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Responsible Finance

BY SAMUEL SILVA

In microfinance, a field that is still rapidly evolving in Latin America, key players are exploring responsible fi nance and trying to find frameworks in which products and practices work for both clients and financial institutions. Providers, regulators, investors and industry associations are working to achieve more sustainability in fi nance making it more responsible.  And some already have stories to tell.

The notion of consumer protection in Latin American  microfinance is in its infancy,as ACCION’s Vice President Robin Ratcliffe explains. “It’s one thing for people to have a code, a contact,  a customer protection reference,” she says, “but how to implement them is a whole different ballgame.”

ACCION launched its pioneering Pro-Consumer Pledge in 2004, based on nine specifi c principles of fairness. It is currently leading the Beyond Codes project, a worldwide initiative that seems to be right on target. “Their idea is to work with microfi nance institutions that already have a code of conduct,” says CGAP’s Kate McKee, “so we can move from code to procedures, compliance, and staff training.” Beyond Codes is scheduled to launch simultaneously in four countries around the world by October 2008. Mexico is the only Latin American country participating in the initial phase with several MFIs partaking in the project. “We will go to the MFIs and work with them on self-assessment of their consumer protection practices, see what does or does not work, and help them with an action plan,” says Elisabeth Rhyne, who heads the Beyond Codes project.

The initial goal is to collect information that ACCION can use later to help certify microfinance institutions as followers of good practices.

While ACCION takes steps with the providers of loans, CGAP has decided to work with investors for the things  they have already they have already done in responsable  finance,” says Kate McKee, “and we are asking them to have their name asociatedwith our initiative.”

The IDB is organizing a plenary panel on responsible fi nance to be held October 9 in Asunción, Paraguay,during the Microenterprise Forum (Foromic). Panelists will include leading stakeholders in the new field of microfinance- providers, investors, regulators, industry associations, whose perspectives are based on experience. Their stories will tell what they have learned on key issues such as transparency with clients, consumer protection, business ethics, codes of conduct, and corporate governance.

Which issues are most important and why? As markets get more competitive and lower-income consumers gain access to formal fi nancing, what types of questionable practices tend to surface? What are the best tools to ensure the right balance between access and protection? What types of regulatory measures have already been tried and with what results? What are voluntary codes of conduct? What about demand-side interventions such as consumer education?

Can regulation support voluntary marketfriendly initiatives? Can policy stimulate self-regulation?

The synergy between these initiatives should be obvious. “You throw a pebble in the water and watch the ripples grow,” explains Kate McKee.

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