For the financial system to develop in a safe, stable, responsible, and trustworthy manner, stakeholders in financial institutions need to have confidence that these institutions adequately protect consumers. That is why various forms of certification or assessment have been practiced around the world for over a decade. However, the landscape has changed significantly as consumer risks have evolved and become more complex with the expanded use of digital technologies. At the same time, evidence indicates that many compliance-based approaches – focused on whether institutions have the right policies and procedures in place – are insufficient. Ultimately, what matters most is whether consumers are genuinely protected. This paradigm shift, from a focus on compliance to outcomes and customer-centricity, calls for a reconsideration of certification processes. Now is a good time for an update.
More than a decade of compliance-focused certification
For microfinance institutions, an independent, third-party certification process was developed in the early 2010s and launched in 2013 through the global Smart Campaign initiative. Third-party certifiers, such as M-CRIL and others, carry out these certifications. Various forms of consumer protection certification and assessment have been developed for B-Corporations, mobile money operators (i.e., by GSMA), PAYGo off-grid solar companies (i.e., by GOGLA), and others. During their pre-investment and due diligence, investors in financial institutions also conduct their own consumer protection risk assessments and, when needed, engage with third-party certifiers for consumer protection assessments.
The consumer protection standards applied in these cases, and the evaluation protocols used to test them, are quite similar. Most of their focus remains on reviewing the institution’s policies and procedures, with some verification that they are applied in practice.
Why compliance alone is no longer enough
But do these evaluations really discover whether consumers are well-protected? The answer depends on whether the evaluation is designed to measure compliance or outcomes. For example, a framework that only checks whether an institution has strong complaint-handling policies says little about whether customers find it accessible, use it, trust it, and are satisfied with it. A customer-centric evaluation also requires spending time listening to customers themselves—and treating their experience as a core measure of success, not a secondary step.
A customer-centric evaluation also requires spending time listening to customers themselves—and treating their experience as a core measure of success, not a secondary step.
When Smart Certification began, in the early 2010s, in the wake of the global financial crisis, only a few lower and even middle-income countries had well-developed financial consumer protection regulations or regulators. This is no longer true, as the past decade and a half has seen central banks make large strides in developing and implementing consumer protection frameworks. In response, more financial institutions have embedded policies and procedures that align with these regulations.
Similarly, many investors in financial institutions that serve people living in poverty have embedded consumer protection requirements into their investment agreements, requiring institutions to deploy appropriate policies and procedures before investment.
These developments place third-party certifications in a different role than Smart Certification originally played. With many regulators and investors now requiring consumer-protection policies and procedures, a third-party evaluator can expect to be able to check most of the boxes most of the time—yet the current methodology still requires them to go through each of these boxes in full. This is time that could instead be directed toward a more important question: how are consumer protections working out for consumers?
What a more customer-centric evaluation looks like in practice
An FMO evaluation of two leading microfinance institutions in Bangladesh and the Philippines (conducted by M-CRIL with CGAP’s inputs and advice) found that much of the consumer protection regime was already in place. In both institutions, consumer protection protocols from pricing transparency to avoidance of over-indebtedness, were reflected in product design, staff training, and customer information. Encouragingly, these institutions seemed to approach consumer protection no longer as an add-on, but an aspect embedded into policies and operations.
But it is far from a foregone conclusion that policies that look good in writing are working well in the field. To account for this, the FMO evaluation went a step further, contrasting institutional policies with consumer experiences. Our assessment involved a combination of tools that evaluators could deploy rapidly to gather direct customer insights. These included:
- Surveys with cluster sampling and over-sampling of past-due customers, quantitatively scored closed questions and open-ended follow-up questions;
- Focus groups with a mix of clients; and
- In-depth interviews (some by phone and others in-person) primarily with past-due customers.
We applied questions already in use in client outcomes frameworks, so that we could use benchmarking data from customer surveys, such as those conducted by 60 Decibels. We also compared customer feedback with the experience and perceptions of field staff to identify gaps in the implementation of relevant policies.
This expanded methodology helped identify consumer protection issues from a customer’s perspective. For example, our work revealed a lack of customer engagement with the redress mechanisms one organization had set up: customers strongly preferred interacting with local staff to using a complaints hotline. Such a finding could provoke an in-depth reworking of the customer redress process for the institutions and might have been missed in a more traditional certification.
Existing certification methodology is already at the limit of what can be reasonably sustained at scale, precisely because so much evaluator time is consumed by compliance checks that increasingly confirm what regulators and/or investors have already required financial institutions to put in place. The approach applied in the FMO evaluation could be adapted for use during a typical certification visit (which lasts a few days), but only if a large portion of that compliance assessment is pared back to make room for it.
Accordingly, it makes sense for certifiers and others to revise their certification approach to focus the majority of their effort on customer experience and staff feedback, and to have a process that is applied consistently. The FMO/M-CRIL evaluation provides a starting point in terms of methods; the next step would be to standardize them, emphasizing efficiency, relevance, and robust interpretation of results for the cross-institutional comparisons needed for certification.
The stakes go beyond methodological improvements. Revamping certification to be genuinely customer-centric — focused on outcomes rather than process compliance — is essential for these frameworks to contribute to a responsible finance ecosystem in which financial institutions deliver positive outcomes for the customers they serve.
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