client protection, microcredit

Client Protection under Covid-19: Practical Guidelines for Financial Service Providers

While a large majority of the global population is enduring extended periods of mobility restrictions and economic downturn due to Covid-19, financial service providers (FSPs) are doing their part in adapting and offering new services to support their customers that are facing issues of liquidity shortage and capital depletion. Especially the institutions that take part in the inclusive finance sector are, at the same time, determined to understand how to maintain their commitment to client protection principles, whilst tackling the mass-scale impact of this pandemic.

This brief article proposes practical guidelines for FSPs and alike that are interested in ensuring that their operations under these new measures and context continue to be in line with the best practices of client protection, with reference to the Smart Campaign’s Client Protection Certification and the European Code of Good Conduct for Microcredit Provision. It should be noted, however, that I do not represent the stakeholders of the mentioned certification schemes; thus, this article is based on my own reflections as a qualified evaluator.

Firstly, we shall bear in mind that FSPs and alike are directly hit by the consequences of this pandemic. The main challenges are shortage of liquidity, loan recovery and impossibility or limits to serve customers in person or work at all. Needless to say, Covid-19 is not an isolated issue, and hence, the FSPs themselves are working under significant stress and limits. With this note in mind, here are the guidelines on how FSPs can continue to respect the main client protection principles.

Fair and respectful treatment of clients / Ethical staff and institutional behaviour:

– Especially if the loan portfolio is concentrated in the worst-hit economic sectors, the FSPs are likely to be disbursing less loans and focusing on loan recovery. Bearing these factors, it is important to review the functions of every staff or department and potentially reshuffle functions, in order to strengthen the capacity of the teams that are facing significantly high volumes of work.

– For example, branch accountants or loan officers can support the debt collection team. However, in order to prevent inappropriate behaviour towards customers, clear guidelines or scripts should be provided.

– The internal audit team can also revisit its annual plan and focus on reviewing compliance to procedures regarding debt collection and other services offered remotely, with a focus on customer service quality.

– If staff are working from home, provide support to allow them to work proficiently (e.g. mobile credit, internet connection); base the calculation of incentives or productivity on different parameters, such as number of calls made, new repayment date, customers agreeing to make digital payments etc., combined with feedback on customer service retrieved by the Internal Audit or other non-operational teams.

Transparency / Customer and investor relations:

– Amidst shortage of staff and new and sometimes constantly changing measures taken by the government to which FSPs have to adapt, prompt communication to clients about new conditions or services can fall behind. This is why it is imperative to identify the most customer-friendly channels through which the institution can share regular updates, not only regarding new conditions but also about any lag in providing customer service.

– In the rush to restructure loans or offer moratoriums, the regulators may not require for these contractual changes to be recorded in writing. However, according to international best practice, it is recommended to, at minimum, share the agreed changes with the customer via email, SMS or social media and evaluate the possibility to revise the loan contracts formally when business resumes to normal.

Mechanisms for complaint resolution / Appropriate product design and delivery:

– The team in charge of client complaints and inquiries is one of the functions that most needs extra support. The high volumes of requests from customers is correlated with the fact that many are currently not able to work, and therefore, in need of help and also have more time. By boosting customer service in general and technical assistance (if relevant to the business model) now, your institution will build up trust and loyalty with the customers for the long-term.

– When in contact with clients, it is crucial to gather as much feedback as possible on the institution’s products and services in a systematic manner (for example, through the use of guidelines or scripts by staff). By identifying the needs of the target population, the state of the local economy per sector and potential demand for financial services, such client feedback serves to revise product design and processes. Hence, time spent in contact with customers is not time wasted, as long as the conversations are structured and duly reported.

Prevention of over-indebtedness / Risk management:

– Microcredit providers are concerned to see their portfolio at risk (PAR) rise. From the client protection perspective, what matters the most is how the institution is monitoring this and the measures it is taking to contain the erosion of portfolio.

– For example, PAR indicators should be monitored per loan product and preferably by economic sector. If trends in PAR can be coupled with a review of the main sectors that the institution serves, then risk appetites can potentially be revised.

Governance / Reporting standards:

– In order to remain accountable to not only the clients but the investors, adequate supervision by the Board of Directors is imperative. To facilitate the Board, prompt reporting from management on above mentioned matters – such as client feedback, PAR and economic sector review – is necessary. The situation is difficult for everyone, but what will distinguish your institution from others is the ability to report specific reasons behind the weakening performance and the measures that have been taken to monitor and recover from the impact of Covid-19.

In all, this is the time when all players in the inclusive finance sector should be most aligned to the social mission that unites them. What the institutions decide to do to conserve their allegiance to client protection in the short-term will provide benefits in the long-term, because the efforts made to be customer-centric and accountable when people most needed support will be long remembered.

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