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Similar to Principle #3 appropriate collections to post
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Principle #3 appropriate collections to post
- 1. Principle #3 – Appropriate Collections Practices This presentation is made possible by the Smart Campaign www.smartcampaign.org
- 2. 2 1. Client protection principles 2. Principle #3 in practice 3. How inappropriate practices affect clients and institutions 4. Participant feedback 5. Practitioner lessons and good practices 6. Conclusion and call to action Agenda
- 3. 3 1. Avoidance of over-indebtedness 2. Transparent and responsible pricing 3. Appropriate collections practices 4. Ethical staff behavior 5. Mechanisms for redress of grievances 6. Privacy of client data Client Protection Principles
- 4. 4 1. Client protection principles 2. Principle #3 in practice 3. How inappropriate practices affect clients and institutions 4. Participant feedback 5. Practitioner lessons and good practices 6. Conclusion and call to action Agenda
- 5. 5 Debt collection practices are neither abusive nor coercive. The institution treats clients with dignity even when they fail to meet their contractual commitments. Appropriate Collections Practices: Principle in Practice
- 6. 6 • Credit staff uses offensive or abusive language. • Collections agents threaten clients or harass them at work, home, or their place of worship. Examples of Inappropriate Collections Practices Offensive language and threats • Collections agents enter a client’s home and/or seize property without a judicial order. • The institution accepts collateral that may deprive borrowers of their basic survival capacity. Unethical seizure of property • The institution subcontracts collections to businesses that are not subject to the same ethical standards as the institution. Subcontracting to unethical businesses Careless debt extension • The institution issues automatic debt extensions.
- 7. 7 1. Client protection principles 2. Principle #3 in practice 3. How inappropriate practices affect clients and institutions 4. Participant feedback 5. Practitioner lessons and good practices 6. Conclusion and call to action Agenda
- 8. 8 How Inappropriate Practices Affect Clients and the Institution Inappropriate Collections Practices Clients mistrust the institution, and tell others. To avoid humiliation, clients go to extremes to repay their loans. Staff rely on coercion for repayment, rather than good portfolio management. What affects have YOU seen?
- 9. 9 1. Client protection principles 2. Principle #3 in practice 3. How inappropriate practices affect clients and institutions 4. Participant feedback 5. Practitioner lessons and good practices 6. Conclusion and call to action Agenda
- 10. 10 Feedback from Participants What kinds of collections practices have you seen at your own (or other) MFIs? Have you received training at your institution that highlights appropriate collections practices? How do institutions collect on-time payments? How do institutions collect late payments? What are the positive consequences of appropriate collections practices (e.g., client retention, portfolio quality) ? Do institutions tend to keep the collections function in-house or outsource it?
- 11. 11 1. Client protection principles 2. Principle #3 in practice 3. How inappropriate practices affect clients and institutions 4. Participant feedback 5. Practitioner lessons and good practices 6. Conclusion and call to action Agenda
- 12. 12 [Write your points for the presentation here:] • Points • Points • Points • Points Lessons from Practitioners
- 13. 13 Indicators of Good Practice: Appropriate Collections (1 of 2)
- 14. 14 Indicators of Good Practice: Appropriate Collections (2 of 2)
- 15. 15 Source: Financiera El Comercio Example: Elements of a Collections Manual
- 16. 16 Source: BanGente Example: Collections Timeline
- 17. 17 Source: Financiera El Comercio Example: Ensuring that Staff Model Appropriate Collections
- 18. 18 Source: Adapted from Financiera El Comercio Example: Helping Clients Get Back on Track
- 19. 19 1. Client protection principles 2. Principle #3 in practice 3. How inappropriate practices affect clients and institutions 4. Participant feedback 5. Practitioner lessons and good practices 6. Conclusion and call to action Agenda
- 20. 20 Summary: • The Smart Campaign has developed six principles of client protection, one of which is appropriate collections practices. • Clients must be treated with dignity at all times, and collection efforts should never be abusive or coercive. • Inappropriate collections practices are bad for business and can lead clients to act in ways that put them at risk. • Good practices are available to help institutions achieve a collections system that is both effective and ethical. Conclusion Call to action • What next steps can your institution take (e.g., developing a collections timeline, sanctioning inappropriate practices by staff)?
- 21. 21 Join the Campaign and Endorse the Principles of Client Protection Have questions? Want more information? Contact the Smart Campaign Email: info@smartcampaign.org Thank you!
Editor's Notes
- Principle #3- Appropriate Collections Practices [Introductions of facilitator(s) and participants] <number>
- This is the agenda for today’s discussion. We will begin with a review of the Six Principles of Client Protection.
- [Each principle is listed, along with how the Smart Campaign defines the principle]. These are the Six Principles of Client Protection 1.Avoidance of Over-Indebtedness. Providers will take reasonable steps to ensure that credit will be extended only if borrowers have demonstrated an adequate ability to repay and loans will not put the borrowers at significant risk of over-indebtedness. Similarly, providers will take adequate care that only appropriate non-credit financial products (such as insurance) are extended to clients. 2.Transparent and Responsible Pricing. The pricing, terms and conditions of financial products (including interest charges, insurance premiums, all fees, etc.) will be transparent and will be adequately disclosed in a form understandable to clients. Responsible pricing means that pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for financial institutions. 3. Appropriate Collections Practices. Debt collection practices of providers will be neither abusive nor coercive. 4. Ethical Staff Behavior. Staff of financial service providers will comply with high ethical standards in their interactions with microfinance clients, and such providers will ensure that adequate safeguards are in place to detect and correct corruption or mistreatment of clients. 5. Mechanisms for Redress of Grievances. Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients. 6. Privacy of Client Data. The privacy of individual client data will be respected in accordance with the laws and regulations of individual jurisdictions, and such data cannot be used for other purposes without the express permission of the client (while recognizing that providers of financial services can play an important role in helping clients achieve the benefits of establishing credit histories).
- Now, let’s discuss how institutions put Principle #3 into practice.
- <number> This is the Campaign’s definition of the principle “Appropriate Collections Practices.” An institution puts the principle into practice by: Treating clients with dignity even when they fail to meet their contractual commitments. Ensuring that debt collection practices are neither abusive nor coercive.
- To understand “appropriate collections practices,” it is useful to define inappropriate practices. Good practice institutions should avoid these types of practices. [Read the examples] <number>
- Now, let’s discuss how inappropriate collections practices affect clients and institutions.
- Inappropriate collections practices have negative consequences for the institution, as well as the clients. Three such consequences are: The abused client mistrusts the institution, and tells others. The institution gains a bad reputation. When the threat of humiliation looms over the client, they may go to extremes to repay their loan- such as selling productive assets or pulling children out of school. When credit staff know they can use coercion to persuade clients to repay, they have little incentive to learn good portfolio management. [For Discussion: Ask participants what else they could add to this graphic. What are the other affects of inappropriate collections practices?] <number>
- Now, we would like to hear from YOU.
- [At this point in the presentation, asks participants for their feedback on the information presented so far. Use these questions (or others that have come up during the presentation) to stimulate discussion.] <number>
- Now, we will discuss our own experiences, as well as good practice examples from around the world.
- Two microfinance practitioners will discuss their experiences confronting client over-indebtedness. Suggested Format: 1. One presenter discusses prevention of client over-indebtedness (how to design and sell financial products that avoid over-indebting clients). 2. The other presenter talks about mitigation (his or her experiences facing pre-existing over-indebtedness problems and finding solutions that benefit MFIs and clients). <number>
- This slide and the next present 5 indicators of good practice for this principle. [Read through the list and ask participants to think about which of these indicators their institution they are fulfilling, and which they could improve].
- Continued from previous slide
- In the next few slides, we will look at good practice examples from two MFIs- Financiera El Comercio (Paraguay), and BanGente (Venezuela). In order to avoid inappropriate and inconsistent practice, and to assist staff in establishing good practices, institutions should have a collections manual that clearly outlines their policies concerning appropriate collections practices. These are five important elements of such a collections manual. (Note: Starting in 2008, the Center for Financial Inclusion carried out a fourteen month-long research project called Beyond Codes. In this project, fourteen MFIs piloted the implementation of pro-client policies and practices. Their experience revealed good practice examples of client protection. The good practice examples used in this presentation come from the Beyond Codes project.) <number>
- Debt collection practices test an institution’s commitment to treating customers with respect and dignity. Appropriate debt collection practices do not mean loan forgiveness or laxity about punctual repayment; rather, acceptable practices require the institution to establish clear policies for collections, such as a timeline for collections. Staff should know and use the timeline. This is an example of a collections timeline. <number>
- Beyond setting policies, such as a collections manual and a collections timeline, institutions must ensure that staff model appropriate collections at all times. The institution can do this through: sanctions, warnings and oversight. <number>
- Finally, good practice institutions should consider how to best serve delinquent clients, in order to make the collections process effective for the institution and dignified for the client. This is the systematic process that allows Financiera El Comercio to help delinquent clients get back on track. <number>
- Now, let’s conclude with a summary of what we’ve discussed, and a call to action.
- [Read the summary on this slide] [Use the Call to action questions, and any of the questions below, to stimulate discussion among participants]. How could one or more of the “good practice” examples be implemented in your institution? What other solutions have you seen (or would like to see)? Do you feel comfortable proposing that their institution implement one of the practices discussed? Why or why not? What factors drive institutions toward inappropriate collections practices? How can institutions address these root causes? Who (which staff) bears the greatest responsibility for ensuring appropriate collections practices?
- <number> Thank you!