MICROCAPITAL BRIEF: On Financial Access Initiative Website, Daniel Rozas Highlights Roles of Credit Bureaux, Smart Campaign, Local Regulations to Address Multiple Borrowing in Microfinance

In an article recently published on the website of the US-based Financial Access Initiative, Brussels-based microfinance consultant Daniel Rozas examines multiple borrowing and proposes several ways address the issue. Mr Rozas argues that viewing multiple borrowing as a result of market saturation or a reflection of greed or ignorance is a misconception. Instead he considers it an intrinsic part of microfinance that needs to be understood and managed.

The author discusses three ways to approach multiple borrowing. One is the creation of credit bureaux, which can allow microfinance institutions (MFIs) to share information to aid in evaluating potential borrowers. However, such a solution could backfire by enticing some MFIs to focus too much on lending to existing borrowers, thus exacerbating over-indebtedness.

The Smart Campaign, an effort of US-based nonprofit ACCION International, offers a different approach by encouraging microfinance stakeholders to adopt a set of client protection principles that include the prevention of over-indebtedness. As a number of foreign investors have endorsed the principles, MFIs that do not evaluate clients’ repayment capacity according to specified norms risk losing funding.

Because institutions that are not dependent on foreign capital may not be influenced by efforts such as the Smart Campaign, the author highlights the need for concerned MFIs, investors and other stakeholders to lobby for local regulators to pressure MFIs to adopt responsible lending standards.

By Kristha Abores, Research Associate

About Smart Campaign:
The Smart Campaign, which was founded with seed money from US-based nonprofit ACCION International and is located at ACCION’s Center for Financial Inclusion in Washington, DC, is an “effort to unite microfinance leaders around a common goal: to keep clients as the driving force of the industry.” It promotes seven core consumer protection principles including: appropriate product design and delivery, prevention of over-indebtedness, transparency, responsible pricing, fair and respectful treatment of clients, privacy of client data and mechanisms for complaint resolution. As of October 2011, approximately 1,900 microfinance institutions (MFIs), microfinance support organizations, investors, donors and individual industry professionals have endorsed the Smart Campaign.

Sources and Additional Resources:

[1] Financial Access Initiative: “Rethinking Multiple Borrowing” by Daniel Rozas, September 14, 2011, http://financialaccess.org/node/3791

MicroCapital.org article, August 17, 2011, “MICROCAPITAL BRIEF: Smart Campaign Revises ‘Client Protection Principles’ for Microfinance Institutions (MFIs)”, https://www.microcapital.org/microcapital-brief-smart-campaign-revises-%E2%80%9Cclient-protection-principles%E2%80%9D-for-microfinance-institutions-mfis/

MicroCapital.org article, April 5, 2011, “MICROCAPITAL BRIEF: Smart Campaign Releases New Guidance Document, Proposed Revisions to ‘Client Protection Principles’”, https://www.microcapital.org/microcapital-brief-smart-campaign-releases-new-guidance-document-proposed-revisions-to-client-protection-principles/

MicroCapital.org article, February 22, 2011, “MICROCAPITAL BRIEF: ACCION International’s Smart Campaign to Launch Certification Program for Client Protection in Microfinance”, https://www.microcapital.org/microcapital-brief-accion-international%E2%80%99s-smart-campaign-to-launch-certification-program-for-client-protection-in-microfinance/

MicroCapital.org article, November 9, 2010, “Smart Campaign Partners With African Microfinance Network (AFMIN) and Plan International to Promote Client Protection Among African and Asian MFIs”, https://www.microcapital.org/microcapital-brief-smart-campaign-partners-with-african-microfinance-network-afmin-and-plan-international-to-promote-client-protection-amoung-african-and-asian-mfis/

MicroCapital Universe Profile: The Smart Campaign: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SMART+Campaign#The_SMART_Campaign

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

 

 

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