Financial self-regulation refers to voluntary commitments, practices, standards and initiatives by financial institutions to improve financial consumer protection. Financial sector reforms in emerging economies can be very hard to implement so designing the right incentives for honest and prudent behavior is essential.
Financial institutions can embed responsible finance practices into business functions, from strategy and governance, to customer acquisition and relationship management, product design and delivery channels, processes and risk management, and financial education for the customers.
Efforts are being made to consolidate and bring consistency to such self-regulatory principles and frameworks. Global initiatives include:
- The Smart Campaign’s Client Protection Principles (CPPs) certification program (to complement its assessment and implementation toolkits for practitioners, associations, and funders)
- The UN “Principles for Investors in Inclusive Finance (PIIF)” endorsed by the “Principles for Responsible Investment (PRI)
- The Social Performance Task Force (SPTF) released the “Universal Standards for Social Performance Management (USSPM)”
- IFC-Microfinance CEO Working Group: a collaborative effort by leaders from ten international organizations that promote microfinance around the world: Accion, BRAC, CARE, FINCA International, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund International and Women’s World Banking.
Adoption of industry-led client protection initiatives in microfinance has grown significantly at the global and national levels. In India, the microfinance association MFIN promoted the adoption of an industry-wide Code of Conduct as a response to the microfinance crisis of Andhra Pradesh. In Pakistan, the Pakistan Microfinance Network, adopted a voluntary Code of Conduct as a response to a political crisis. In Mexico, the ProDesarrollo Network, including more than 85 financial institutions, promoted industry building through a Code of Ethics.
Adoption of industry-led client protection initiatives in microfinance has grown significantly at the global and national levels.
Financial institutions have strong interest to implement responsible finance through self-policing arrangements to avoid reputational risks, retain customers and benefit from word-of-mouth referrals.