Implementing the Client Protection Principles: A Technical Guide for Investors

Client protection is a key tenet of microfinance. This is demonstrated by the extraordinary response to the new Smart Campaign, which is organized around six core Client Protection Principles. Over 450 organizations – including hundreds of retail microfinance providers, networks, associations, support organizations, and close to 90 investors and donors – have endorsed the principles and committed to translating them into action.

Although the principles of client protection are widely agreed upon, deeper implementation of the principles and ways of monitoring them both at the MFI and funder level are in the early stages of development. Microfinance providers and their supporters are actively looking for concrete and practical ways to implement the Client Protection Principles more comprehensively.

In light of CGAP’s extensive work with social investors, microfinance investment vehicles (MIVs), and donors, CGAP has taken the lead within the Campaign in reaching out to investors and donors, urging them to join together to integrate the six principles into their internal systems and processes. Since 2008, CGAP has been working with the investor community to address this challenge. The Guide is the product of a fruitful collaboration with many investors. It draws heavily on current investor practice and references which organizations have developed what approaches, so as to encourage mutual exchange, learning and peer support.

The Guide presents seven recommended action steps, following approaches and sample templates currently in use or under development by investors and fund managers.

The seven actions recommended for investors are:

1. Incorporate the Principles in investment policies.
2. Endorse the Principles publicly.
3. Encourage current and prospective investees to discuss and endorse the Principles.
4. Develop, test and refine criteria and procedures to assess investee implementation of the Principles during screening and due diligence processes.
5. Integrate the Principles into financing or shareholder agreements as appropriate.
6. Monitor implementation of the Principles by investees through mandatory reporting and regular monitoring and evaluation.
7. Report on progress to investors and other stakeholders

The Guide is a "living" document, which will be updated regularly as practice evolves. CGAP strongly encourages investors to provide feedback on how to improve this Guide, and share additional material that could be included. Comments and material can be sent to Kate McKee (kmckee@cgap.org) and Estelle Lahaye (elahaye@cgap.org).