Microfinance Practice: Re: [MFP] seeking advice on two client protection measures on which Smart Campaign provides no guidance

Dear Hsu Ming-Yee,

I remember your posts regarding the client's daughter who engaged in prostitution to assist her parent repay microloan(s).

I believe that the issues you raise urgently need addressing by the microfinance industry (and all financial services stakeholders).

Once a client is insolvent and cannot repay their loan without making undue, inhumane sacrifices, there needs to be a mechanism for debt relief and, if necessary, loan forgiveness.

When dealing with the ultra poor, this is a real risk that I believe MFIs in many places have ignored for too long.

From your comments, it seems that your own sense of economic and social justice is your best guide.

It would be good to see more concrete regulatory engagement (And there very well may be some laws protecting income generating tools and homes in many countries. Though, generally speaking, bankruptcy codes are more creditor and corporate friendly as opposed to applicable to consumers or households).

And, I'd be very curious to hear what some industry leaders and standard bearers have to say on the issue. Thus, I have forwarded your comments to a few for their input.

Kind regards,

Jami

On Fri, Jun 7, 2013 at 5:41 AM, Hsu Ming-Yee <mingyee0706@yahoo.fr> wrote:

Dear colleagues,

I work as Head of Operations at a microfinance institution in Cambodia. Last month, I sent four e-mails to the Smart Campaign to seek its guidance on two measures to protect clients which I wanted to introduce to the MFI I work for. Unfortunately, I have not got any reply, so now I turn to this forum for advice.

The two measures are:

1) Forsake a loan after a certain period of time of being overdue, say five years, if there is no realistic prospect of recovering the remaining due amount.
The purpose is not to burden the client with an "eternal" loan and give him/her the chance to a new start. This is not the same as write off. At the MFI I work for and other Cambodian MFIs I know of, written-off clients continue to be pursued for repayment. I have not found any material on the Smart Campaign website as to whether forsaking a hopeless loan is part of the Client Protection Principles.

2) Avoid taking a client's residence (home and land) as collateral
The client should not fear eviction from his/her home if he/she defaults on a loan, as this fear could drive the client to extraordinary measures to remain on schedule (some members of this group might remember my posting in January 2012 about a client whose daughter prostitutes herself so that her parents would not fear losing their home). I have only found in the Guidance document to the Client Protection Principles, page 25, under Principle five "fair and respectful treatment of clients": "Collateral that is critical to a client's daily survival or that is substantially in excess of the value of the loan is not acceptable...".The document however does not specify whether the client's residence is considered crucial to his/her survival.

I would be grateful for advice from group members, whether these two measures are part of Client Protection Principles, whether other MFIs practice them, and if yes what their experience is.

Many thanks!

Mingyee