Supporting Client Protection In Cambodia

Last week the Smart Campaign launched the much-anticipated Client Protection Certification Program, an independent, third party evaluation to publicly recognize financial institutions that meet adequate standards of care in how they treat clients. This post launches a short series that offers different perspectives on how certification can benefit clients, individual MFIs, and the broader sector.This post shares how AFD and FMO, the Dutch Development Finance Institution, are supporting client protection improvements in Cambodia.

Obtaining a Smart Campaign Client Protection Certification is not yet a standard exercise. After pilot testing in 2012, the certification product was launched last week. It is important that MFIs are aware of the process and choose to go through the different steps in the process of assessing and improving client protection policies and procedures before getting the desired certification. That’s one of the reasons why funders like AFD, Proparco and FMO are willing to provide support to the MFIs that wish to engage in a thorough process to improve client protection across their organization. These funders have already been introducing into their financing agreements several requirements related to client protection. Now, their goal is to help MFIs meet these commitments, which includes actively promoting client protection at the board level.

AFD and the Cambodia Microfinance Association (CMA) have launched a project which aims to contribute to a responsible financial system in Cambodia. The components include dissemination and actual implementation of client protection principles (CPP) by certifying MFIs, and supporting MFIs in reporting their data to the Credit Bureau of Cambodia which was launch last year.

During the conference on Responsible Microfinance and Social-Business, organised by CMA and the Grameen Crédit Agricole Foundation in Phnom Penh in October 2012, CMA launched a call for proposals to all Cambodian MFIs in order to select those interested in engaging in a process that would prepare them for CPP certification. The selected MFIs will benefit from financial support from CMA to enter into a deliberate process leading to their potential certification: first, an external assessment of their procedures and activities will be conducted to determine the measures they will need to take to fully comply with the CPPs. Second, based on the conclusions and recommendations of the assessments, the MFIs will receive technical assistance services to help them improve their internal policies and procedures with regards to client protection. Finally, the project will finance the certification process in which some MFIs might eventually engage.

Up to 8 out of the 32 licensed MFIs in Cambodia may receive financial and technical support for the upgrading of their client protection policies and procedures. Among these institutions, some have already been receiving support from FMO to receive the first assessment. The project will potentially support those same MFIs to make the necessary improvements in their policies, procedures, and products.

Based on the lessons drawn from this project in Cambodia, a similar approach, combining a leverage from above (DFIs financing MFIs that comply with CPPs within a given timeframe) and from below (funders helping those MFIs to be certified) could be envisaged in order to ensure a much wider implementation of the CPPs. In particular, this operation could be replicated in various other sensitive countries where the MFIs’ external financing is substantial and the microfinance sector is showing some potentially worrying signs of “overheating”.

----- The author is a Senior Officer at AFD (Agence Française de Développement).

Next week, independent consultant Daniel Rozas makes the case that exactly this kind of collaboration between stakeholders is what is needed to drive responsible finance and challenges the DFIs as a group to step up to the plate and make certification the norm in key microfinance markets.