Implementing Client Protection in Indian Microfinance

1 Center for Financial Inclusion Publication No. 23 Implementing Client Protection in Indian MicrofinanceImplementing Client Protection in Indian MicrofinanceA State of Practice Report, 2013 Prepared by the Smart CampaignLead Author: Dr. Hema BansalWith input from Tanwi KumariAditya Mohan Amit Gupta November 2013 The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of Accion or IFC Copyright 2013 Center for Financial Inclusion at Accion. All rights reserved; may be freely reproduced for any non-commercial purpose. Contact: Eric Zuehlke at 1 Prologue The Smart Campaign was launched in 2009 to assist the Microfinance industry in Implementing the seven Client Protection Principles (CPPs).

2 As of November 2013, The Campaign has over 3,900 endorsers from over 130 countries, including 1,359 Microfinance institutions. The Campaign was formed to bring people together across the Microfinance industry to implement common standards of Client Protection that govern how clients should be treated and to embed Client Protection into the operations of financial service providersThe Smart Campaign has an active presence India and South Asia, an engagement that began at the inception of the Campaign in 2009. To date in South Asia, the Smart Campaign has been endorsed by 280 organizations, including 208 FIs, 14 networks, 46 supporting organizations, and 13 investors/donors.

3 Activities took a more structured approach when, after Andhra Pradesh crisis in 2010, the Smart Campaign initiated a two-year capacity-building program with support from Accion and the International Finance Corporation. The program helped MFIs move from endorsement of the CPPs to improving the practices. It strengthened the sector s understanding and understanding of CPPs across Microfinance institutions in India and contributed towards improved practices. As of publication, 19 FIs in India have had an in-depth assessment of their Client Protection practices using the Smart Campaign Assessment tool, and four have become Client Protection Certified.

4 Dozens more have participated in other capacity-building activities that this report will detail. This report is modeled in part after the Smart Campaign s 2011 Global State of Practice At its core the report presents a deep dive into the Client Protection practices in India as derived from activities conducted over the past two years. In addition to analyzing strengths and weaknesses of institutional practices, this report also presents the activities that the Campaign embarked on to orient, assess, and improve practices among providers. As this report conveys, there is broad sectoral engagement with Client Protection , though there are still significant hurdles to overcome.

5 Based on the enthusiasm with which providers and other stakeholders, such as investors and regulators, are focused on Client Protection , the Campaign is optimistic for continued improvement and attention. The Smart Campaign believes that Client Protection is integral to the development of a responsible, inclusive financial sector in India and are committed to supporting its continued Barr s Director, Smart Campaign 1. Daniel Rozas, Implementing Client Protection in Microfinance : State of the Practice, 2011 (Washington DC: Smart Campaign, 2011), available report is made possible through the engagement of organizations that have shared their time, data, and energy in assessing and improving their Client Protection practices.

6 The 19 institutions that have undergone Client Protection Assessments and thereby contributed the information analyzed in the report are: Arohan Financial Services Private Ltd.(Arohan), Bandhan Financial Services Pvt Ltd. (Bandhan), Cashpor Micro Credit (Cashpor), Equitas Microfinance (Equitas), Evangelical Social Action Forum ( ESAF), Fusion Microfinance (Fusion), Grameen Financial Services (GFS), Janalakshmi Financial Services (Janalakshmi), IFMR Rural Channel (KGFS), Ratnakar Bank, Saija Finance Private Limited (Saija), Sonata Finance Pvt Ltd, Swadhaar Finserve Pvt Ltd (Swadhaar), Suryoday Micro Finance Pvt Ltd (Suryoday), SEWA Bank, SKS Microfinance Ltd (SKS), Uttarayan Financial Pvt Ltd (Uttarayan), Ujjivan Financial Services Pvt.

7 Ltd. (Ujjivan), Utkarsh Microfinance Pvt Ltd (Utkarsh). After undergoing an assessment, seven of these institutions worked with the Campaign on improving their gaps in performance through Client Protection Upgrading Projects. We would also like to thank the local associations that make Client Protection integral to their missions: Sa-Dhan, ACCESS-ASSIST, and MFIN. They have worked tirelessly to promote and advocate for Client Protection amongst their member organizations. Additional thanks goes to Maanaveeya (a subsidiary of Oikocredit) for partnering with the Campaign, particularly on staff and MFI trainings and the integration of the CPPs into their investment processes.

8 The Campaign also extends its gratitude to its technical partners, namely EDA, ACCESS-ASSIST, and M2i and M-CRIL. The individuals who led Client Protection assessments played a critical role in this report and should be thanked for their hard work and dedication: Tanwi Kumari (Smart Campaign), Aditya Mohan (Smart Campaign), Amit Gupta (Smart Campaign), Kajal Arora (EDA), Nitin Madan (EDA), Siddhartha Chowdhri (Accion International), and Sudipto Saha (ACCESS-ASSIST). This report was prepared by the Smart Campaign staff at the Center for Financial Inclusion at Accion. Dr Hema Bansal was the lead analyst and author, with assistance from Tanwi Kumari, Aditya Mohan, and Amit Gupta, whose support was crucial to take the project to completion.

9 Substantial inputs were also received from Alexandra Rizzi, Isabelle Barr s, and Eric Smart Campaign would like to recognize the contributions of its partners Accion and the International Finance Corporation2 (IFC) who have made it possible for the Smart Campaign to carry out the activities contained within this report. 2. The project was coordinated through IFC s Global Responsible Finance program, as part of its efforts to push responsible finance among its global portfolio. IFC identified and facilitated contacts with the MFIs and Banks (including IFC investees) studied in this report, and opened an opportunity with Smart Campaign to propagate the Client Protection Principles and Responsible Finance practices in Microfinance sector in India.

10 IFC took the lead in the Indian Microfinance sector as a responsible investor and facilitated the adoption of Client Protection of ContentsINTRODUCTION: 5 CHAPTER 1: BACKGROUND ON SMART CAMPAIGN ACTITIVITES IN INDIA 7 Client Protection in India 7 The Smart Campaign 7 CHAPTER 2: BUILDING COMMITMENT AND UNDERSTANDING 10 Building Commitment through Endorsement 10 Trainings: CPPs and Code of Conduct 10 Smart Assessors Training 10 CHAPTER 3: ASSESSING Client Protection PRACTICES 12 First Benchmarks on Client Protection Practices 12 Trends from Getting Started Questionnaire (Self Assessment) 15 Smart Assessments (Benchmarks) 17 CHAPTER 4: IMPROVING PRACTICES THROUGH NEW INITIATIVES 35 Improving Client Protection Practices: Upgrade Projects 35 Improving Client Protection Practices: New Tools 37 CHAPTER 5: CERTIFICATION 38 What is Certification?