type of organization: Private, Foundation long term—create a step-change improvement in delivering digital financial services at scale. More information: Introduction: The Gates Foundation is a private trust by http://www.gatesfoundation.org/ Bill and Melinda Gates that works on improving people’s financialservicesforthepoor/Documents/fsp-strategy- health and giving them the chance to lift themselves out overview.pdf of hunger and poverty. It addresses problems that have a major impact on people in the developing world. The Deutsche Gesellschaft für Internationale Gates Foundation works closely with many partners in the Zusammenarbeit (GIZ) GmbH nonprofit, business, and governmental sectors to whom it make grants. Country: Germany, with international work Type of organization: Public Responsible Finance Initiatives: Responsible Practices by Introduction: The services offered by the German Agency Financial Providers for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit; GIZ) are based on a Digital Payment Systems at Scale Initiative: In countries wealth of regional and technical expertise and on tested that have a minimum level of connectivity in poor and rural management know-how. This German federal enterprise areas, the Gates Foundation aims to work with a range of offers workable, sustainable, and effective solutions in providers to extend the reach of digital payment systems political, economic, and social change processes. Most of into poor and rural communities and to encourage poor its work is commissioned by the German Federal Ministry people to adopt these systems through a mobile phone or for Economic Cooperation and Development (BMZ). other digital interface. This initiative works with country However, GIZ also operates on behalf of other German partners to help catalyze demonstration models. Early ministries and public and private bodies in Germany evidence indicates that access to payment systems can and abroad, including governments of other countries, deliver substantial benefits to poor households, but poor the European Commission, the United Nations, and the people also need access to other financial services, such as, World Bank. GIZ is equally committed to helping its savings, credit, and insurance, to better manage their lives. private sector clients attain their goals. More information: In countries that have extended digital payment systems http://www.giz.de into poor and rural communities, the foundation works with banks, insurance companies, and other providers to Responsible Finance Initiatives: Regulation for Consumer increase the range of financial services that poor people can Protection, Responsible Practices by Financial Providers, access in digital form. and Financial Capability Global Partnership Alignment: This initiative works at the GIZ’s understanding of responsible finance as well as global level with governments, donors, global standards- its way of implementing related measures is based on setting bodies, and the private sector to maximize collective the concept of the three mutually reinforcing pillars— impact on poor people’s access to financial services. consumer protection regulation and supervision, industry self-regulation, and financial capabilities—all of which Research and Innovation: The Gates Foundation is contribute to strengthening, protecting, and empowering committed to active data collection to rigorously measure consumers of financial services the impact of grants and interventions and to supply various market players and local stakeholders with the data they On behalf of the BMZ, GIZ is advising partners in China need to make better decisions. It believes that fundamental (see case in Chapter 3 , the Democratic Republic of Congo, research and technology innovation will help unlock greater the Arab Republic of Egypt, Ghana (see case in Chapter financial inclusion in the long run. Under this initiative, data 3), India, Jordan, Lao PDR, Namibia, Nigeria, Uganda, is collected to track impact and to inform key stakeholders’ the West Bank and Gaza, Tajikistan, Tunisia, Uzbekistan, 74 Compendium of Global Mapping Survey Respondents 2013 and Yemen applying an integrated approach based on the and technology developments. More information: three pillars of responsible finance. Among the partners are http://www.grameenfoundation.org/take-action/volunteer central banks, ministries of finance, consumer protection agencies and a wide range of stakeholders in the area of Grameen Capital India: Grameen Foundation created an consumer protection and financial education including intermediary body to support the growth of microfinance microfinance associations, banks and insurers. institutions in India. In 2008, Grameen Foundation, IFMR Trust, and Citicorp Finance India Ltd., formed On behalf of BMZ, GIZ supports the partnership, Making Grameen Capital India Ltd. (GCI), which aims to tap Finance Work for Africa (MFW4A). Following the 2009 affordable capital for microfinance institutions through MFW4A conference on financial capability and consumer groundbreaking financing initiatives. GCI’s success protection, responsible finance diagnostic studies on has surpassed expectations. In less than two years, it has consumer protection regulation, self-regulation and financial generated more than US$100 million in financing for capability were conducted in Ghana, Kenya, Tanzania, Indian microfinance institutions that will fund more and Uganda. The studies reviewed diagnostics, identified than 800,000 microloans for poor people in that country. interesting practices, and concluded with thoughts for the More information: http://www.grameenfoundation.org/ future of responsible finance in Africa. MFW4A supported what-we-do/initiatives/grameen-capital-india a regional exchange, hosted by the Bank of Ghana, among policy makers from Namibia, Ghana, and Nigeria in 2013 Grameen–Jameel Microfinance Ltd.: Since 2003, in cooperation with CGAP. Grameen Foundation has supported microfinance across the Middle East and North Africa region as a means of GRAMEEN FOUNDATION creating opportunities for the area’s poorest, especially Countries: Bangladesh, United States women. In 2007, the foundation, collaboration with Bab Type of organization: Private, Foundation Rizq Jameel Ltd., a subsidiary of the Abdul Latif Jameel Group (ALJ), founded Grameen–Jameel Microfinance Ltd., Introduction: Grameen Foundation helps the world’s a joint venture company that oversees all regional activities poorest, especially women, improve their lives and escape for Grameen Foundation. Modelled after the social business poverty by providing access to appropriate financial services concept championed by Professor Muhammad Yunus, the (such as small loans and savings accounts), new ways to company reinvests profits into the business rather than generate income, and important information about their distributing dividends, which keeps capital flowing into health, crops, and finances. By helping local microfinance the hands of borrowers who need it. More information: institutions and other poverty-focused organizations http://www.grameenfoundation.org/what-we-do/ become more effective, and by providing the poor with initiatives/grameen-jameel-microfinance-ltd innovative mobile-phone-based solutions, the foundation helps millions pull themselves out of poverty. Grameen Foundation India (GFI), established in 2010, is a social business that strengthens double-bottom- Responsible Finance Initiatives: Responsible Practices by line organizations that serve the poor, working to help Financial Providers organizations measure their social results, strengthen their human-resources practices, and demonstrate sustainable Bankers without Borders is Grameen Foundation’s models for serving the poorest. GFI is also exploring volunteer program that connects individuals and companies ways to leverage mobile phones to deliver information with opportunities to mobilize their skill sets and use their and other services to the poor. More information: industry expertise to offer innovative solutions to help break http://www.grameenfoundation.org/what-we-do/ the cycle of poverty. As a global reserve corps of business initiatives/grameen-capital-india professionals from a variety of fields— from finance and technology to human resources and marketing— these professional volunteers support microfinance 75 Progress in Responsible Financial Inclusion GRASSROOTS CAPITAL MANAGEMENT Capital Management, social and financial performances (GCM) are intertwined into its day-to-day activities, including a framework for evaluating the social impact of current and Country: United States, India potential investee microfinance institutions. As primarily Type of organization: Private, Investor an equity investor, GCM participates on the boards of Introduction: Grassroots Capital Management (GCM) is nearly all investee companies and works with them to an impact investment manager based in the United States. develop financial literacy efforts appropriate to their clients Together with its India- based partner, Caspian Advisors, and markets. GCM and its predecessors have launched five microfinance funds since 2003. Currently GCM and Caspian comanage Encouraging participation in codes of conduct and four microfinance funds. Caspian and GCM work closely standards: As an investment manager and advisor in the on project development and management, sharing staff microfinance and impact investing spaces, GCM encourages and resources between their New York, Massachusetts, investors, investees, and co-managers to participate in Hyderabad, and Delhi offices. industry codes of conduct and reporting initiatives, such as Smart, Global Impact Investment Rating System (GIIRS), Responsible Finance Initiatives: Responsible Practices PIIF, and SPTF standards. GCM provides targeted technical by Financial Providers Repositioning Microfinance with assistance and capital support to companies that commit Impact Investors: Codes of Conduct and “social first” to explicit and measurable social performance objectives, Microfinance Institutions. and strongly encourages participation in the CPP using in- house capability to undertake CPP assessments on the basis Investor interest in microfinance continues despite of training provided by CFI. questions raised by recent repayment issues and by more sceptical assessments of social impact, but investor scrutiny Leadership role: GCM participates in steering committees has intensified. The industry can take the opportunity to or executive committees of the leading industry self- more clearly articulate its social and financial objectives regulatory bodies, including the Council of Microfinance and the way it will achieve them. An important part of Equity Funds (CMEF) and the PIIF. It is also active on this clarification is to acknowledge that not all investors numerous industry working groups, including AVOID or microfinance institutions share an identical mix of and Responsible Covenants, India, 2012. It completed social and financial objectives, and on occasion choices GIIRS rating of its entire portfolio of Indian companies. among objectives will have to be made. A differentiation As a GIIRS Pioneer Manager, GCM assisted the GIIRS between “financial first” and “social first” companies can team in refining and improving its processes and surveys, give investors greater confidence that investors, directors, devoting staff to the initiative for half a year, and between and managers are fully aligned in pursuit of the same set of its India portfolio and other portfolio companies elsewhere, priorities. With this clarity, enhanced capital flows can have accounted for a significant number of the GIIRS-rated a major impact in achieving microfinance’s social objectives companies worldwide. through expanding scale and outreach in total numbers, while enhanced “social first” microfinance will push the Social performance reports: For each GCM funds under envelope and set the evolving standard on improving management, an in-house social performance manager is microfinance’s effectiveness in achieving its social objectives. responsible for overseeing preparation of quarterly and More information: http://www.grmpact.com/wp-content/ annual social performance reports. These reports specify uploads/2011/11/GRM_31.pdf the social performance objectives of each company, the rationale for these objectives and the metrics to be used in Integrating Social Performance Measurement and tracking progress against these goals. Microfinance Investment: Many socially minded investors believe that integrating social performance into GCM’s Latin American equity fund, Prospero, is building the investment process can help preserve the character a portfolio of microfinance institutions and in each case, of double-bottom- line institutions. For Grassroots identifying the system upgrades necessary to strengthen 76 Compendium of Global Mapping Survey Respondents 2013 and refine social performance management, participate in Islamic Home Finance Window at HDFC: Islamic finance CPP assessments, and set goals and metrics for financial and is everywhere in the world today. Both Muslims and non- nonfinancial interventions. Muslims, irrespective of faith convictions have adopted it. The aim of HDFC is to help customers build their dream HOUSING DEVELOPMENT FINANCE homes through sharia’h-compliant financial products. CORPORATION (HDFC) Country: Maldives “Rent Option” product: Rent Option is a home loan Type of organization: Private, housing finance product in which more than one-third of the property is institution permitted for use in commercial activity and where an income from business rent, trading, or manufacturing can Introduction: The Housing Development Finance enhance the repayment capacity. It can be an affordable and Corporation Maldives (HDFC-M) was privatized in 2008 sustainable financial solution to housing. The focus of this with the signing of a shareholders’ agreement for privatization product is to provide access to finance to an underserved between the Government of Maldives, IFC, ADB, and market. Mortgage finance is made available to individuals HDFC Investments Ltd., India. HDFC Maldives’ vision and property developers for completion of construction is to provide decent and affordable homes in a safe and that would provide primarily housing, but also commercial healthy environment, and work towards uplifting the living or rental- income generating potential. standards of all Maldivians so as to become the market leader for financial services in the Maldives. To achieve this HDFC Maldives’ Environmental and Social goal, the mission is to offer financial and social strength to Management System (ESMS): ESMS is a tool to ensure all Maldivians by providing home loans and other savings that environmental and social policies are implemented. and investment products managed professionally and HDFC-M has adopted the an environmental and social profitably to the highest international standards and to the policy statement that upholds strict standards and satisfaction of stakeholders. practices to protect the environment, such as avoiding construction in the absence of sustainable infrastructure Responsible Finance Initiatives: Regulation for Consumer or on ecologically sensitive areas, complying with national Protection, Responsible Practices by Financial Providers and local environmental and social laws and regulations, and complying with environmental and social monitoring Island Outreach Program: HDFC-M’s outreach program and reporting requirements, thus, ensuring transparency is intended to go down market. HDFC conducted a market and commitment to continual improvement of the ESMS. scan to identify potential islands for housing finance. More information: http://www.hdfc.com.mv/hdfc/sites/ Information (on demographic and economic aspects) default/files/HDFC%20Q2_2013.pdf for different regions (the inhabited islands) was collected on all 19 atolls. The main criteria for selection of islands INTER-AMERICAN DEVELOPMENT BANK considered economically viable were: a minimum overall (IDB) population of 5,000 people; presence of a State Bank of Maldives (BML) branch on the island; availability of Country: Headquarters in Washington, D.C., basic facilities such as , post offices, schools for secondary with country offices in 26 borrowing countries, plus a regional office in Asia and an office education, and health centres/hospitals. The presence of an in Europe airport is an indicator that the island is well-connected and that there is a healthy inflow and outflow of population. Clients: Central governments, provinces, municipalities, private firms, and The past credit history of the island, based on HDFC’s pre- nongovernmental organizations privatization experience of making 500 loans, and the social Type of organization: DFI housing program are also important. On the basis of these criteria, HDFC selected 12 islands in five atolls for coverage Introduction: The IDB Group is composed of the Inter- under the outreach program. American Development Bank (IDB), the  Inter-American Investment Corporation (IIC),  and the  Multilateral 77 Progress in Responsible Financial Inclusion Investment Fund (MIF). (Also see Multilateral Investment regulation. Through diverse activities, the MIF aims to Fund listing, below.) The IDB  supports  efforts by Latin have at least 450 microfinance institutions in the region America and the Caribbean countries to reduce poverty and reporting both standardized financial information and inequality in a sustainable, climate-friendly way. The IIC social performance indicators by 2015. focuses on support for small and medium-size businesses, while the MIF promotes private sector growth through grants More information: http://www.iadb.org/en/about-us/ and investments, with an emphasis on microenterprise. about-the-inter-american-development-bank,5995.html Established in 1959, IDB is the largest source of development financing for Latin America and the Caribbean, with INTERNATIONAL FINANCE CORPORATION a strong commitment to achieving measurable results, Country: United States, headquartered in increased  integrity,  transparency,  and  accountability. Washington, D.C., with offices in over Besides loans, IDB provides grants, technical assistance 80 countries. and research. Clients: Financial institutions, industry networks, and associations Responsible Finance Initiatives: Responsible Practices by Type of organization: Investor, DFI Financial Providers The International Finance Corporation (IFC), a member of the World Bank Group, focuses on the private sector • The IDB, through the MIF, focuses on ensuring to promote growth, reduce poverty, and improve peoples’ transparency in microfinance operations. Over the past lives in developing countries. With a network of over two decades the  MIF has underwritten the expansion 1,000 clients in 100 countries, IFC is the world’s largest of leading microfinance networks and fostered many of multilateral financier for companies that do business in the  innovations  that enabled the development of this emerging markets. IFC finances and advises clients to dynamic industry. To increase financial inclusion, the support profitable and sustainable business development in IDB and the MIF are now helping the microfinance these markets. IFC’s Access to Finance Advisory Services industry address challenges, such as, reaching (A2F) increases the availability and affordability of financial underserved rural and marginal urban areas, expanding services for individuals and micro, small, and medium into “frontier markets” where it has least developed, and enterprises. Responsible finance, part of the A2F Advisory ensuring transparency in its operations. offer, is defined as a set of operational practices that • IDB and MIF focus on promoting best practices focuses on the needs of end-clients, encompassing issues and encouraging microfinance institutions to adopt of transparency, disclosure, fairness of pricing, dignified standardized tools to measure their financial and social treatment of customers, and product and services quality to performance. The information derived from such tools ensure sound provision of financial services. can help regulators better assess risks and serve as guides to potential funders. For microlenders themselves, Responsible Finance at IFC enhanced monitoring can yield feedback for cutting costs and improving products and services. For microfinance IFC implements responsible finance with financial institutions clients, greater transparency will lead to institutions, through advancing three dimensions: stronger trust and better-informed decisions. The MIF in Consumer protection regulation: Supporting particular is contributing to the development of robust industrywide customer protection regulation around and cost-effective monitoring tools for the microfinance principles of transparency, responsible pricing, fair and industry. It has raised awareness of their importance respectful treatment of clients, privacy of client data, through the annual Inter-American Microfinance mechanisms for complaint resolution, and financial Forum (Foromic), the funding of credit ratings for education and awareness programs. microlenders, the  microscope  index of microfinance business conditions in individual countries, and the promotion of regional principles for microfinance 78 Compendium of Global Mapping Survey Respondents 2013 Financial institutions self-regulation: Embedding KfW ENTWICKLUNGSBANK responsible finance practices into business functions Country: Germany, with offices in more than across strategy and governance, customer acquisition and 100 countries relationship management, product design and delivery Type of organization: DFI channels, processes and risk management, and financial Clients: KfW Entwicklungsbank’s main client is the education. German Federal Ministry for Economic Cooperation and Development (BMZ). It also works for other ministries, Financial education: Building capacity of end-clients such as the Federal Foreign Office (AA), the Federal Ministry through broad-based financial awareness, financial literacy, of the Environment, Nature Conservation and Reactor and financial education programs at the sector level and Safety (BMU), and the Federal Ministry of Education through financial institutions. and Research (BMBF). The European Commission and the governments of other countries also commission it to IFC’s investment and advisory operations integrate implement their development cooperation programs and responsible finance to help strengthen institutions’ long- projects. term sustainability and growth through (1) joint appraisals on responsible finance principles using IFC’s responsible Introduction: KfW Entwicklungsbank is Germany’s finance diagnostic tool and key recommendations leading development bank and is an integral part of highlighted at investment review meetings; (2) legal KfW Bankengruppe. It carries out 1,900 programs and agreements that incorporate emerging global standards in projects in more than 100 countries, with an emphasis on responsible finance; and (3) structuring solutions around microfinance. key areas, including reasonableness of interest-rate levels, transparency, trends in staff behavior, mechanisms of Responsible Finance Initiatives: Responsible finance grievance redress, and corporate governance. Responsible is an important overarching topic for financial systems finance spans the financial sector, beyond microfinance, to development at KfW Entwicklungsbank. The bank insurance, housing finance; mobile banking; micro, small, can draw on many years of cooperation with financial and medium businesses finance; and other industries to intermediaries in developing and transition countries, create a sound and harmonized financial sector. Since 2009, in which it has gathered vast experience in responsible IFC has deepened its role in responsible finance through finance. It encourages the financial institutions it supports direct responsible finance strategies and implementation to adopt fair and transparent practices with their customers with over 75 financial institutions worldwide, through more and good corporate governance, as board members of than 50 projects and programs to implement responsible such institutions. It focuses on supporting professional finance solutions. microfinance institutions that implement responsible finance practices in their own interest. KfW also looks IFC’s Responsible Finance Advisory plays a global explicitly at sector developments and refrains from investing convening role and brings together participants from the in overheated environments. financial sector, bilateral and multilateral donors, and broader international community through the G-20 Global Various facets show the role of KfW in the area of Partnership for Financial Inclusion. IFC is cofounder of responsible finance: Global Responsible Finance Forum and actively participates in investor/DFI global consultations on responsible finance, Systemic approach: KfW’s activities focus on different including endorsement of the Smart Campaign. levels of intervention (micro, medium, and macro levels) and pursue a comprehensive and systemic approach to More information: www.ifc.org/responsible-finance financial system development (“building inclusive financial systems”). KfW regards itself as a partner that contributes to development at the various levels of intervention with a long-term perspective. 79 Progress in Responsible Financial Inclusion Mainstreaming responsible finance through a due MASTERCARD FOUNDATION diligence checklist: KfW designed a due diligence checklist Country: Canada, headquarters in Toronto, for its staff in an effort to mainstream responsible finance projects worldwide within its own institution and to promote a dialogue with Type of Organization: Private, Foundation its partner financing institutions to help put good practice Introduction: The MasterCard Foundation advances  principles into reality. Such checklists are relevant for all microfinance  and  youth learning  to promote financial financial sector projects of KfW. inclusion and prosperity. Through collaboration with committed partners in 48 developing countries, the Inserting a responsible finance contract clause: KfW MasterCard Foundation is helping people living in poverty established a responsible finance contract clause that is now to access opportunities to learn and prosper. part of the specimen financing agreement for all its financial sector projects. The clause basically says that the borrowers Responsible Finance Initiatives: Responsible Practices by should commit to responsible practices in terms of fair and Financial Providers transparent treatment and refrain from unfair collection practices. The MasterCard Foundation supports the development and growth of responsible finance practices through strategic Selecting the “right” partners: KfW provides funding partnerships with key players. In particular, the MasterCard and equity to financial institutions that regard responsible Foundation is working to strengthen the microfinance banking as an integral element of their business model and sector in two areas: supporting management information have appropriate strategies to achieve it. Banks that make systems to increase the efficiency of microfinance providers their lending terms transparent and customer friendly are and promoting global standards to measure performance, among the preferred partners of KfW Entwicklungsbank. protect clients, and ensure transparency. Its programs seek to promote financial responsibility by promoting the adoption KfW’s long-term commitment as an investor in of standards and best practices in transparency, and by microfinance funds and microfinance institutions plays an facilitating the adoption of client protection principles. important role in setting up and promoting funds. With a seat and vote in supervisory boards, KfW contributes to The MasterCard Foundation partnered with the disseminating standards applicable to responsible finance. organizations below to launch major projects. Additionality for socially motivated investors (such as, With the SEEP Network, it launched a new $7.6 million, private foundations): They can rely on KfW’s country, four-year partnership to strengthen and develop the capacity sector, and target-group expertise to ensure that their funds of microfinance industry associations in Sub-Saharan are employed in institutions that are acting responsibly Africa. This partnership will enable African microfinance and that their investment is consistent with their risk associations to mainstream client protection principles across preferences. Examples include structured finance operations the industry, so that clients benefit from the responsible in the microfinance sector. delivery of financial services. Through this partnership, eight microfinance associations with a membership of nearly Responsible finance workshops in partner countries: In 500 microfinance institutions (serving 6 million clients) a number of Eastern European/Caucasus countries, KfW, will improve their core management capacity. The project the European Fund for Southeast Europe, and central will also advance financial transparency and consumer banks have organized workshops to sensitize the local protection principles among microfinance institutions, and banking sector to responsible finance practices and promote share learning with associations across Sub-Saharan Africa dialogue on these topics. to scale and sustain industry growth. More information: http://www.kfw.de/kfw/en/ Development_Finance/index.jsp 80 Compendium of Global Mapping Survey Respondents 2013 With IFC, it launched a $37.4 million partnership to MICHAEL AND SUSAN DELL FOUNDATION help microfinance banks expand more rapidly and develop Country: United States, India, and South Africa new products and cost-effective delivery channels, while Type of organization: Private, Foundation expanding coverage in new, often hard-to-reach locations. The project will also help providers deliver low-cost mobile Introduction: The Michael and Susan Dell Foundation financial services to low-income customers. The projects has committed more than $700 million to assist nonprofit will embed responsible finance core principles. organizations working in major urban communities in the United States, South Africa, and India. It focuses on With ACCION International, it launched a $1 million opportunities with the greatest potential to directly and partnership over two years to support the industry’s measurably transform the lifelong outcomes of impoverished promotion and implementation of client protection urban children around the globe. principles among microfinance networks. Responsible Finance Initiatives: Responsible Practices by With Aflatoun, it launched a $3.8 million partnership Financial Providers over five years to pilot and roll out a social and financial education program to disadvantaged youth in developing Family Economic Stability Program: To promote countries. family economic stability in India’s impoverished slums, it committed more than $25 million in grants and equity With Camfed, it launched a $10.1 million-five year investments to urban microfinance institutions working partnership to scale secondary and financial literacy in urban neighborhoods. These institutions follow several education for adolescent girls and young women in Ghana tracks: they collaborate with microfinance organizations to and Malawi. responsibly scale a range of services that includes microloans, microcredit, microtransfer and microsaving services, With Catholic Relief Services MISION Africa, microinsurance, micropensions, financial awareness and it launched a $1.7 million, three year partnership to planning, and financing for affordable housing. expand social performance management in Kenya, Uganda, Ethiopia, Benin, Burkina Faso, and Senegal. It also supports the ongoing global initiative to identify rigorous methodologies and standardized metrics for With Microfinance Information Exchange Inc. (MIX), it evaluating the success of microfinance institutions’programs launched a US$2 million, three-year partnership to increase in terms of their financial and social performance. transparency in the microfinance industry and expand coverage in Africa. More information: http://www.msdf.org/programs/ family-economic-stability With Microfinance Transparency, it launched a $1.2 million, two-year partnership to improve pricing MICROCREDIT ENTERPRISES transparency in Africa. Country: United States, based in San Francisco with projects in 19 countries More information: http://mastercardfdn.org/about-us/ Type of organization: Nongovernmental organization (NGO) projects-at-a-glance Introduction: MicroCredit Enterprises aims to help the rural poor in developing countries to build cottage businesses and ultimately to provide food security for millions. Its mission is to mobilize private investment capital to finance microbusinesses of poor families throughout the developing world. It uses a unique  guarantor model  that uses the financial capital and good credit of high-net- 81 Progress in Responsible Financial Inclusion worth individuals and institutions to guarantee microloans The MIF focuses on advancing responsible microfinance that lead to sustainable communities and social good. as it believes microfinance institutions should be held MicroCredit Enterprises gears its entrepreneurial results to accountable for the achievement of financial and social produce jobs, sustain microbusinesses, and improve human goals. There are several initiatives aiming to develop lives. Launched in 2006 with seven guarantors, MicroCredit widely acceptable tools and standards that seek to improve Enterprises now has over 55 guarantors backing loans to a microfinance operations (cost-effectiveness, improved globally diversified portfolio of local finance organizations. services, feedback from clients, among others). However, there is no consolidated ecosystem that nurtures the Responsible Finance Initiatives: Responsible Practices by provision of microfinance services in a responsible manner. Financial Providers The MIF thus aims to advance responsible finance practices by building an ecosystem that promotes the achievement of MicroCredit Enterprises looks at how microfinance sound financial and social goals in microfinance. It aims to do institutions incorporate responsible finance during their so (1) by supporting the refinement, piloting, and adoption appraisal and due diligence processes before making any of leading tools and industry standards in three core areas: lending decision. transparency, client protection, and corporate governance; and (2) by advancing the discussion and participation of More information: http://www.mcenterprises.org/home. the region in the refinement of a sound financial and social html performance framework for microfinance. The MIF ultimately aims to implement a set of tools and MULTILATERAL INVESTMENT FUND (MIF) standards in the areas of transparency, client protection, Country: United States, working in Latin America and corporate governance in a significant number of and the Caribbean microfinance institutions; internalize responsible finance Type of organization: DFI practices among microfinance institutions and industry Introduction: The Multilateral Investment Fund (MIF), actors; establish new tools and standards in responsible part of the Inter-American Development Group (see listing, finance; and increase microfinance institution reporting above),  supports economic growth and poverty reduction and benchmarking of social and financial performance. in Latin America and the Caribbean by encouraging increased private investment and advancing private sector More information: http://www5.iadb.org/mif/ development. It works with the private sector to develop, finance, and execute innovative business models that benefit OIKOCREDIT INTERNATIONAL entrepreneurs and poor and low-income households; Country: The Netherlands, headquartered in partners with a wide variety of institutions from the Amersfoort, with 37 offices around the globe. private, public, and nonprofit sectors; evaluates results; Type of organization: Private, Investor and shares lessons learned. MIF is the largest international technical assistance provider to the private sector in Latin Introduction: Oikocredit International, is a private 35-year- America and the Caribbean and always works with local, old global development financing institution that responds mostly private partners to help fund and execute projects to the needs of businesses that create income for financially including civil society organizations, industry associations, disadvantaged people and contribute to local community foundations, universities, cooperatives, companies, and development. Oikocredit’s primary goal is to provide financial institutions. Every dollar approved by the MIF credit to organizations that may otherwise not have access leveraged more than US$2.5 from partners in 2011. to funding. The largest part (80 percent) of Oikocredit’s total development financing portfolio is allocated to Responsible Finance Initiatives: Responsible Practices by intermediary microfinance institutions. Microfinance Financial Providers institutions use Oikocredit’s capital to provide small loans (microcredit) and other financial services to individual entrepreneurs and small and medium-sized companies. 82 Compendium of Global Mapping Survey Respondents 2013 Oikocredit also provides loans and equity investments  to OVERSEAS PRIVATE INVESTMENT businesses and organizations in sectors such as agriculture, CORPORATION (OPIC) fair trade, manufacturing, health care, and education. Country: United States, works in developing countries Responsible Finance Initiatives: Responsible Practices by Type of organization: U.S. Government Agency Financial Providers Introduction: The Overseas Private Investment Corporation (OPIC) mobilizes private capital to help solve Oikocredit supports social performance and client critical development challenges and in doing so, advances protection. Oikocredit’s work in social performance U.S. foreign policy. Because OPIC works with the U.S. and impact measurement focuses on five areas: (1) private sector, it helps U.S. businesses gain footholds in choosing the  right project partners; (2) monitoring  social emerging markets, catalyzing revenues, jobs, and growth performance indicators; (3) holding partners accountable opportunities both at home and abroad. OPIC achieves its to their social objectives; (4) providing capacity building; mission by providing investors with financing, guarantees, and (5) seeking  feedback from partners to further political risk insurance, and support for private equity develop Oikocredit products and services. Oikocredit investment funds. Established as an agency of the U.S. uses tools such as Progress out of Poverty Index (PPI) and Government in 1971, OPIC operates on a self-sustaining Social Performance Indicators (SPI) to assess the social basis at no net cost to American taxpayers. OPIC services performance of the organizations financed. are available for new and expanding business enterprises in more than 150 countries worldwide. OPIC projects have Oikocredit endorsed the Smart Campaign’s Client generated $74 billion in U.S. exports and supported more Protection Principles (CPPs) in September 2008 and than 275,000 American jobs. circulated the principles to all local offices with the request they be shared with partners. Oikocredit has also Responsible Finance Initiatives: Responsible Practices by collaborated with other investors to put the principles into Financial Providers practice and help microfinance institutions ensure that their operations become fully compliant. In 2011, Oikocredit OPIC focuses on ensuring responsible finance practices was involved in more than 20 workshops, conferences, and through its own operations and its partners, in particular, training courses aimed at educating investees on the CPPs, it aims at ensuring transparency and adequate due diligence reaching more than 100 microfinance partners around the screenings. world. Moreover, Oikocredit has fully integrated the CPPs into its social due diligence tool and includes compliance OPIC recognizes that transparency is a critical factor in as a contractual obligation for microfinance institution securing both fiscal accountability and public trust and borrowers. Oikocredit encourages partner microfinance is committed to making its operations as transparent as institutions to conduct client satisfaction surveys so that possible. OPIC recently completed an agencywide series they can serve clients better and with more tailored products. of improvements to its transparency to make available to Support is also offered in training staff, developing codes the public an unprecedented degree of information about of ethics, and reviewing human resource regulations and the projects the agency supports and to encourage a new incentive systems. level of public involvement in the development of those projects. These upgrades concern OPIC operations in four In Bosnia and Herzegovina, Oikocredit joined other areas: (1) public disclosure of detailed information of all funders in the establishment of a financial literacy center. projects to be considered by the OPIC Board of Directors and about all the projects OPIC supports; (2) coordination More information: http://www.oikocredit.org/ of project development with concerned stakeholders, socialperformance/en/home particularly locally affected communities in host countries; (3)due diligence screening of project sponsors and potential impacts; and (4) OPIC compliance with protocols, such as, 83 Progress in Responsible Financial Inclusion the Extractive Industries Transparency Initiative (EITI) and for example, the total amount of clients’ savings under OPIC’s own Anti-Corruption Handbook. management and data regarding microfinance clients by gender and location, several of which are indicators More information: http://www.opic.gov/ of progress regarding the range of services offered by the microfinance institution. The data are analyzed against RESPONSABILITY other data points, with summary results presented in the Country: Switzerland responsAbility annual Social Performance Report. By the Type of organization: Private, Investor end of 2011, responsAbility had used rADER to assess 100 per cent of the microfinance institutions in its portfolio. Introduction: With assets under management of US$ 1 billion, responsAbility is one of the world’s leading More information: http://www.responsability.com/site/ social investment companies. Its areas of focus include index.cfm?id_art=44173&vsprache=EN microfinance, small and medium enterprises financing, fair trade, and independent media. responsAbility’s investment SAVINGS BANKS FOUNDATION FOR solutions give people in developing and emerging economies INTERNATIONAL COOPERATION (SBFIC) access to markets, information, and other services crucial to their development; they enable private and institutional Country: Germany Type of organization: Private, Foundation investors to earn a financial return while making a positive social impact. Founded in 2003, responsAbility operates Introduction: In 1992, Germany’s Sparkassen- as an independent asset manager. The assets managed by Finanzgruppe (Germanys largest provider of financial responsAbility are currently invested in 372 companies and services) established the Sparkassenstiftung für 70 countries. internationale Kooperation (Savings Banks Foundation for International Cooperation [ SBFIC]). Since then, SBFIC Responsible Finance Initiatives: Responsible Practices by has actively supported financial institutions, promoting a Financial Providers sustainable economic and social development at a local, regional, or national level by offering banking services that ResponsAbility focuses on social performance management, are tailored to the needs of the target groups. always reporting on social return and accounting for social and development results of investment activities. SBFIC aims to enhance the professional capacity of its Using responsAbility’s social performance reporting, the partner institutions, empowering them to offer their company analyzes how successful it is in reaching social customers (primarily micro and small enterprises and small goals. For every investment theme, responsAbility defines income holders) a permanent access to financial services. several social performance indicators. For microfinance Focusing business operations on these target groups actually investments, for example, responsAbility checks how many benefits the partner institutions themselves: serving small women receive assistance from a microfinance institution businesses and private clients in a responsible manner allows and whether more urban or rural customers have access to generation of stable and sufficient profits on a sustainable financial services. responsAbility looks at the loan structure basis as savings banks in Germany impressively show. There (group or individual loans) and whether customers are also is strong evidence that those financial institutions did able to open a savings account. These and other indicators well during and after the global financial crises that had a make a direct or indirect statement about development- strong link with the real (and local) economy and with a relevant effects. business model that has an explicit responsible finance and ethical component. ResponsAbility uses a proprietary Development Effectiveness Rating (rADER) to measure and report Responsible Finance Initiatives: Regulation for Consumer on the social performance criteria of its investments and Protection, Responsible Practices by Financial Providers, integrates the PIIF principles. responsAbility evaluates the Financial Capability social performance of its portfolio using 10 indicators; 84 Compendium of Global Mapping Survey Respondents 2013 SBFIC helps central banks and other regulators develop and SHOREBANK INTERNATIONAL (SBI) implement consumer protection principles (for example, Country: Global, offices in Washington D.C., in Azerbaijan, Georgia, and Zambia) including training Chicago, London, and Islamabad. staff to improve on the overall organization of financial Type of organization: Private, Investor, Service institutions. In several countries (such as Lao PDR, provider the Republic of the Union of Myanmar, and Bhutan), Introduction: Since 1988, Shorebank International SBFIC has supported the adoption of regulation for (SBI) has delivered  services and solutions  that extend microfinance institutions incorporating the principles of access to capital, information, and services to underserved consumer protection. individuals, households, and entrepreneurs globally. Many SBI current engagements focus on moving beyond access SBFIC offers financial services in a responsible manner and to credit to expanding the range of financial services and as a guiding principle, uses partner selection criteria as in the products for the underbanked and people who have no German Azerbaijanian Fund, and “cajas” in Mexico. SBFIC access to financial services. SBI has designed and delivered also provides capacity building in business and strategic savings products for low- to moderate-income people by: planning, product development, risk management, and tapping new technologies to extend access to financial management, also emphasizing responsible treatment and services and products; exploring financial services to preventing over-indebtedness. promote renewable energy and energy efficiency; expanding access to housing finance, including traditional mortgages SBFIC supports partners in improving financial literacy and housing microfinance; and building successful small of their clients to better manage personal and household business banking units in the Middle East, Africa, and finances and become informed and effective consumers South Asia, as well as in other parts of Asia, Eastern and of financial services. Projects also focus on children and Central Europe, Latin America, and the Caribbean. young people, thus laying the ground for future financial Triodos Ventures BV, the innovative arm of Triodos Bank, success (such as in the regional projects in Latin America, is the anchor shareholder of SBI. Triodos Bank  is one of Armenia, Rwanda, and Burundi). In many countries (such the world’s leading sustainable banks with a mission to as the Democratic Republic of Congo and Georgia), SBFIC make money work for positive social, environmental, and has helped to implement the World Savings Day that cultural change. specifically targets children and young people. Training in basic budget planning also forms part of SBFIC’s support Responsible Finance Initiatives: Responsible Practices by to microfinance Institutions (such as in the Lao PDR, the Financial Providers Republic of the Union of Myanmar, and Bhutan, as well as business training via board games to build business skills Shorebank International is committed to advancing (Uzbekistan). A board game (as well as computer-based responsible finance inclusion through supporting business simulations) is used to train staff of financial microfinance institutions in expanding their products to institutions at all levels in China, Nepal, and Ghana. reach the lower-income groups. SBI assists its partners Together with various stakeholders, in particular the central achieve measurable results in the creation and deployment banks, in Azerbaijan and Georgia, SBFIC develops and of affordable financial services.  implements guidelines on financial literacy, thus enabling financial institutions to increase financial capability of More information: http://www.sbksbi.com/ their clients. More information: http://www.sparkassenstiftung.de/en/ projects.html 85 Progress in Responsible Financial Inclusion SNS IMPACT INVESTING in developing countries. Triodos Microfinance Fund is open for institutional investors across Europe and Australia Country: The Netherlands Type of organization: Private, Investor and  offers a combination of solid long-term financial returns and significant social benefits. Introduction: SNS Impact Investing is the development investment  department of SNS Asset Management. Responsible Finance Initiatives: Responsible Practices by SNS Impact Investing creates value for clients, Financial Providers investees, and society by developing, promoting, and/ or distributing impact investment solutions. They are In 2009, Triodos Investment Management developed a typically accomplished by way of funds but may also “sustainable banking assessment tool” to meet the growing include mandates and advisory services. SNS clients are need for standardized reporting and evaluation in the professional investors, such as pension funds, foundations, microfinance sector. This tool assesses an organization’s insurance companies, development finance institutions, mission, vision, and intentions, along with its products, and high-net-worth individuals. SNS focuses on major services, processes, and systems. The tool brings together European markets. SNS Asset Management, by way of indicators aligned with sector initiatives, such as, the its Impact Investing department, has established two Social Performance Task Force, the Smart Campaign, MIX institutional microfinance funds: SIMF I in 2007 and Market, and MFTransparency. SIMF II in 2008. The funds are closed-end mutual funds, open only to professional investors. Through investments Triodos Investment Management has sought to promote in microfinance institutions the funds contribute to the sustainability reporting in microfinance by applying this provision of loans to microentrepreneurs and farmers in standardization to its investments in microfinance. Every developing and transition countries. year, it organizes a workshop that brings together the senior management and board members of its equity investees. Responsible Finance Initiatives: SNS Impact Investing is During the 2004 workshop, Triodos Bank and the Global committed to creating Responsible Finance measures and Reporting Initiative (GRI) launched the Transparency and disclosing the impact of their investments. Sustainability in Finance (TSF) project in cooperation with six leading retail providers from Cambodia, Bolivia, More information: http://www.snsimpactinvesting.com/ Nicaragua, Ecuador, Uganda, and Kenya. Focusing on funds/sns-institutional-microfinance-fund-simf/ leaders in the field of microfinance contributes to the development of best practices that can be followed by other TRIODOS INVESTMENT MANAGEMENT organizations in the same countries and regions. Having Country: The Netherlands developed its own integrated sustainability management Type of organization: Private, Investor system, one of the participants, ACLEDA Bank (Cambodia), Introduction: Triodos Investment Management is a 100 used the experience to replicate the system in ACLEDA percent subsidiary of Triodos Bank, one of the world’s Bank Lao (Lao PDR). leading sustainable banks. Triodos Investment Management manages direct investments ranging from sustainable energy More information: http://www.unpri.org/files/PIIF_case_ infrastructure to microfinance institutions, and is currently study_compendium.pdf and http://www.triodos.com/ managing 20 funds investing in both Europe and emerging en/institutional-investors/microfinance/?osc=bb-ii-right- markets with different risk-return profiles and financial microfinance instruments, four of which are specialized microfinance funds. Triodos Investment Management’s vision is to develop microfinance – ranging from credit facilities and savings accounts to payment services and microinsurance – into a fully fledged, integral part of the financial sector 86 Compendium of Global Mapping Survey Respondents 2013 TRIPLE JUMP warrant investment from Triple Jump. The tool proposes a framework to assess a balanced return from the perspective Country: The Netherlands, Amsterdam Type of organization: Private, Social investment of the end-client, the operator (microfinance institution), manager and the investor. It considers absolute rates as well as a set of underlying factors that determine what institutions need to Introduction: Triple Jump  is a responsible investment charge their clients in order to provide sustainable financial manager  based in Amsterdam, the Netherlands. Triple services. Jump manages and advises investment funds that target  investments in developing countries. It specializes More information: http://www.interesttrafficlight.org/ in managing and advising microfinance investment funds, http://www.triplejump.eu/page/ each with a specific target group and different risk and Investment+Management/1858/ return objectives. This mix of funds allows Triple Jump to serve financial intermediaries throughout their  entire UNITED NATIONS CAPITAL DEVELOPMENT life cycle. Clients range from NGO’s receiving their first FUND (UNCDF) nonsubsidized loans to regulated banks that mediate savings and serve hundreds of thousands of borrowers. Country: Global Type of organization: UNCDF was created in 1966 Triple Jump also offers advisory services to help young by the UN General Assembly. It is an autonomous, financial intermediary organizations, often microfinance voluntarily funded UN organization affiliated institutions, “jump” to the next level by providing capacity- with the United Nations Development Programme building services on a cost-sharing basis. Its service areas (UNDP). focus on  strengthening governance, technology (mobile Introduction: The UN Secretary General Special Advocate banking, management information systems), product for Inclusive Finance for Development, Her Royal Highness development, and social performance management. Queen Máxima, is an active global voice on the importance Triple Jump currently has over  288  investments with of inclusive finance for reducing poverty and achieving 166 microfinance institutions in 57 countries, for a total development goals. Queen Máxima plays a leading role in invested capital of over € 270 million. promoting best practices and policies that increase access to finance, advance consumer protection, and enhance Responsible Finance Initiatives: Responsible Practices by financial literacy. In highlighting the shared benefits of Financial Providers bringing more people into the financial system, Queen Máxima underscores how financial inclusion, integrity, Triple Jump provides advice to investors to successfully tap and stability are mutually reinforcing in vibrant financial into the benefits of the microfinance market. Investments systems. are subject to a solid set of investment policies and guidelines to ensure a sound portfolio structure, including Responsible Finance Initiatives: The United Nations social performance. Capital Development Fund (UNCDF) has joined with other donors and investors to encourage financial services Responsible Pricing Tool: To assess whether a microfinance providers to adhere to sound practices and builds provider institution will provide an appropriate balance between capacity to operationalize sound client protection principles. social and financial returns, social investors should determine if the microfinance institution is practicing UNCDF was one of the founding members and is on the responsible pricing. Triple Jump believes responsible pricing board of the  Smart Campaign, a global effort to embed to be pricing, terms, and conditions that are both affordable client protection practices into the institutional culture to clients and sustainable for financial institutions. To and operations of the microfinance industry. It helped tackle this challenge, Triple Jump developed its own develop the  “Principles for Investors in Responsible approach in 2010. The “interest traffic light” is a tool Finance,” which provide a framework for responsible designed to assess, in a systematic way, whether the interest investment in inclusive finance. In addition, UNCDF has rates charged by microfinance institutions are justified and incorporated client protection into its performance-based 87 Progress in Responsible Financial Inclusion agreements with partners, and programs support training finance, consumer protection, enhanced financial literacy, of financial services providers, government officials, and and for high-quality data that sheds light on how households other stakeholders on implementation of principles of and enterprises use and benefit from inclusion in the formal client protection. UNCDF has also supported a high-level financial system. forum on disclosure and pricing disclosure in Africa and in several countries, UNCDF is working with the government In her own country, Queen Máxima is a member of and private sector to develop and test strategies for building the Committee for Entrepreneurship and Finance and financial capability at the client level. Honorary Chair of the Dutch Money Wise Platform. More information: http://www.uncdf.org/en/advocacy Responsible Finance advocacy: The UNSGSA was instrumental in creating the Principles for Investors on UNSGSA Inclusive Finance in 2011, which provide a framework for responsible investment in inclusive finance and are now Her Majesty Queen Máxima of the Netherlands, the housed within the UN-backed Principles for Responsible United Nations Secretary-General’s Special Advocate for Investment. Inclusive Finance for Development (UNSGSA) Country: Global, based in the Netherlands More information: http://www.unsgsa.org Type of organization: Special advocate as part of a multilateral organization WORLD BANK GROUP Introduction: Queen Máxima is an active global voice Country: Global, headquartered in Washington D.C. on the importance of inclusive finance for achieving Type of organization: DFI development and economic goals. Designated in 2009 Introduction: The World Bank Group takes a comprehensive by the UN Secretary-General as his Special Advocate for approach to achieving financial inclusion, working with Inclusive Finance for Development, Queen Máxima government and regulator partners to increase access to a encourages universal access for individuals and enterprises, range of financial services and institutions through low- at a reasonable cost, to a wide range of financial services, cost delivery mechanisms. The World Bank has an active provided by diverse responsible and sustainable institutions. lending portfolio for access to finance of over $3.5 billion Such services include savings accounts, loans, insurance, and inclusive finance and financial infrastructure projects in payments and other products that can help individuals, more than 60 countries. families and enterprises generate income, build assets, manage cash flow, invest in opportunities and strengthen Responsible Finance Initiatives: Regulation for Consumer resilience to setbacks. In this way, inclusive financial Protection, Financial Capability systems are essential infrastructure in a given country, just like roads. They enable and accelerate progress towards The Financial and Private Sector Development Group at numerous national priorities such as job creation, equitable the Bank seeks to advance the financial inclusion agenda by growth, poverty alleviation, women’s empowerment, food (1) working with governments and regulators to design and security and more. implement financial inclusion strategies that increase access to financial services for households and enterprises; (2) In 2011, she also became Honorary Patron of the G-20 supporting responsible financial inclusion by promoting Global Partnership for Financial Inclusion. She works in financial capability and strengthening financial consumer partnership with stakeholders locally to raise awareness, protection frameworks; (3) providing expert technical encourage leadership, and foster action toward financial support and financing for policy initiatives, legal reforms, inclusion. Queen Máxima emphasizes the importance and programs that support micro and small and medium of complementarity and cooperation among global enterprises finance, trade finance, agricultural finance, and country-led initiatives, and of engaging all relevant innovative delivery mechanisms, alternative financial stakeholders in the process. She advocates for responsible products, state- and member-based financial institutions, 88 Compendium of Global Mapping Survey Respondents 2013 and (4) producing knowledge and diagnostic tools that The financial capability survey has been implemented in 19 build capacity and global expertise in support of country- countries. Its main objectives are to identify the behaviors, led financial inclusion actions and the G-20 financial attitudes, skills, and knowledge associated with financial inclusion agenda. capability and to provide information to strengthen existing consumer protection frameworks. In November 2010, the World Bank launched a Global Program on Consumer Protection and Financial Literacy Key Publications: Good Practices for Financial Consumer (CPFL) to help countries achieve measurable improvements Protection in consumer protection in financial services. This program focuses on making financial information easy to understand More information: http://web.worldbank.org/WBSITE/ and comparable so that consumers can shop for the best EXTERNAL/TOPICS/EXTFINANCIALSECTOR/0,,co deal, improving business practices to ensure that abusive and ntentMDK:22761006~pagePK:148956~piPK:216618~ predatory practices are prohibited, and that intermediaries theSitePK:282885,00.html are regulated, giving consumers a way to get quick and easy redress when their financial institutions have made a mistake, and helping consumers learn to use financial International Support Networks services with confidence. ALLIANZ SE Country: Indonesia The CPFC program supports low- and middle-income Type of organization: Private, insurance company countries in their efforts to strengthen financial consumer protection frameworks. It offers a wide range of products Responsible Finance Initiatives: Financial education that contribute to more efficient and transparent financial markets. The CPFC Program focuses on six areas (1) Introduction: Allianz Care Foundation Indonesia’s adult a strong legal and regulatory framework for financial financial literacy program is brought to microinsurance consumer protection; (2) a clear and effective institutional customers through training-of-trainers and training-of- structure for financial consumer protection; (3) making customers approaches. Trainings-of-trainers are carried financial information easy to understand and comparable out voluntarily by Allianz staff for distributor staff as part so that consumers can shop for appropriate products and of Allianz Indonesia’s Employee Engagement Program, services; (4) ensuring fair, noncoercive, and reasonable which is free of charge. Later, trainings-of-customers are business practices in the selling and advertising of financial implemented by trained distributors’ staff. In 2012, about products and services; (5) providing inexpensive and speedy 50 microfinance institution staff and 500 customers were mechanisms to address complaints and resolve disputes; reached. The target for 2013 is 10,000 customers. The and (6) empowering consumers to learn to take sound program is run by the Allianz Care Foundation Indonesia and financial decisions and to choose and use financial services carried out in coordination with the International Labour knowledgeably. Organisation (ILO) Jakarta office, which has provided most of the training material, with Allianz contributing CPFL diagnostics reviews have been replicated in over 16 the insurance module. Trainings were done in close countries. The reviews catalyze and inform public- and coordination with the microinsurance business department private-sector actions to improve responsible finance by of Allianz Indonesia, which uses the adult financial literacy assessing the legal/regulatory and institutional frameworks program as an “added value” when approaching new for financial consumer protection in a country, identifying distribution partners. The business division reports good key measures in strengthening financial consumer success with that approach. Sustainability of the program protection to help build consumer trust in the financial is guaranteed by (1) being an integral part of Allianz sector and expand the confidence of households to use Indonesia’s Employee Engagement Program, (2) promoting financial services. social impact, and (3) winning more distribution partners for Allianz. 89 Progress in Responsible Financial Inclusion Some challenges include: (1)the lack of proof that responsible Extending finance to rural areas of Latin America. Accion (microinsurance) finance leads to better financial results, as is partnering with the Inter-American Development Bank there is a relatively high cost of customer education relative and microfinance institutions, Finamérica (Colombia), to premiums and profit, and (2) the important of carefully Mibanco (Peru), Banco ADEMI (Dominican Republic), selecting reputable microinsurance distribution partners. Financiera FAMA (Nicaragua), and CREDIFE (Ecuador) to bring loans, savings accounts, credit, and financial CENTER FOR FINANCIAL INCLUSION at education to 200,000 people living in poverty in rural areas ACCION – SMART CAMPAIGN of Latin America. More information: http://www.accion. Country: United States, Washington D.C., with org/page.aspx?pid=523 international programs Type of organization: Private, NGO, research, Financial Education. Accion has two major initiatives advocacy, and industry support for client education: (1) financial literacy modules to Introduction: Accion is a private, nonprofit organization help low-income clients better manage their personal and with the mission of giving people the financial tools they household finances and become informed and effective need to improve their lives. Accion’s vision is to build consumers of financial services, and (2) business training a financially inclusive world with access to economic through its “Dialogue on Business” program, a set of opportunity for all. The Center for Financial Inclusion award-winning modules that focus on building the skills (CFI) helps to bring about the conditions to achieve full of microentrepreneurs. More information: http://www. financial inclusion around the world. CFI contributes to accion.org/page.aspx?pid=268 full inclusion by collaborating with sector participants to tackle challenges beyond the scope of any one actor, using a CERISE (Comité d’Echanges de Réflexion toolkit that moves from thought leadership to action. et d’Information sur les Systèmes d’Epargne-crédit) The Smart Campaign is a global effort to unite microfinance Country: France leaders around a common goal: to keep clients first, as the Type of organization: Private , knowledge driving force of the industry. The Smart Campaign works network, Research and Industry Support with microfinance leaders from around the world to provide Introduction: CERISE (Comité d’Echanges de Réflexion microfinance institutions with the tools and resources et d’Information sur les Systèmes d’Epargne-crédit), they need to deliver transparent, respectful, and prudent is a knowledge exchange network for microfinance financial services to all clients. By putting clients first and practitioners. CERISE aims to bring together a variety of collaborating, CFI hopes to strengthen the microfinance practitioners, researchers, donors, and investors from the industry and elevate it as a model of responsible banking North and South. CERISE comprises five leaders in French around the world. microfinance with over 20 years of experience providing technical assistance to microfinance institutions around Responsible Finance Initiatives: Regulation for Consumer the world: three NGOs, CIDR (Centre International de Protection, Responsible Practices by Financial Providers, Développement et de Recherche,Autrêches), GRET Groupe Financial Capability de Recherche et d’Echanges Technologiques, Paris, and Iram (Institut de recherches et d’applications des méthodes de Investing. In the area of investing, Accion provides early- développement); a public research institute CIRAD Centre stage equity, quasi-equity financing, and loan guarantees de Coopération Internationale en Recherche Agronomique to help microfinance institutions become independent pour le Développement, Montpellier); and the academic of donor funds, build their capital base, attract deposits, institution IRC (International Rescue Committee). Its work and attain financial leverage to expand their reach. More is focused on four themes: impact and social performance, information: http://www.accion.org/page.aspx?pid=225 agricultural and rural finance, governance and social viability, and intervention methods. 90 Compendium of Global Mapping Survey Respondents 2013 Responsible Finance Initiatives: Regulation for Consumer Responsible finance initiatives: regulation for consumer Protection protection, responsible practices by financial providers, financial capability Good practices. Through a series of peer reviews, CERISE has fostered mutual learning among its members Without basic protective measures, inexperienced consumers and collectively defined a series of “good practices” for are more vulnerable to abusive sales and collections practices practitioners. CERISE facilitates discussions with French and to being sold inappropriate or even harmful products. NGOs working in microfinance, public cooperation That is why it is vital that consumer protection regimes agencies, and networks of international solidarity take into account the particular needs and challenges faced organizations. by low-income and inexperienced consumers. Public- and private-sector actors can also coordinate to design and Social Performance Indicators (SPI). CERISE and its enforce consumer protection regimes, using delegated partners were the first to pioneer a social performance supervision and self-regulation when appropriate. Capacity assessment tool for microfinance, in 2001. Developed in limitations must not discourage action on the part of collaboration with networks from the North and South, providers, policy makers, and other consumer advocates. the SPI is one of the most widely used social audit tools Consumer protection can be implemented gradually and in the sector today. CERISE has also developed innovative improved over time and still have an important positive methodologies for assessing impact. impact in promoting responsible financial inclusion. CGAP has many projects and initiatives on consumer protection. The CERISE SPI tool, available for free, was designed using More information: http://www.cgap.org/topics/consumer- an open, collaborative and transparent approach. Used by protection more than 500 microfinance institutions worldwide, the CERISE SPI tool is the premier social performance audit The responsible finance movement in the microfinance tool for institutions committed to improving the lives of their sector consists of a series of well-coordinated initiatives to clients. Since 2011, several CERISE partner organizations enhance client protection, strengthen social performance have successfully completed or have started undergoing the management, and define acceptable behavior for CERISE-SPI certification process, producing a significant microfinance investors and donors. The most important of network of external auditors for microfinance institutions these are the Smart Campaign (http://www.smartcampaign. to validate their SPI results. org/), which has mobilized almost 1,000 retail providers, dozens of networks and associations, and well over 100 More information: www.cerise-microfinance.org/-impact- funders to improve products and practices, the Social and-social-perfomance- Performance Task Force (http://sptf.info/), which has just launched industry-consensus standards on social CONSULTATIVE GROUP TO ASSIST THE performance management, and the Principles for Investors POOR (CGAP) in Inclusive Finance (http://www.unpri.org/areas-of- Country: Global, headquartered in Washington D.C. work/piif/), which more than 50 investors have signed to Type of organization: Public, multidonor trust express their commitment to responsible finance. CGAP fund focused on industry support, research, and supports and codeveloped these industry self-regulations on advocacy responsible finance. More information: http://www.cgap. Introduction: CGAP is an independent policy and research org/topics/responsible-finance centre dedicated to advancing financial access for the world’s poor. It is supported by more than 30 development Informed and capable clients are at the center of CGAP’s agencies and private foundations who share a common vision for financial inclusion. Clients who have the mission to alleviate poverty. Housed at the World Bank, combination of knowledge, skills, and behavior to manage CGAP provides market intelligence, promotes standards, their money well and make the best financial decisions develops innovative solutions, and offers advisory services possible, given their economic and social circumstances, play to governments, financial service providers, donors, and an active role in improving access and the quality of services investors. 91 Progress in Responsible Financial Inclusion they receive. There is significant new experimentation and FINMARK TRUST research around financial capability. Policy makers are Country: United Kingdom with focus on creating national financial education strategies in several Southern Africa countries. A slew of impact evaluations are due out soon Type of organization: Public, Research and on financial capability projects that CGAP has supported. Advocacy Group Introduction: FinMark Trust was established in March 2002 More information: www.cgap.org/topics/financial- with funding from the U.K. Department for International capability Development (DFID). FinMark Trust is an independent trust whose business is controlled by  seven trustees from DÉVELOPPEMENT INTERNATIONAL countries in Southern Africa. FinMark Trust’s purpose is DESJARDINS (DID) “Making financial markets work for the poor by promoting Country: International, based in Canada financial inclusion and regional financial integration.” It Type of organization: International NGO does this by conducting research to identify the systemic Introduction: DID works closely with regulators, offers constraints that prevent financial markets from reaching technical assistance, and invests in education and capacity out to these consumers and by advocating for change on the building. Its advisory services are focused on control of basis of research findings. FinMark Trust aims to promote the financial statement and include financial consumer and support policy and institutional development toward protection and building the reliability of the microfinance the objective of increasing access to financial services by institution. DID offers training to increase the capability the unserved and underserved in Africa. It is a facilitation of consumers but also focuses on the employees of and advocacy organization that integrates the concepts of financial service providers who serve them. DID offers responsible finance into all areas. It drives regulators to advisory services to regulatory authorities and works with enact consumer protection strategies. microfinance institutions and insurance companies to enable them to comply with regulatory standards. Responsible Finance Initiatives: Regulation for Consumer Protection, Responsible Practices by Financial Providers, Responsible Finance Initiatives: Responsible Practices by Financial Capability Financial Providers, Financial Capability Access to Insurance Initiative (A2ii): FinMark In Sri Lanka (2009–13), DID is implementing an indexed Trust managed a multicountry study on behalf of the crop insurance plan for paddies in different regions of Regulation, Supervision, and Policy Working Group of the the country. The program is almost sustainable. The Microinsurance Network (previously the IAIS/CGAP Joint product is based on the rain index, and many actions have Working Group on Microinsurance) aimed at establishing been undertaken to provide educational services to the global principles for the regulation of microinsurance. This population and the agents. study culminated in the launch of the Access to Insurance Initiative, a global program designed to strengthen the In Senegal, DID is implementing a health insurance capacity and expertise of insurance supervisors and to program. An insurance information leaflet provides facilitate their role in expanding access to insurance insurance protection details and additional assistance is markets. More information: http://www.finmarktrust. given to calculate the insurance benefits to the insured. org.za/pages/About-Us/Research-and-Dissemination. Some the challenges include low member interest and low aspx?randomID=5088f6eb-bcd0-4a9c-afc9-0500d0ad477 literacy. In addition, some microfinance institutions agree 7&linkPath=2&lID=2_6 to the principles of good practice but do not always ensure actions meet the standards of the principles. Tax incentives for small-business investment: FinMark Trust identified that there was no fiscal support in More information: http://did.qc.ca/en/ South Africa for equity investors in small business. It conducted research that identified an equity gap and 92 Compendium of Global Mapping Survey Respondents 2013 proposed the design of an appropriate tax incentive, Financial Capability: A study is intended to evaluate the based on the U.K. model. The budget speech in February current financial education material and delivery strategy in 2008 confirmed National Treasury’s commitment to rural and peri-urban areas. The study aims to understand introducing such incentives. More information: http:// the specific needs for financial education content and www.finmarktrust.org.za/pages/About-Us/Research-and- whether the current material is suitable to meet these needs, Dissemination.aspx?randomID=5088f6eb-bcd0-4a9c- taking into consideration different categories of members. afc9-0500d0ad4777&linkPath=2&lID=2_6 The research also will explore whether the current delivery strategy is the most suitable given the context, and the Government of Zambia: A key indicator from FinScope effectiveness of the program in terms of behavior change. is being used by the Government of Zambia for its The study will help develop a list of indicators and tools “performance assessment framework indicator,” an annual to be used for monitoring the quality of the training and monitoring of its performance toward building more its impact on people’s lives. From the analysis, FinMark inclusive financial markets. More information: http:// will develop a toolkit to inform the design and delivery www.finmarktrust.org.za/pages/About-Us/Research-and- of financial education programs to community financial Dissemination.aspx?randomID=5088f6eb-bcd0-4a9c- organizations. One challenge is the lack of evidence of the afc9-0500d0ad4777&linkPath=2&lID=2_6 success of financial education initiatives. Bank Windhoek: FinScope surveys have been used by GLOBAL IMPACT INVESTING NETWORK several financial service providers. Bank Windhoek used (GIIN)/ IMPACT REPORTING AND the Namibian survey to develop a successful low-income INVESTMENT STANDARDS (IRIS ) savings product called EasySave. More information: http:// Country: Global www.finmarktrust.org.za/pages/About-Us/Research-and- Type of organization: NGO Dissemination.aspx?randomID=5088f6eb-bcd0-4a9c- Clients: Impact investors afc9-0500d0ad4777&linkPath=2&lID=2_6 Introduction: The Global Impact Investing Network (GIIN) is a nonprofit organization dedicated to increasing Absa Bank: In South Africa, Absa Bank is using the the scale and effectiveness of impact investing. Impact spatial mapping of the “business sophistication measure” investments are direct investments, including those into from the FinScope Small Business Survey to optimize funds, made with the intention of generating measurable the location of new service centers for its microenterprise social and environmental impact alongside a financial activities. More information: http://www.finmarktrust. return. GIIN addresses systemic barriers to effective impact org.za/pages/About-Us/Research-and-Dissemination. investing by building critical infrastructure and developing aspx?randomID=5088f6eb-bcd0-4a9c-afc9-0500d0ad477 activities, education, and research that attract more 7&linkPath=2&lID=2_6 investment capital to poverty alleviation and environmental solutions. In Swaziland, in 2012–13, FinMark Trust began helping the Swazi government develop a National Credit Responsible Finance Initiative: One of the major projects and Consumer Protection Bill. Initially, it developed of GIIN’s infrastructure development initiative is called a framework by undertaking research to provide an the Impact Reporting and Investment Standards (IRIS). understanding of the economic and legal implications of IRIS was initiated by The Rockefeller Foundation, Acumen the consumer credit market. The project is currently in the Fund,  and  B Lab, to create a common framework for drafting phase. FinMark is providing advisory services for defining and reporting the performance of impact capital. the drafting of the legislation. Acknowledging that significant progress had been made in sectors like microfinance where standardized measures, Industry Self-Regulation Industry self-regulation is data aggregation, and rating tools were developed, the IRIS highly developed in South Africa, FinMark works with founders mandated that the IRIS initiative would build stakeholders in driving the “making financial markets work on these sector-specific efforts. As a result, the common for the poor” strategy. 93 Progress in Responsible Financial Inclusion language encompassed by the IRIS framework is designed Pricing disclosure: enables transparent communication to enable comparison and communication across the among market players on the prices of microcredit products. breadth of organizations that have social or environmental Information on credit products and their prices are presented impact as a primary driver. in a clear and consistent fashion so that all microfinance stakeholders can work with a full understanding of the true IRIS  provides a set of standardized metrics that can be prices paid by clients. used to describe an organization’s social, environmental, and financial performance. IRIS metrics span an array Training and education: provides training and education of performance objectives and include sector-specific to the broad range of stakeholders to ensure that metrics for areas such as financial services, agriculture, and transparency leads to a strengthening of the microfinance energy among others. IRIS aims to increase the value of industry. Straightforward educational materials enable all nonfinancial data by enabling performance comparisons microfinance stakeholders to better understand the concept and benchmarking, while streamlining and simplifying and function of interest rates and product pricing. reporting requirements for companies and their investors. Like financial accounting standards, IRIS provides a basis Policy advisory: works with regulators and policymakers for performance reporting and organizations need only use of microfinance markets to support the development of relevant metrics from the IRIS library. effective policies for pricing disclosure and client protection. More information: http://iris.thegiin.org/ Industry voice for transparent pricing: partners with initiatives such as the  Social Performance Task Force, MF TRANSPARENCY the MIX Social Performance Reporting Initiative, and Country: Global, headquartered in United States the  Smart Campaign  to further industry discussion on Type of organization: NGO, industry support, transparency and client protection. education More information: http://www.mftransparency.org/ Introduction: MicroFinance Transparency was established to promote the welfare of poor microentrepreneurs and MICROINSURANCE NETWORK to promote the integrity of microfinance as a poverty alleviation practice. The microfinance industry continues Country: International, headquartered in to grow into a dynamic and far reaching industry; it has Luxembourg Type of organization: Network spread around the world in many creative forms and with the participation of many types of stakeholders. Introduction: The Microinsurance Network believes that MFTransparency  believes there is a need to present effective insurance is an essential risk-management tool for information on credit products and their prices clearly promoting sustainable development. Its vision is for a world and consistently. At the same time, MFTransparency sees where people of all income levels are more resilient and less an opportunity to provide education on the considerations vulnerable to daily and catastrophic risks. The network microfinance institutions face regarding interest rates and provides a multistakeholder platform for microinsurance product pricing. experts to work together and focus on key areas for sector development, identify gaps, and facilitate knowledge Responsible Finance Initiatives: MFTransparency represents generation and dissemination to increase access to effective an industry movement toward responsible pricing practices. microinsurance to billions of people. It adopts a multipronged approach to promote the development of best practices within the consumer protection Responsible Finance Initiatives: Consumer Protection sphere. Through this methodology, MFTransparency seeks Principles to further sustainable microfinance and improve the quality of microfinance services for the poor. Its work centers around Challenges and good practices: The Consumer Protection four core components: Task Force of the Microinsurance Network is looking at 94 Compendium of Global Mapping Survey Respondents 2013 the issue of protection of microinsurance consumers while leads the working groups on social performance indicators. encouraging markets to develop. Its publication, “Pure MIX and the Social Performance Task Force have developed Intentions and Practice: Challenges and Good Practices,” 11 indicators by which to measure the social performance proposes an analytical framework for assessing case studies. of microfinance institutions. These specific indicators are A next step will involve looking at principles and adapting used to collect social performance data from microfinance them to microinsurance. More information: http:// institutions around the world and provide a platform for microinsurancenetwork.org/workinggroup/Consumer- benchmarking and analysis. Protection/15.php MIXs’ primary objective is to increase transparency in the Social performance indicators and client value: microfinance industry through data collection and analysis. The Performance Working Group’s handbook, “Social Hence, MIX will focus on those indicators that are clearly Performance Indicators for Microinsurance,” published in and directly linked to results, have quality that can be tested 2013, following a two-year sectorwide consensus-building and benchmarked, and can be easily validated by third process, maps out a social performance framework from parties. which practitioners can manage their social performance. This framework is seen in the larger context of client More information: http://www.themix.org/social- value approaches and responsible insurance mechanisms. performance#ixzz26GivO6ZC More information: http://microinsurancenetwork.org/ workinggroup/Performance/9.php SEEP NETWORK Country: United States, based in Washington D.C. More information: http://microinsurancenetwork.org with members around the world Type of organization: Microfinance practitioner MICROFINANCE INFORMATION network EXCHANGE INC. (MIX) Introduction: The SEEP Network is a global network of Country: Global, based in United States, over 130 international practitioner organizations dedicated Washington D.C. to combating poverty through promoting inclusive markets Type of organization: NGO, industry support and financial systems. SEEP represents the largest and most network diverse network of its kind, composed of international Introduction: As a mission-driven organization, MIX development organizations and global, regional, and is relentlessly committed to financial inclusion and country-level practitioner networks that promote market transparency in the microfinance industry. It is considered development and financial inclusion. Members are active in the premier source for objective microfinance data and 170 countries and support nearly 100 million entrepreneurs analysis; providing unparalleled access to financial and and their families. SEEP is dedicated to supporting proven social performance information, including quarterly market-based solutions that facilitate replication, scale, and results, on more than 2,000 microfinance institutions in sustainable impacts for the poor. the developing world and covering 92 million borrowers. Responsible Finance Initiatives: The SEEP Network Responsible Finance Initiatives: MIX is dedicated to launched several Association Development Programs bringing social performance management to the forefront of to promote social performance management and client the microfinance industry. As an active member of the Social protection. Performance Task Force  (SPTF), an international group composed of investors, donors, microfinance institutions, Responsible Finance through local leadership in Sub- and microfinance networks, research agencies, and other Saharan Africa: The SEEP Network and the MasterCard stakeholders united in the goal of defining, measuring, Foundation have launched a new four-year partnership to and improving the social performance of microfinance improve management capacity of microfinance associations, institutions, MIX takes part in the steering committee and advance financial transparency, and promote consumer 95 Progress in Responsible Financial Inclusion protection to further the goal of strengthening microfinance and private), global, national and regional associations, institutions in Africa. Resulting knowledge and experience advisory service providers, rating agencies, academics and will be shared with associations across Sub-Saharan Africa researchers, and others. to scale and sustain industry growth. Responsible Finance Initiatives: The mission of SPTF Social Performance Working Group for Networks: The is to engage  with microfinance stakeholders to develop, Social Performance Working Group for Networks was disseminate, and promote standards and good practices for created to help associations leverage their unique strengths social performance management and reporting. in promoting the social goals of microfinance. The working   group serves as a platform for collective action among 50 SPTF created a wide variety of tools and resources microfinance associations across five regions and seeks available to help stakeholders measure and improve their to create and promote common standards for social social performance. These include audit tools, rating tools, performance reporting and practice throughout Africa, client protection tools, and poverty assessments tools. Asia, Eastern Europe and Central Asia, Latin America In particular SPTF: Created a toolkit for  microfinance and the Caribbean, and the Middle East and North institutions: http://inthiseconomy.org/SPTF/ Africa. Regional facilitators lead their members in each Created a toolkit for investors/donors: http://inthiseconomy. of these regions, coordinating capacity-building activities, org/SPTF/investors-map.html promoting reporting on social indicators, and supporting the creation of relevant publications. Is developing a toolkit for  associations, Developed the Universal Standards for Social Performance Management Network Strengthening for Client Protection: Funded (USSPM), through broad industry consultation. by the U.S. Agency for International Development These management standards apply to all microfinance Microenterprise Development Office, the Network institutions  pursing a double bottom line. Meeting the Strengthening for Client Protection initiative is a joint standards signifies that an institution has “strong” social effort between SEEP and the Smart Campaign to build the performance management practices. capacity of 20 microfinance networks to train their member institutions on client protection best practices. More information: http://sptf.info/ More information: http://www.seepnetwork.org/ TRIODOS FACET initiatives-pages-5.php Country: The Netherlands Type of organization: Private, service provider SOCIAL PERFORMANCE TASK FORCE Introduction: Triodos Facet is a consultancy company (SPTF) specialized in promoting and developing small and medium Country: Global enterprises that contribute to sustainable development.  It Type of organization: Service provider, offers consultancy and implementation services coupled international industry support network with capacity building and training, thus providing access to Introduction: For various social performance initiatives adequate and sustainable financial services while supporting in the microfinance industry to come to agreement on a organizations rendering business development services, that common social performance framework and to develop is, services that result in jobs and income for entrepreneurs. an action plan to move social performance forward, two working groups were formed following a meeting of a Social Responsible Finance Initiatives: Triodos Facet helps Performance Task Force and a CGAP Donor Working Group financial institutions and small and medium enterprise on Social Performance. Today, the Social Performance Task service providers internalize a focus on  sustainability  and Force (SPTF) consists of over 1,000 members from around develop products that enable their clients to operate in line the world and from every microfinance stakeholder group: with corporate social responsibility (CSR) principles. Many practitioners, donors, and investors (multilateral, bilateral, small and medium enterprises lack access to expertise in the 96 Compendium of Global Mapping Survey Respondents 2013 field of sustainability. Triodos Facet supports financial and Responsible Finance Initiatives: The PRI Initiative works nonfinancial institutions working with these enterprises to with investors to implement the Principles for Responsible develop CSR capacity. It helps these institutions develop Investment and align them with the broader objectives and implement practical tools that help small and medium of society. entrepreneurs to spot opportunities, develop CSR strategies, and measure results. The PRI developed the Principles for Investors in Inclusive Finance (PIIF) in response to growing interest in inclusive Triodos Facet has developed a CSR toolkit for microfinance finance and demand for investor guidance. The PIIF institutions and small enterprise banks. This toolkit in an initiative of investors and Her Royal Highness contains training, coaching, and practical tools that help Princess Máxima of the Netherlands, the UN Secretary- financial institutions raise awareness on the relevance of General’s Special Advocate for Inclusive Finance for CSR for financial institutions working with the micro, Development.  The principles were launched on January small, and medium enterprise sector; integrate social and 27, 2011 at the Responsible Finance Forum hosted by the environmental risk assessment in loan cycles; recognize Dutch Ministry of Foreign Affairs. The PIIF are housed potential social and environmental risks by means of within the PRI Initiative as a distinct work stream, as detailed sector fact sheets; and offer suggestions to improve the PIIF are one way for investors in inclusive finance to environmental, health, and safety performance of the implement the six Principles for Responsible Investment. entrepreneurs. Triodos Facet has implemented this toolkit As such, signatories are requested to sign the Principles for with more than 50 microfinance institutions in Africa, Responsible Investment as well. Latin America, Eastern Europe, and Asia. In signing the principles, investors commit to: expanding More information: http://www.triodosfacet.nl/content/ the range of financial services available to low-income view/34/49/lang,en/ people; integrating client protection into all their policies and practices; treating their investees fairly, with clear and UN PRINCIPLES FOR RESPONSIBLE balanced contracts, and dispute resolution procedures; INVESTMENT (PRI) INITIATIVE integrating ESG factors into their policies and reporting; Country: Global promoting transparency in all their operations; pursuing Type of organization: Private, network of balanced long-term returns that reflect the interests of investors clients, retail providers, and end investors; and working together to develop common investor standards on Introduction: The United Nations-backed Principles inclusive finance. Commitment is evidenced via an annual for Responsible Investment Initiative (PRI) is a network self-reporting process. of international investors working together to put the six Principles for Responsible Investment into practice. The More information: http://www.unpri.org/piif/index.php principles were devised by the investment community. They reflect the view that environmental, social, and corporate governance (ESG) issues can affect the performance National Support Networks of investment portfolios and, therefore, must be given appropriate consideration by investors if they are to fulfill AZERBAIJAN MICRO-FINANCE their fiduciary (or equivalent) duty. The principles provide a ASSOCIATION voluntary framework by which all investors can incorporate Country: Azerbaijan ESG issues into their decision-making and ownership Type of Organization: Self-regulatory practices and thus better align their objectives with those of organization (SRO)  society at large. The PRI was created after the launch of the Introduction: This association started an 18-month principles to help investors implement the principles. The project in2013 to promote Universal Standards of Social initiative is funded by an annual subscription fee introduced Performance Management that are built on Smart Campaign for all signatories. Client Protection Principles. In 2012, the network started 97 Progress in Responsible Financial Inclusion development of the industrywide Code of Ethical Standards, First, MFIN is working with the leading credit bureaus which was expected to be finalized in 2013. The association in the country to set up a credit bureau for microfinance produced three brochures targeting microfinance clients clients. Information on about 25 million loan accounts has on aspects of prevention from overindebtedness, basics of been submitted to these bureaus and fully functional credit financial education, and how savings can help mitigate bureaus for the microfinance industry are operational. emergency needs. These resources were offered to members Second, MFIN has started to put in place a helpline for and partners in financial industry. microfinance clients that will function as an independent client grievance mechanism. Third, MFIN has set-up state More information: http://amfa.az/sehife. and regional chapters to provide a common forum to php?lang=eng&page=08 microfinance institutions to resolve state-level operational issues and deal with local matters relevant to the industry. MICRO FINANCE INSTITUTIONS NETWORK Fourth, MFIN has cosponsored the “transparency pricing (MFIN) initiative in India” for microfinance transparency. Under Country: India this study, effective interest rates of all MFIN member Type of Organization: Self-regulatory organization organizations will be calculated and made available in the (SRO)  public domain. Introduction: Micro Finance Institutions Network More information: http://www.microfinance (MFIN) is the self-regulatory organization (SRO) for the institutionnindia.org/about-us Indian microfinance industry. It was established in 2009 to promote the key objectives of microfinance in India and establish guidelines for responsible lending and client Research, Advocacy and protection in the microfinance industry. MFIN seeks to Consulting Organizations work closely with regulators and other key stakeholders to achieve larger financial inclusion goals through CHEMONICS INTERNATIONAL microfinance. Currently, MFIN member organizations Country: Based in United States with clients consist of 46 of the leading non bank finance company worldwide NBFC/microfinance institutions whose combined business Type of organization: Private, consulting firm constitutes over 80 percent of the Indian microfinance Under the previous Rural Bankers Association of the sector. Its mission is to provide inclusive financial services to Philippines and the Microenterprise Access to Banking 100 million low-income households by the year 2020, in a Services (RBAP-MABS), Chemonics worked on financial responsible and transparent manner, thereby helping them education as well as best practices in self-regulation, that build sustainable livelihoods. is, voluntary commitments to comply with the Smart campaign’s Client Protection Principles. Responsible Finance Initiatives: As a step towards more stringent self-regulation, MFIN has defined a code of More information: http://www.chemonics.com/ conduct for its  members, which focuses on fair practices with borrowers and among member organizations. The ECONOMIST INTELLIGENCE UNIT (EIU) MFIN code of conduct establishes limits on overall lending at the client level and guidelines for fair collection practices Country: United Kingdom Type of organization: Private, research group to promoting transparency and standardize recruitment and training practices  for member microfinance institutions. Introduction: The Economist Intelligence Unit (EIU) The code of conduct encourages data sharing among is an independent business within the Economist Group. members and has established mechanisms for promoting Through research and analysis, EIU offers forecasting and transparency in the industry, such as setting up help lines advisory services to its clients. It provides country, industry, and formulating a whistle-blowing mechanism. MFIN has and management analysis worldwide. It is particularly well four key projects aimed at increasing responsible finance. known for its monthly country reports, five-year country economic forecasts, country risk service reports, and 98 Compendium of Global Mapping Survey Respondents 2013 industry reports. The company also specializes in tailored impact of sustainable banks; developing human capital so research for companies that require analysis for particular a new generation of capable, motivated sustainable bankers markets or business sectors. The Economist Intelligence can productively and efficiently use the financial capital they Unit also produces regular reports on the “livability” and raise; measuring the impact of their network to demonstrate cost of living of the world’s major cities, which receive wide the results of their work for a wide group of stakeholders coverage in international news sources. The Economist from investors to clients to the general public; actively Intelligence Unit’s Quality-of-Life Index is another noted engaging in discussions on important issues so that its voice report. is heard, thus influencing the mainstream and supporting public policy developments that benefit the world through Responsible Finance Initiatives: Regulation for enhancing sustainable banking; and expanding its network Consumer Protection. of sustainable banks, thus further increasing the reach of its business models. Its work focuses on advocacy, developing The EIU published, together with IFC, the 2011 edition human capital, expanding its network, measuring impact, of the Global Microscope on the Microfinance Business and raising financial capital. Environment, which offers an in-depth analysis of the microfinance business environment in 55 countries More information: http://www.gabv.org/ worldwide. It tracks the conditions in 21 countries of the Latin American and Caribbean region. responsible MICROCREDIT SUMMIT CAMPAIGN finance indicators have been included. The report can be Country: Global, based in Washington D.C. found at http://www5.iadb.org/mif/Knowledge/tabid/426/ Type of Organization: NGO, advocacy language/en-US/Default.aspx?idPublication=46730 Introduction: The first Microcredit Summit , held in Washington, D.C., February 2–4, 1997 with more GLOBAL ALLIANCE FOR BANKING ON than 2,900 participants from 137 countries, launched a VALUES (GABV) nine-year campaign to reach 100 million of the world’s Country: Global poorest families, especially the women of those families, Type of organization: Private, membership with credit for self-employment and other financial and organization for banks business services by the year 2005. The campaign brought Introduction: The Global Alliance for Banking on Values together microcredit practitioners, advocates, educational (GABV) is a membership organization made up of 19 of institutions, donor agencies, international financial the world’s leading sustainable banks from Asia and Latin institutions, nongovernmental organizations, and others America to the United States and Europe. The members are involved with microcredit to promote best practices in the bound by a shared commitment to find global solutions to field and to stimulate the interchange of knowledge. international problems and to promote a positive, viable alternative to the current financial system. They believe Responsible Finance Initiatives: The Microcredit Summit that they must improve the quality of life for everyone Campaign has developed the Seal of Excellence for on the planet, recognizing that they are economically Poverty Outreach and Transformation in Microfinance, interdependent and responsible to current and future which is aimed at promoting client protection and social generations. GABV members must meet three criteria: (1) performance principles. It is a global initiative that will they are independent and licensed banks with a focus on recognize microfinance institutions that are doing the most retail customers; (2) they hold a minimum balance sheet of to help families lift themselves out of poverty. The seal has $50 million; and, (3) they should be committed to social been under development since April 2010 with input from banking and the triple bottom line of people, planet, and a broad range of stakeholders and is currently expanding profit. from the concept phase to the implementation phase. The Campaign will begin awarding the seal in 2013. The seal Responsible Finance Initiatives: GABV intends to reach builds on the Smart Campaign’s client protection principles its goals by raising financial capital to fund the growth and and the work of the Social Performance Task Force and the 99 Progress in Responsible Financial Inclusion Campaign is discussing ways to implement the seal that MFO develops financial capability tools targeted to would use the systems already developed for understanding specific clients, such as comic books for adolescents, the social performance of microfinance institutions. To be training manuals, educational magazines, counseling considered for the seal, an institution must meet the client manuals, and peer-to-peer guides. More information: protection principles set out by the Smart Campaign and http://microfinanceopportunities.org/resources/financial- the social performance management standards defined by education/tools-for-clients/ the Social Performance Task Force as well as meet financial and organizational indicators. Conducting Consumer Research: Microfinance Opportunities use several innovative tools and The seal’s indicators for client-based outcomes, are unique methodologies to dive deep into the investigation of why in that they would evaluate and certify institutions that and how poor people make certain financial decisions. not only protect their clients and meet double-bottom-line Bridging the gap between academia and practitioners, commitments, but also achieve results by demonstrating consumer research continues to serve as the foundation for significant outreach to the poor (defined specifically for the world’s leading financial education curriculum. MFO different countries or regions) and demonstrate a strategic offers client and market research, financial diaries, and approach and success in helping a portion of them move studies on financial innovation to better inform its clients. away from poverty. More information: http://microfinanceopportunities.org/ resources/consumer-research/financial-diaries/ More information: http://www.microcreditsummit.org More information: http://microfinanceopportunities.org/ our-work/ MICROFINANCE OPPORTUNITIES (MFO) Country: Global, based in United States, Washington D.C. Rating Agencies Type of Organization: NGO, research, advocacy, client-centric research M-CRIL Introduction: Microfinance Opportunities develops ideas Country: India Type of Organization: Rating agency and solutions that help the financial community better serve the low-income consumer. Its commitment as a nonprofit Introduction: M-CRIL is a global leader in the financial organization is to develop a deep understanding of the rating of microfinance institutions and in sectorial advisory financial realities and needs of low-income households in services. Its goal is to stimulate sector growth and depth of the developing world. By partnering with financial service outreach and impact initiatives for financial inclusion on a providers, its research and expertise promotes the design worldwide basis. It helps reduce microfinance institution and delivery of appropriate products and services, and, risk and supports institutions and microenterprises to as a result, attracts and retains consumers in increasingly incorporate best practices into their systems. Its work competitive markets. directly impacts understanding of and compliance with the regulatory regime. It promotes transparency and Responsible Finance Initiatives: Building Financial strengthens the business proposition of development Capability and conducting consumer research: finance institutions working for those at the bottom of the socioeconomic pyramid. Building Financial Capability: MFO believes individuals need to be empowered with the know-how and confidence Responsible Finance Initiatives: M-CRIL supports to make responsible financial choices for themselves and responsible finance practices through its financial and social their families. MFO designs and delivers financial literacy rating initiatives. M-CRIL has played a pioneering global role curricula, training, and advisory service to help consumers in developing a systematic methodology for social rating. This build their knowledge of key financial concepts and develop methodology has been a significant step as part of M-CRIL’s skills to make informed financial decisions. commitment to support the microfinance sector, reflecting 100 Compendium of Global Mapping Survey Respondents 2013 the social values associated with microfinance operations microfinance by increasing transparency and growth in the and investment, and providing a robust and relatively global microfinance community. As part of its vision of quick means to define and report on social performance.  helping to increase overall transparency in the microfinance sector, MicroRate offers a variety of services designed to help Separate from, but linked to financial rating, social rating facilitate the flow of funding into the microfinance sector. contributes to greater transparency on what microfinance is MicroRate has conducted over 600 microfinance institution achieving in terms of the double (indeed triple) bottom line. ratings and provides robust microfinance institution ratings It verifies information relevant to external social reporting, and evaluations, highlighting key strengths and risks and and can promote investment in microfinance institutions providing meaningful benchmarks. MicroRate offers with strong social performance. It serves to identify performance ratings, social ratings, credit ratings, and strengths and weaknesses in social performance, helping institutional evaluations. MicroRate’s annual Rating Report microfinance institutions to think through their social goals Package saves investors time and money by providing and values and build appropriate systems to support their relevant information and high-quality performance and double bottom line. Social rating covers mission clarity; social rating reports as they are published. MicroRate is alignment of strategy and operational systems to the stated the leader in the analysis of microfinance investment funds mission; social responsibility, including client protection, or MIVs. In addition to other services for microfinance gender approach, responsibility to staff, communities, and investment funds, MicroRate also performs customized due the environment; Outreach results include area analysis, diligence evaluations on microfinance institutions that are client profile analysis, and, quality of services, range of in a current or potential crisis situation. products, client awareness, retention, and feedback. More information: http://www.microrate.com/products- More information: http://www.m-cril.com/SocialRating. services aspx THE RATING INITIATIVE MICRORATE Country: Luxembourg Country: Based in the United States, with work Type of Organization: Rating agency in Latin America, Africa, Europe, and Central Asia Introduction: The Rating Initiative was launched by Appui Type of organization: Rating agency au Développement Autonome (ADA) in collaboration with Introduction: MicroRate was the first microfinance the Government of Luxembourg, the Microfinance Initiative rating agency dedicated to evaluating performance and Liechtenstein, the Swiss Development Cooperation, Oxfam risk in microfinance institutions, as well as evaluating Novib,  the Oesterreichische Entwicklungsbank (OeEB), microfinance investment vehicles (MIVs). MicroRate’s ICCO,  the Principality of Monaco, and Blue Orchard. primary goal is to promote growth in the microfinance The Rating Initiative collaborates with ResponsAbility, the industry by facilitating the efficient flow of money from African Microfinance Transparency Forum (AMT) and the capital markets to microfinance institutions through Social Performance Task Force in all aspects related to independent evaluation and increased transparency. Since ratings, including a specific emphasis on social ratings. its inception in 1997, MicroRate has conducted over 600 microfinance institution ratings throughout Latin America, Responsible Finance Initiatives: The Rating Agency Africa, Europe, and Central Asia. The entities evaluated by offers different types of ratings for microfinance MicroRate span the spectrum of the microfinance industry, institutions, including financial ratings, social ratings and ranging from large banks to small NGOs, including many combined financial and social ratings. Drawing on current of the world’s leading microfinance institutions, as well as understanding of social performance, social performance some of the largest and smallest microfinance funds. management and social responsibility, the social rating evaluates practices, measures a set of indicators, and Responsible Finance Initiatives: MicroRate’s vision is scores them against benchmark levels, best practices, to promote the flow of funds from capital markets to or internationally accepted standards. The social rating 101 Progress in Responsible Financial Inclusion includes elements of auditing in that it assesses the quality make changes when needed. More information: http:// and credibility of social accounts, and it identifies areas www.finca.org/site/c.6fIGIXMFJnJ0H/b.6660523/k. for improvement and capacity building. Social investors, A0C1/Keeping_Clients_First_in_Microfinance.htm donors and microfinance institutions find the social rating useful as an assessment, decision-making and capacity Standards: FINCA has long been a leader in the development tool. microfinance industry in setting standards for the protection of microfinance clients. FINCA and other More information: http://www.ratinginitiative.org/index. leading microfinance institutions worldwide recently php?id=35 drafted and endorsed a statement in support of the Smart Microfinance Campaign, a core set of client- protection principles to help microfinance institutions practice good Microfinance Institution Affiliate ethics and smart business. More information: http://www. Networks finca.org/site/c.6fIGIXMFJnJ0H/b.6660523/k.A0C1/ FOUNDATION FOR INTERNATIONAL Keeping_Clients_First_in_Microfinance.htm COMMUNITY ASSISTANCE (FINCA) Client training: Before making loans or providing other INTERNATIONAL financial services to clients, FINCA conducts a training process during which clients learn about credit and Country: Global, headquarters in Washington D.C. cash flow management, how to retain a portion of their Type of organization: Private, microfinance profits for savings, and determine whether they have the institution capacity to expand their businesses. This type of training Introduction: FINCA International is a global microfinance is important for our clients as well as for our long term organization with  wholly-owned subsidiaries  on four success. More information: http://www.finca.org/site/ continents that specialize in financial services. FINCA c.6fIGIXMFJnJ0H/b.6660523/k.A0C1/Keeping_Clients_ builds sustainable programs  that achieve the highest First_in_Microfinance.htm standards of financial performance, retaining focus on serving the poorest of the working poor. FINCA strives to MEDA be a “banker with a soul,” aiming to create the best of both Country: Canada, headquartered in Waterloo, worlds: sustainable and financially sound programs. Ontario, with projects worldwide Organization Type: NGO Responsible Finance Initiatives: Responsible Practices by Clients: MEDA focuses on those who lie on the periphery Financial providers, Financial Capability of the world’s financial system, targeting entrepreneurs who are economically active in developing countries. MEDA FINCA offers clients access to a broad range of financial focuses on both urban and rural poverty, especially farmers services—including credit, savings, insurance, and money and agriculture suppliers and distributors. transfers—that enable them to finance income-producing activities, improve their living standards, build assets, and Introduction: MEDA aims to create business solutions create a financial safety net to protect them in the event of to poverty by designing and implementing innovative and external shocks. effective market-driven economic development programs that improve the livelihoods of millions of people living in Customer research: FINCA has actively conducted poverty around the world. MEDA is a recognized leader in rigorous customer research throughout its network to better establishing best practices in financial services, investment understand who its clients are and what effect microfinance fund development, and market development, and for is having in their lives. Its goals are to ensure that its solving poverty by responding to each population’s unique programs serve FINCA’s defined target client base (the needs. lowest-income entrepreneurs), assess whether its products and services are meeting the needs of its clients, and to 102 Compendium of Global Mapping Survey Respondents 2013 Responsible Finance Initiatives: MEDA focuses on MICRO CREDIT FOUNDATION: EKI inclusive rural finance and aims at expanding financial Country: Bosnia and Herzegovina services to rural populations through innovation and Type of organization: MCF support to a range of partners, enhancing their capacity to offer services, increasing economic activity, and decreasing The policy of client protection has been adopted at the poverty in rural areas. MEDA helps financial institutions board level and is widely implemented throughout the respond to the unique needs of rural populations by organization. In addition, EKI follows the law in this expanding outreach and product diversity in rural areas, respect. Regarding transparent information, different by improving efficiency and quality of services, and by types of information are provided to the clients through facilitating linkages with the formal financial sector. brochures and more detailed materials. EKI is a member of the national microfinance network that promotes best More information: http://www.meda.org/ standards for the sector. OPPORTUNITY INTERNATIONAL MICRO CREDIT FOUNDATION: LIDER Country: United States, with international clients Country: Bosnia and Herzegovina Type of organization: International NGO Network Type of organization: MCF Introduction: Opportunity International is a Christian LIDER has clear and conservative credit policies and Microfinance NGO that provides  financial products and procedures, uses client selection criteria, monitors the level strategies to over 2.5 million people working their way out of client debt to prevent overindebtedness, and is preparing of poverty in the developing world. Clients in more than to fully comply with the law on financial consumer 20 countries can use these services to expand a business, protection. LIDER also offers free educational services to provide for their families, create jobs for their neighbors, clients and is preparing to implement a joint strategy with and build a safety net for the future.  other institutions in creating educational programs for clients. LIDER also uses the services of U-Plusu for debt More information: http://www.opportunity.org/ mediation services and actively supports personal financial management services for clients. Financial Services Providers MCC MIKROFIN Country: Bosnia and Herzegovina Type of organization: MCC MCC MIKROFIN’s business strategy comprises responsible lending practices, disclosure of the true costs of lending, such as effective interest rates and responsible collection practices. These practices are regulated by the law on microcredit organizations. Responsible finance is not a project in MIKROFIN but a permanent activity. 103 2121 Pennsylvania Avenue, NW Washington, DC 20433, USA www.ifc.org