February 8, 2011

New certification for microfinance institutions

The Smart Campaign approves a work plan for launching certification by the end of the year.

The Smart Campaign, a global initiative to incorporate strong client protection principles across the microfinance industry, recently announced a plan to launch a certification process that will enable microfinance institutions (MFIs) worldwide to demonstrate their adherence to the Campaign's core Client Protection Principles as verified by third-party assessors.

The Community Development Finance Group’s involvement with the Smart Campaign stems back to the Microfinance Leaders Convention in April 2008, Pocantico, NY. The subsequent Pocantico Declaration outlined the need for an industry-wide set of principles to ensure transparency and responsible pricing, ethical collections practices and avoidance of overindebtedness for microfinance clients among other fundamental protections.  

While over 1,600 microfinance institutions, microfinance support organizations, investors, donors, and individual industry professionals have endorsed the Smart Campaign, the Campaign recognizes that neither pledged adherence nor self reporting can ensure that the Client Protection Principles are actually being followed.  Verification by an objective third party is needed.  

Microfinance institutions that undergo such verification and earn certification will be able to assure clients and investors that they follow responsible practices that uphold the Client Protection Principles: 1) Avoidance of over-indebtedness; 2) Transparent and responsible pricing; 3) Appropriate collections practices; 4) Ethical staff behavior; 5) Effective complaint management; and 6) Securing the privacy of client data.

Member MFIs and investors worldwide are currently deploying tools to assess and strengthen their client protection practices.  Certification is a vital next step.

Asad Mahmood, Managing Director of Deutsche Bank’s Global Social Investment Funds and a member of the Smart Campaign’s steering committee remarked, “Certification is a vital tool for investors who want to make their due diligence as rigorous with regard to social responsibility as it is on the financial side. We aim to make client protection certification a threshold requirement for MFIs seeking capital from donors and investors alike.”

On February 1, 2011, the Campaign Steering Committee approved a work plan for launching certification by the end of the year, after a period of field-testing, public comment and final design of the program. 

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