Microfinance Industry Embraces Accountability, Report Finds

While problems remain, 88 percent of rated MFIs received overall passing marks for their client protection practices, a new report from the Smart Campaign, a global initiative to promote strong client protection standards in the microfinance industry, finds.

Based on 479 third-party assessments, the campaign's first annual report, Implementing Client Protection in Microfinance: State of the Practice, 2011 (48 pages, PDF), found that rated MFIs scored an average of 3.8 on a scale of 1 to 5 in terms of serving their clients' needs and treating them with dignity. The results were similar for the campaign's two most important principles, preventing over-indebtedness and transparency. At the same time, the report found that responsible pricing continues to be a challenge, particularly for small MFIs.

According to the report, at least ten major microfinance investment funds managing more than $2 billion have integrated client protection assessment into their due diligence and reporting practices over the past twelve months. In addition, national and regional microfinance associations from thirty countries have joined the campaign, which is headquartered at the Center for Financial Inclusion at Accion International. The report also found that the development of third-party client protection assessment methods has helped the campaign stay on track with respect to a certification program it plans to launch in 2012.

"The fact that we now have data from almost five hundred third-party, external assessments of client protection practices at MFIs shows the extent to which the microfinance industry has committed itself to accountability on this all-important front," said Smart Campaign director Isabelle Barr�s. "Responsible finance is assured when we develop and apply tools to hold MFIs accountable for the way they interact with customers."