The Need for Client Protection in Microfinance: An Overview

Financial services have the power to help people improve their lives, sometimes dramatically so. However, if offered carelessly or used improperly, financial services – especially credit – can also cause harm.

Competition, the desire to achieve profitability, and internal-sales incentives may all play a role in pushing financial institutions into practices that do not coincide with pro-consumer ideals. The campaign is not about oversight or self-regulation. It is about awareness raising, development of norms, knowledge and tool development, and equipping the industry to deal with regulators.

The Center for Financial Inclusion at ACCION International, CGAP, and many industry players recognize the need to protect microfinance clients, both for their benefit and the benefit of the industry as a whole. Over the last months, a consensus has emerged around six principles that would comprise the industry’s commitment to client protection:

        1. Avoidance of over-indebtedness

        2. Transparent pricing

        3. Appropriate collections practices

        4. Ethical staff behavior

        5. Mechanisms for redress of grievances

        6. Privacy of client data

The consensus is accompanied by a sense of timeliness, given the sub-prime crisis in the United States,and increasing focus on interest rates and transparency in microfinance.

The Center for Financial Inclusion is serving as interim host for the Campaign for Client Protection, a collaborative initiative endorsed and led by leaders in the microfinance industry.

> Learn more about the Campaign for Client Protection