Global microscope on the microfinance business environment 2012

This article was
prepared by Robert
Vogel (Independent
consultant) and
contributions from MIF,
CAF, and IFC.
1. Individual fi nancial
institutions even in
microfi nance tend to be most
successful when they specialise
in particular products and
market niches.
2. While insurance is also often
mentioned as another
important product for fi nancial
inclusion, MFIs can only be
expected to be sellers of
insurance underwritten by
others because their clientele is
typically not adequately
diversifi ed to permit effective
pooling of risks.
20
In focus
Advances in Responsible
Finance
Interest in responsible fi nance has grown markedly
in recent years, especially since the beginning of
the worldwide fi nancial crisis in 2008. In fact, overindebtedness
and fi nancial literacy, in particular,
were identifi ed as the most pressing issues in
responsible fi nance, according to the Microscope
2012 survey. Since microfi nance institutions (MFIs)
cannot be expected individually to take on the full
burden of fi nancial inclusion and offer all types of
fi nancial products to all types of potential
consumers, 1 fi nancial inclusion is essentially
determined by the regulators and policymakers
shaping the country’s overall fi nancial sector.
However, MFIs and regulators are only a few of the
expanding interested parties. Indeed, the number
of responsible fi nance stakeholders has multiplied
to include not only regulators and MFIs, but also a
wide variety of entities including non-profi t
organisations, banks, donors, investors, and rating
agencies, among others.
Regulators have long recognised the importance
of client protection and have recently made
important strides towards experience-based
standards and guidelines. For example, the
Association of Supervisors of Banks of the Americas
(ASBA) recently completed a review of responsible
client protection in the Americas, considering in
particular who has the legal mandate and who is in
fact enforcing it. At a global level, the Alliance for
Financial Inclusion (AFI) is a network of fi nancial
policymakers from developing and emerging
economies concerned, among other issues, with
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
the regulatory aspects of responsible fi nance. Such
initiatives show the importance of going beyond
international standards and guidelines to focus on
the practical organisational issues of how to put
responsible fi nance on each country’s agenda; that
is, while investors and donors have a role,
responsible fi nance needs to become a national
agenda item.
Many important initiatives to develop
responsible fi nance and fi nancial inclusion have
taken place. In particular, the Smart Campaign to
promote responsible fi nance, initiated in 2008-09,
has received major support for its pilot work to
promote to seven principles: prevention of overindebtedness
(for example, cash fl ows and credit
bureaus); transparency (for example, interest rates
and other pertinent information, but no
consideration of transaction costs); responsible
pricing (for example, client affordability); fair and
respectful client treatment (for example, rules for
staff behaviour and loan repayment particularly
when problems are beyond the client’s control);
privacy of client data; and mechanisms for
complaint resolution. A seventh principle of
appropriate product design and delivery was added
in 2011 to emphasise products beyond credit (for
savings and insurance, in particular). 2 Some 2,800
entities have endorsed the Smart Campaign, with
the largest number being MFIs (about 900), but
with the highest rate of participation being among
investors (about 140), and the rest being
supporting organisations and individuals.
The SMART campaign’s responsible fi nance
principles are also integrated in the “Universal
Standards for Social Performance Management”,