Written by the Microfinance Gateway, Published on the Microfinance Gateway in July 2009, available at: http://www.microfinancegateway.org/p/site/m/template.rc/1.26.10904/
This article covers the steps taken by Banex, a Nicaraguan microfinance institution (MFI), to ensure that the Client Protection Principles put together by ACCION’s Center for Financial Inclusion and the Consultive Group to Assist the Poor (CGAP) are put into practice [1,2,3,4]. The principles were formed following the initial public offering (IPO) of Compartmos, a Mexican MFI, led to speculation over whether MFIs are taking profits into consideration more than the best interest of their clients [5]. The Client Protection Principles are as follows:
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
To avoid over-indebtedness, Banex has decided to “request credit information from the new credit bureau, but also to tighten the liquidity of the client.” In terms of the latter, Banex has lowered its acceptable level of debt-to-net income ratio for its clients. As a result, they reject 80 percent of all loan applications from a previous figure of 20-25 percent. Additionally, they are segmenting their products so as to find products that are best suited to various clients, and using measure call the Progress out of Poverty Index to help determine poverty levels of clients and applicants [6]. The Index was formed by the Grameen Foundation, a “global non-profit organization that provides innovative financial, social management and technology solutions for the entire microfinance industry” [7,8].
To improve transparency, Banex has simplified its pricing of products, created a brochure for credits cards that provides a “plain explanation”, and provided other important information to clients such as rights, responsibilities, and financial terms in clear, simple ways. Gabriel Solorzano, president of Banex, also spoke about the necessity of other MFIs in the country upholding similar standards for transparency.
In terms of collection, Banex has employed software that helps track work and payment habits to better coordinate with their clients, thus increasing efficiency. They have also undertaken measures to avoid unnecessary collection trips such as not worrying about minor amounts, not taking legal action against clients, and refinancing delinquent loans.
Banex also now has a code of ethics for their staff, including a unique one for attorneys and collectors. Violations of the code are reported month by the human resources manager.They also perform an evaluation of board members once per year that is then published on their website.
For grievances, Banex has created the role of the Financial Client Ombudsman, which acts as a liaison between the clients and the MFI. This can apply to when a client has a case against Banex, or if there is simply a misunderstanding the requires a compromise. The Ombudsman also conducts client surveys to identify weaknesses such as unclear terms or long lines, and provides suggestions to remedy these issues.
Lastly, Banex takes all necessary precautions regarding the privacy of client data. Besides the use of strong security software, the bank also has a backup server for financial data.
By Christopher Maggio, Research Assistant
Bibliography:
[1] Banex (in Spanish): https://www.banex.com.ni/
[2] ACCION’s Center for Financial Inclusion: http://www.centerforfinancialinclusion.org/Page.aspx?pid=1281
[3] CGAP: http://www.cgap.org/
[4] Client Protection Principles: http://www.cgap.org/p/site/c/template.rc/1.26.4943/
[5] Compartamos: http://www.compartamos.com/wps/portal
[6] Progress out of Poverty Index: http://www.progressoutofpoverty.org/
[7] Grameen Foundation: http://www.grameenfoundation.org/
[8] Grameen Foundation on the MIX Market: http://www.mixmarket.org/networks/grameen-foundation
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