Posted by: Taea Calcut
Full disclosure? MFI staff and clients discuss loan repayments
Last week, Cara Forster, Program Manager at the Center for Financial Inclusion at ACCION International, posted an interesting article on the Center’s blog that highlighted the relationship between MIX social performance reports and the Six Principles of Client Protection of the Smart Campaign as well as some preliminary findings. While the majority of the 53 MFIs featured in Forster’s analysis are active in efforts to inform clients of costs, significant gaps still exist. Forster writes, for instance, that “only two thirds of these MFIs disclose penalty and pre-payment fees before contract signing” – implying that clients at the remaining third of MFIs do not have complete information when they make borrowing decisions. This lack of transparency threatens the well-being of both clients and MFIs, with clients risking excessive debt levels (perhaps exacerbated by the fact that 47% of analyzed MFIs do not obtain information on clients’ existing debt) and MFIs risking weakened portfolios.
Whether these results are typical remains to be seen, as an additional 150 reports have yet to be fully analyzed. However, current data reinforces the importance of industry-wide discussions and standards on pricing transparency and client debt analyses, such as those led by initiatives like MFTransparency and the Smart Campaign, to enhance the achievement of financial and social performance goals.
Readers interested in Forster’s article, “How MFIs are doing on Client Protection – First Reports from the MIX,” can find it here.
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