Understanding client outcomes is essential for real client protection

Financial institutions and their stakeholders need to be confident that clients are adequately protected. This is why client protection standards were developed for financial institutions and various forms of assessment and certification have been practiced around the world for at least a decade.

Over time, and in many countries, central banks too have become better at building consumer protection regimes that cover smaller loans and savings. Similarly, many or most investors in financial institutions that serve the poor have embedded consumer protection requirements into their investment agreements, aligning institutions to deploy appropriate policies and procedures before investment.

In response, more financial institutions have embedded policies and procedures that align with consumer regulation and client protection standards. The relevant policies and procedures are now well known and often well developed.

Does having the appropriate policies and procedures in place mean that clients really are well-protected?

This was the question that FMO, the Dutch Entrepreneurial Development Bank, asked M-CRIL, when it commissioned an evaluation of its investees under the MASSIF public fund.

M-CRIL evaluated two leading microfinance institutions in Asia. In both institutions, consumer protection protocols, from pricing transparency to avoidance of overindebtedness, were reflected in product design, staff training, and customer information.

Our encouraging finding was that in these institutions, consumer protection was no longer an add-on, but an embedded aspect of policy and operations.

Having good-looking policies may not mean that everything turns out well for clients in practice.

The FMO-M-CRIL study revealed some gaps.

For example, a lack of customer engagement with the redress mechanisms one organization had set up: customers strongly preferred interacting with local staff to using a complaints hotline; some customers feared retaliation if they made a ‘formal’ complaint.

Another example, new products introduced in response to client feedback, may be more complex and have varying conditions. Communication about new products requires careful attention. This applies not only to new loan products but also to non-credit products, particularly insurance. One of our key conclusions was the value of simple straightforward products and processes that are easy for staff to explain and for clients to use.

We discussed these and other findings with field staff and management. We emphasized that the findings should not be taken as a criticism but as an opportunity to learn and to adjust.

Ensuring consistency in staff communication to clients.

• One of the FSPs planned to pilot having a TV screen in branches with a systematic slide show and flow of information.

• Another plan was to think of ways to leverage the existing call centre to obtain client feedback in a systematic way, while also being more systematic in documenting and collating client feedback obtained by the internal audit.

Both FSPs committed to reviewing the protocol in place for collections staff in case of client default, including considering partial or flexible repayments, and strengthening training particularly of new staff to maintain patience and respect in potentially difficult situations. Even though insurance is a service handled by a third party, the FSP was reviewing the communication to clients and in the process of setting up a team to monitor the key insurance ratios.

These - and other - findings and recommendations were the result of our listening to clients. We asked a sample of clients a series of specific questions that related to the outcomes of client protection, including client awareness of the institution’s products, services and use of data, their experience in certain situations (making a complaint, being in default), along with some open-ended questions around challenges or issues that they faced as clients.

The methods and tools are available (tested, ready for new comers to build on) and we believe it makes sense for institutions themselves and also assessors and certifiers to go beyond policies and procedures to use these tools so as to focus effort on customer experience.

The FMO/M-CRIL evaluation report provides a starting point in terms of methods.  A recent CGAP blog emphasises the relevance for client protection certifications.

M-CRIL has already started to introduce client surveys as an essential part of certification and we are using this approach to support responsible finance practices in Cambodia.

A next step would be to standardize the methods emphasizing efficiency, relevance and robust interpretation of the results – for cross-institutional comparison and, most importantly, so that FSPs themselves feel there is sufficient evidence for them to adjust and strengthen their institutional practices.