Principle # 5 – Fair and respectful

treatment of clients

This presentation is made possible by the Smart

Campaignwww.smartcampaign.org

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1. Client protection principles2. Principle #5 in practice3. Participant feedback4. Tools for improving practice5. Conclusion and call to action

Agenda

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1. Appropriate product design and delivery2. Prevention of over-indebtedness3. Transparency4. Responsible pricing5. Fair and respectful treatment of clients6. Privacy of client data7. Mechanisms for complaint resolution

Client Protection Principles

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1. Client protection principles2. Principle #5 in practice3. Participant feedback4. Tools for improving practice5. Conclusion and call to action

Agenda

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Fair and respectful treatment of clients

The Principle in Practice:

Providers and their agents treat clients fairly and respectfully. They do not discriminate. They will ensure safeguards are in place to detect and correct corruption.

Consider this:

Most abuses happen during the loan sales and debt collection processes—these need special attention by providers.

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Set ethical standards

Set appropriate debt collection practices

Train staff on ethics

Spell out organizational values and standards of professional conduct for staff in a Code of Ethics. It should be approved by the Board and signed by staff.

Establish the precise steps to take in case of default including actions that should not be taken and behavior that is prohibited. Inform clients of their rights and the highlights of the Code.

Recruit and train staff in line with Code of Ethics. Train collections staff on appropriate practices for loan recovery.

The Principle in Practice

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Set fair collateral policies

Incentivize appropriate behavior

Enforce penalties for violations

Establish: 1) a policy on acceptable pledges of collateral (don’t accept assets vital to survival) and 2) a policy on rescheduling loans for clients who are willing to repay.Use incentives that encourage ethical behavior and do not put staff in a “conflict of interest” with the clients—particularly during loan collection.

Monitor staff compliance with ethical standards and enforce sanctions for non-compliance. The same rules should apply to third-party collections agents.

The Principle in Practice

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The role of management

Creating a Code of Ethics for the institution. Communicating the importance of ethics to staff on a

regular basis. Training staff to respond to ethical dilemmas tailored for

their position. Empowering managers to follow up on ethical

complaints. Establishing an Ethics Committee that rewards ethics

and sanctions violations.

Training today: Handling

delinquent clients

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The code at the center

Code of Ethics

Management

Internal Audit

Human Resources

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• Credit staff uses offensive or abusive language.• Collections agents threaten clients or harass

them at work, home, or their place of worship.

Examples of inappropriate practicesOffensive

language and threats

• Collections agents enter a client’s home and/or seize property without a judicial order.• The institution accepts collateral that may

deprive borrowers of their basic survival capacity.

Unethical seizure of property

• The institution subcontracts collections to businesses that are not subject to the same ethical standards as the institution.

Subcontracting to unethical

businesses

Careless debt extension

• The institution issues automatic debt extensions.

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Effects on the client and the institution

Clients mistrust the institution,

and tell others.

Inappropriate

Collections Practices

Clients mistrust the institution,

and tell others.

Staff rely on coercion for repayment, rather than

good portfolio management.

To avoid humiliation, clients go to extremes to repay their

loans.

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What a code of ethics includes

Source: Adapted from Compartamos Banco

Institutional

PhilosophyMission &

Values

Ethical Expectatio

nsNorms of Conduct

Enforcement Methods

Updating the Code

Norms of Conduct

Conflict of Interest

Privileged Information

Client/Staff Relationshi

ps

Corruption

Harassment

Use of Company Property

Safeguarding the

Company ReputationRespecting the Work

Environment

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Keeping a code “alive”

Annual Review of Code

New employees must sign

Tested on Code after 90 days

Annual recertification

test

Refresher campaign each

year

Ethics workshops

Internal polices incorporate the Code of Ethics

Training includes

examples of real situations

Source: Compartamos Banco

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Good Practices from Around the WorldOne MFI includes “ethical behavior” in its annual performance reviews in order to give employees feedback on their behavior and find out how successful the organization has been in building an ethical culture.Another MFI designed a training program on ethical behavior that includes specific ethical dilemmas for different job functions. The training modules are based on experiences that employees face at work.

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1. Client protection principles2. Principle #5 in practice3. Participant feedback4. Tools for improving practice5. Conclusion and call to action

Agenda

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Feedback from participantsHave you received training at your institution that highlights ethical staff behavior? Appropriate collections practices?

Can you describe an ethical lapse or ethical success at your institution or elsewhere?

What kinds of collections practices have you seen at your own (or other) MFIs?

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1. Client protection principles2. Principle #5 in practice3. Participant feedback4. Tools for improving practice5. Conclusion and call to action

Agenda

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Technical Tools Getting Started Questionnaire: Self Assessment

for MFIsHow to Develop a Code of Ethics & Example CodesSmart LendingSmart SavingsTechnical Guide for Investors

Samples and Case Studies

Client Welcome KitBest Practices in Collections StrategiesCode of Conduct for Collections from SwadhaarSmart Note: Collections with Dignity at FinComunActivities for Training Staff on Customers’ RightsCode of Conduct E-Learning Module

Tools available from the Smart Campaign

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An institution's corporate culture should value and reward high standards of ethical behavior and service.What is considered appropriate/inappropriate behavior should be specified in advance and staff should be trained regularly.Clients must be treated with dignity at all times, and collection efforts should never be abusive or coercive.Good practices are available to help institutions achieve a collections system that is both effective and ethical.

Conclusion

Call to Action: What next steps can your institution take to create a corporate culture that values high ethical standards among staff? What next steps can your institution take to improve collections practices?

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Feedback from ParticipantsEndorse the Smart Campaign. Visit www.smartcampaign.org

Sign up to receive news and information.

Download the Getting Started Questionnaire and conduct a client protection self-assessment.

What’s next?

Email us! comments@smartcampaign.org