Principle #1 – Avoidance of Over-indebtedness
description
Transcript of Principle #1 – Avoidance of Over-indebtedness
![Page 1: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/1.jpg)
Principle #1 – Avoidance of Over-indebtedness
A special presentation for
YOUR INSTITUTION made
possible by the Smart
Campaign
www.smartcampaign.org
![Page 2: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/2.jpg)
2
1. Avoidance of over-indebtedness
2. Transparent pricing
3. Appropriate collections practices
4. Ethical staff behavior
5. Mechanisms for redress of grievances
6. Privacy of client data
Client Protection Principles
![Page 3: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/3.jpg)
3
Providers 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 non-credit, financial products (such as insurance) extended to low-income clients are appropriate to their needs and means.
Principle #1: Avoid Over-indebtedness
![Page 4: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/4.jpg)
4
What it means for the clients:• Clients should make prudent decisions and
assume responsibility for their actions. • Clients should be capable of making
payments on their debt without sacrificing their basic quality of life.
What it means for the institution:• A financial institution measures its
compliance with this principle by carefully assessing the client’s capacity to successfully repay the loan.
Principle #1: Avoid Over-indebtedness
![Page 5: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/5.jpg)
5
• Loans for amounts surpassing client’s debt capacity - multiple loans at one or several institutions.
• Lack of information on existing liabilities (e.g. non-existent credit bureaus or lack or reporting to credit bureaus by other lending institutions).
• Incentives for loan officers to oversell credit products.
• Products that do not match client’s business cycles (e.g. agriculture).
• Institutions relying on guarantees as a substitute for capacity analysis.
• Accidents, disease or natural disasters.
What causes over-indebtedness?
![Page 6: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/6.jpg)
6
What does over-indebtedness mean for MFIs?
![Page 7: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/7.jpg)
7Source: DAI
What does over-indebtedness mean for clients?
![Page 8: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/8.jpg)
8
NAME, TITLE• Bullet about experience• Bullet about experience
INSTITUTION:• Founding &
Organizational Status• # clients
Photo of Presenter
Institutional Logo
![Page 9: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/9.jpg)
9
Presenter Takeaways
![Page 10: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/10.jpg)
10
Questions or comments for the presenter?
![Page 11: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/11.jpg)
11
NAME, TITLE• Bullet about experience• Bullet about experience
INSTITUTION:• Founding &
Organizational Status• # clients
Photo of Presenter
Institutional Logo
![Page 12: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/12.jpg)
12
Presenter Takeaways
![Page 13: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/13.jpg)
13
Questions or comments for the presenter?
![Page 14: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/14.jpg)
14Source: Apoyo Integral, El Salvador
What actions can MFIs take?
![Page 15: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/15.jpg)
15Source: Apoyo Integral, El Salvador
What actions can MFIs take?
![Page 16: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/16.jpg)
16
Beyond Codes: Indicators of Good Practice
![Page 17: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/17.jpg)
17
Beyond Codes: Indicators of Good Practice
![Page 18: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/18.jpg)
18
In addition to implementing a rigorous credit methodology to ensure that clients are capable of repaying their loans, one MFI in Bosnia-Herzegovina:
•Tasks its internal audit department with following up on a sample of clients who have fallen behind on their payments. •Has the internal audit team conduct client interviews.•Focuses interviews on ensuring that loan officers followed proper procedures to avoid over-indebtedness. •Includes in the interview a focus on diagnosing the causes of the client’s repayment challenges.
Good Practices from Beyond Codes
![Page 19: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/19.jpg)
19
We have talked about multiple examples of good practices that are currently in use, but over-indebtedness continues as one of the key problems MFIs face in many countries.
What do you see as the next steps to address this?
Discussion
![Page 20: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/20.jpg)
20
We will discuss Principle #2:
Transparent & Responsible Pricing
We will examine concrete examples:• What is transparency?• How can you tell if clients understand
the information shared with them?• What role does financial literacy play?
Next time…
![Page 21: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/21.jpg)
21
Questions?Contact the Smart CampaignFor more information visit:
www.smartcampaign.org
![Page 22: Principle #1 – Avoidance of Over-indebtedness](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b64550346895da46536/html5/thumbnails/22.jpg)
22
www.smartcampaign.org
Thank you!
Join the Campaign & Endorse the Principles of Client
Protection