SPECIAL FEATURE: Absolute Portfolio Management Interviews CEO Nurhayrah Sadava of Microfinance Institution Thaneakea Phum in Cambodia (TPC) Regarding Client Protection Principles

The following text is re-posted with permission from Absolute Portfolio Management.

The microfinance industry has taken big steps forward in the last couple of years to better serve their clients. The Client Protection Principles for microfinance and the accompanying Smart Campaign have been introduced to protect clients, businesses, and the industry as a whole.

Austrian based asset manager Absolute Portfolio Management (APM) offers two “Dual Return – Vision Microfinance” funds, endorses the Smart Campaign and has incorporated the client protection principles into their investment criteria and due diligence. However, APM wanted to double-check how the Principles are employed at the microfinance institutions that the Vision Microfinance funds invest in.

For this, APM spoke to Mrs Nurhayrah Sadava, Chief Executive Officer of microfinance institution Thaneakea Phum in Cambodia (TPC). Mrs Sadava has over 14 years of experience in managing and extending advisory services to microfinance institutions and rural banks in the Philippines, Uganda, Tanzania, Mozambique, Ghana, and Ethiopia.

APM: A lot has been written about the Client Protection Principles. How does your management team put them into practice?

Mrs Sadava: TPC is a signatory of the Smart Campaign and has undertaken a number of measures to adhere to the Client Protection Principles. TPC, for example, ensures that all information given in advertising and dealings with customers and the public at large are factually correct. It is important to us that we are transparent and that our customers are fully informed and understand the nature of their obligation when taking out microcredit – in particular the interest and other charges. TPC does not levy “hidden charges.” We also only sell products that are appropriate to the customer’s particular needs and do not try to induce them to enter into an obligation which offers no obvious benefit.

For us, a good long-term relationship with our customers is key. For this, we maintain a proper and professional relationship with customers at all times and avoid situations where personal friendships might conflict with TPC’s interest. In addition, we respect the privacy of client data in accordance with the laws and regulations of Cambodia.

APM: Please give examples of how you put the client protection principles into practice.

Mrs Sadava: One of the principles is to offer appropriate products to microfinance clients. In order to do so, we undertake a market survey before we develop or enhance a product and pilot test it. We are careful to document all client feedback and make adjustments if necessary before introducing the product.

Another principle is the prevention of over-indebtedness. In practice, we do not lend money to a client with more than one existing loan at the time of application. This means that TPC can be the client’s only other loan. We check this through a rigorous credit background evaluation. We have subscribed to the Credit Bureau Cambodia (CBC) so that all our offices have had access credit history checks from CBC since mid-April 2012.

In addition, we analyse the income level of our clients to show if the client is living beyond his or her means, which may indicate over-indebtedness. This year, we also plan to develop a financial literacy training module on the impact of having multiple loans. With this, borrowers will know how to take steps to get out of having multiple loans.

In terms of transparency, our credit officers explain to the loan applicants how much interest will be charged and how the interest is calculated. Once the Credit Committee has approved the loan amount, the credit officer visits the loan applicant and explains how much the applicant is expected to pay. The credit officer then asks the loan applicant whether or not he would like to proceed with the application. We give the client a copy of the loan repayment schedule, the disbursement voucher, and the loan agreement which shows how much the total obligation of the client is, how much she received as well as the terms of the agreement.

Starting in June 2012, we will start using the “transparency in pricing” form. We also display the features of the different products, including their pricing, in all our offices and explain in our marketing leaflets how the interest rates are calculated.

For responsible pricing we set a base price according to market demand, market rate (or as against competitors), cost of funds, and operating expenses; and then set a reasonable margin. Pricing is reviewed on a per need basis (or based on market demand, competitor pricing, and movement in cost of funds). Last year, the Board agreed to reduce the minimum price to 2.7 percent [per month].

Speaking about the fair and respectful treatment of clients we have ethical standards in TPC that each employee is entrusted to follow. The implementation of these standards is also checked by field supervisors and internal auditors. Anyone found in violation will face different penalties. Clients are informed during the orientation process that they can complain to the manager or supervisor.

We have also signed to ensure the privacy of client data. Before we make inquiries on their background we ask clients to sign a form allowing TPC to gather information from references such as the Credit Bureau, village leaders, etc. We keep all client information in confidential folders and file these folders in lockable drawers. Access is restricted. Our management information system has built in access rights. Only authorized people can view or edit the client information. We are also very careful in sharing information – even with lenders.

The last client protection principle addresses mechanisms for complaint resolution. At TPC, clients are informed during the orientation process that they can complain to the manager or supervisor. The mobile phone number of the supervisor is displayed on the repayment schedule. Each office has a suggestion box which clients can use to drop complaint letters. The TPC head office monitors the suggestion boxes.

APM: Speaking on a broader scale, what are the strengths and weaknesses of the economic, social, cultural and regulatory environment that facilitate or limit the implementation of your business strategy?

Mrs Sadava: In Cambodia there is strong government support for rice production. The Ministry of Economy and Finance plans to guarantee USD 25 million as collateral for loans to rice millers. While this will not directly benefit TPC clients, the latter who are rice farmers will profit by having access to reasonably-priced rice milling services. By having well milled rice, TPC clients can export their produce to neighboring countries at a higher price. However, agriculture in Cambodia is primarily focused on rice production; and more than 50 percent of the economic activities of TPC clients are in agriculture. Thus, we monitor all information related to rice production.

On a social level, there is a strong cooperation among Cambodia Microfinance Association members. There are joint activities, information sharing and lobbying. TPC also partners with other organisations, such as USAID’s Harvest Program (which delivers TA [technical assistance] on agriculture to our clients and field staff), Good Return Australia which provides TA and training on financial literacy, Planet Finance which provides TA and training on SPM and agri-microfinance, among others.

Speaking about the cultural framework, Cambodians are generally friendly, accommodating, and honest. Thus, TPC has a very low fraud rate and has very good portfolio quality. On the other hand, Cambodians are known to be too polite, so that they prefer not to share with others their negative thoughts. Because of this, survey results can sometimes be misleading. To resolve this, it is the internal audit department in TPC that conducts surveys. They take the time and effort to explain to clients that their opinion will not be taken against them, or against anyone; so that results of client satisfaction survey will be reliable. We use the results of the survey in deciding where to expand, in enhancing and developing our products, and in improving our services.

In terms of the regulatory environment, NBC and other regulators are very supportive. They allow market and commercial dynamics and principles to run the financial service industry.

Sources and Additional Resources:

MicroCapital story, February 1, 2012, “United States Agency for International Development (USAID) Provides $2.71m Loan Guarantee to Cambodian Microfinance Institution Thaneakea Phum to Support Agriculture,” https://www.microcapital.org/microcapital-brief-united-states-agency-for-international-development-usaid-provides-2-71m-loan-guarantee-to-cambodian-microfinance-institution-thaneakea-phum-to-support-agriculture/

MicroCapital story, January 17, 2012, “MICROCAPITAL BRIEF: Absolute’s “Vision Microfinance,” “Vision Microfinance Local Currency” Report Net Returns of 2.51% to 4.55% for 2011,” https://www.microcapital.org/microcapital-brief-absolutes-vision-microfinance-vision-microfinance-local-currency-report-net-returns-of-2-51-to-4-55-for-2011/

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

MicroCapital Universe Profile for Thaneakea Phum in Cambodia: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Thaneakea+Phum+%28Cambodia%29+Limited

MicroCapital Universe Profile for Dual Return Vision Microfinance Fund: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=DUAL+RETURN+VISION+MICROFINANCE+FUND

MicroCapital Universe Profile for Dual Return Vision Microfinance Local-Currency Fund: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Dual+Return+-+Vision+Microfinance+Local+Currency+Fund

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