Client Protection Principles protect Micro-Clients (Do no harm)
Selected examples of how MBK applies client protection principles :
Client Protection Principle 1 – Appropriate Product Design and Delivery
• MBK offers group-based working capital loans using the Grameen Bank methodology. This has been adapted with minimal modifications to the Indonesian context.
• The market segment of the institution is the bottom 25 percent of the households.
• Working capital is provided without hard collateral.
• Client feedback is collected during weekly centre meetings. It is also collected during surprise visits performed daily by Field Office Managers, Area Supervisors, and Assistant Regional Managers, as well as Internal Auditors. After their visit, client feedbacks are recorded in the branch monitoring book and sent to the Operational Director when relevant.
Client Protection Principle 2 – Prevention of Over-indebtedness
• MBK has a conservative lending policy: (a) Clients are not allowed to have more than 2 loans per client including from MBK; and (b) their debt to net income ratio must be below 50%.
• Clear limits have been set for working capital renewals: after the first renewal, working capital can increase by a maximum of 20 percent every year.
• MBK tracks individual cases of default and individual contributions to other members within the groups.
• New Account Officers benefit from on-the-job training on repayment capacity analysis during their first three months with senior Account Officer Officers. Refresher trainings are regularly conducted by Area Supervisors.
• All clients are visited by the Account Officer two months after the first loan (loan utilization check) and by the Account Officer and the Field Office Manager 10 days before loan renewal. Informal cross-checks are conducted with other clients from the centre members and with neighbours.
Client Protection Principle 3 – Transparency
• The loan contract and the repayment schedule detail all the conditions of the loan including the nominal monthly and annual interest rate, the effective interest rate, and the percentage and amount of cash collateral in Indonesian.
• All the rights and obligations of the clients and the conditions of the loans are explained orally to the client during the initial training session (followed by the Group Recognition Test), and before disbursement when the Account Officer provides the contract to the client for review.
• The Client Eligibility Form and the Loan Contract are given to the client after the training (minimum 1 week before disbursement) so the client can bring it back home and review it with her family.
• Clients have the opportunity to ask questions and clarifications during the initial training and during the weekly centre meetings.
Client Protection Principle 4 – Responsible Pricing
• MBK offers the lowest pricing of all MFIs in Indonesia, applied equally and without any kind of discrimination.
• There is no penalty for pre-payment.
• There are no transaction fees.
• There is only one penalty, and this is minimal, to encourage regular centre meeting attendance.
• Profitability and efficiency ratio are maintained at reasonable levels and aligned with peers.
Client Protection Principle 5 - Fair and Respectful Treatment of Clients
• The Code of Ethics states the company's values and is posted on the Company’s website.
• The obligations and rights of the employees are detailed in the Staff Rule Book, approved by the Ministry of Manpower. This includes the list of prohibited behaviour in accordance with to the Smart Campaign guidelines.
• The Smart Campaign client protection principles are included in the Staff Rule Book, and training on client protection principles is provided to all operational staff.
• Individual cases of default are identified during the weekly meetings and customized solutions are discussed with the clients based on their situation. This helps mitigating the risk of excessive pressure from the group.
• Group members are trained to handle collection from defaulting peer group member.
• Loan officer behaviour towards the clients is taken into account in the annual performance evaluation.
• MBK has chosen to reward employees through internal promotion rather than financial incentives linked to productivity targets, which mitigates the risks of aggressive sales and collections.
• Potential misbehaviours are checked during surprise visits performed by Field Office Managers, Area Supervisors, Assistant Regional Managers and InternalAuditors.
Client Protection Principle 6 – Privacy of Client Data
• Staff rules mention that employees may not provide the customer data (personal data, the data on working capital, etc.) to unauthorized persons within the Company and outside the Company.
• When client data is used for the purposes of the company, the employee must explain to the customer the reason and purpose, and request the written permission of the client.
• A privacy clause is included in the application form signed by the client.
• Electronic data security is ensured. Back-ups are performed daily through three external servers.
• Staff and clients are appropriately trained on the privacy of the client data.
Client Protection Principle 7 – Mechanisms for Complaint Resolution
• The Grameen methodology is decentralized at the field office level, allowing the Field Office manager to address and resolve most complaints locally. SMS Complaints are recorded systematically, as well as their resolution date.
• SMS Complaint data is tabulated and analyzed once a month. Analysis findings are submitted to the President Director and the Chair, Audit and Risk Committee, Board of Commissioners, on monthly basis.
• Complaints received during the weekly meetings are resolved before the next meeting when they cannot be addressed immediately. The register of SMS complaints shows that all of them are resolved in less than seven days.
• As part of the Grameen methodology, feedback from clients is collected regularly by field staff and discussed every two months at head office. Feedback is used to improve the operations. For instance the dates of weekly repayment meetings have been changed to fit clients’ needs.
Source: Smart Campaign (Submitted by Planet Rating)