The Pioneering Work of “Beyond Codes”

By: ACCION International

It is easier to endorse the Client Protection Principles than to implement them. In the summer of 2008, the Center for Financial Inclusion embarked on a two-year research project to assess how financial institutions put client protection into action. This pioneering work has provided a knowledge base enabling the microfinance sector to advance from principles to practice. A final synthesis of findings was published this month in “Beyond Codes: The Foundation for Client Protection in Microfinance.”
The Beyond Codes project worked with 12 institutions, of various sizes and forms, operating in Bosnia, India, Kenya, Mexico, and the Philippines. The goal was to evaluate the institutions’ performance in client protection and develop an assessment methodology.
The report gives in-depth analysis for each principle, extracting lessons from institutions and evaluating how market forces, regulation, business norms, maturity, and internal processes affect performance.
The assessments showed that as a group, the institutions performed best on the principles of appropriate collections practices and avoiding over-indebtedness. Ethical staff behavior and transparency were principles for which some institutions excelled and others lagged. The weakest principle for the group was redress of grievances, with many MFIs having no mechanism for resolving complaints.
Overall, regulated institutions perform better than unregulated ones, possibly because the procedures required for regulated institutions have a spill-over effect on the institutions’ client protection practices. Additionally, regulated institutions tend to have better compliance, monitoring, and complaints-handling systems.
Another interesting observation is that “good client protection practices do not appear to be directly related to an institution’s mission to serve the poor.” In other words, even the organizations most dedicated to improving clients’ lives might have poor client protection practices.
The Beyond Codes research created the foundation for the Smart Campaign’s next phase, focused on implementation. By informing the Smart Campaign’s assessment methodology and tools, Beyond Codes offers actionable resources that help financial institutions turn good intentions into good practices.

It is easier to endorse the Client Protection Principles than to implement them. In the summer of 2008, the Center for Financial Inclusion embarked on a two-year research project to assess how financial institutions put client protection into action. This pioneering work has provided a knowledge base enabling the microfinance sector to advance from principles to practice. A final synthesis of findings was published this month in “Beyond Codes: The Foundation for Client Protection in Microfinance.”

The Beyond Codes project worked with 12 institutions, of various sizes and forms, operating in Bosnia, India, Kenya, Mexico, and the Philippines. The goal was to evaluate the institutions’ performance in client protection and develop an assessment methodology.

The report gives in-depth analysis for each principle, extracting lessons from institutions and evaluating how market forces, regulation, business norms, maturity, and internal processes affect performance.

The assessments showed that as a group, the institutions performed best on the principles of appropriate collections practices and avoiding over-indebtedness. Ethical staff behavior and transparency were principles for which some institutions excelled and others lagged. The weakest principle for the group was redress of grievances, with many MFIs having no mechanism for resolving complaints.

Overall, regulated institutions perform better than unregulated ones, possibly because the procedures required for regulated institutions have a spill-over effect on the institutions’ client protection practices. Additionally, regulated institutions tend to have better compliance, monitoring, and complaints-handling systems.

Another interesting observation is that “good client protection practices do not appear to be directly related to an institution’s mission to serve the poor.” In other words, even the organizations most dedicated to improving clients’ lives might have poor client protection practices.

The Beyond Codes research created the foundation for the Smart Campaign’s next phase, focused on implementation. By informing the Smart Campaign’s assessment methodology and tools, Beyond Codes offers actionable resources that help financial institutions turn good intentions into good practices.