1. PROMOTE RESPONSIBLE INVESTMENT IN DIGITAL FINANCE
We embrace digital financial services (DFS) as a priority to drive development of inclusive financial systems. We will actively support responsible DFS providers to innovate and expand the range of financial services available to underserved groups to help them reduce their vulnerability, build assets, and mitigate their risks for an inclusive digital economy. We as investors commit to make responsible investment choices. We commit to supporting improved board governance and management commitment such that access to finance generates resilient, sustainable and value added growth towards creating markets and opportunities for broader sustainable development.
Integrate the assessment of consumer protection policies into our investment policies, due diligence process, investment selection process as well as financing and shareholder agreements and use relevant covenants.
Develop an action plan and support investees (technical assistance, advisory or related support) integrating consumer protection practices in institutional operations, systems, policies, procedures and reporting. Progress towards the action plan can be linked to certain investment milestones, such as subscription, conditions precedent to disbursement, reporting, etc.
Promote strengthened commitment to an institutional code of ethics, approved by the board, signed (at least annually) by all employees and reviewed regularly as a “living” document.
Promote relevant industry/global standards, for example: Smart Campaign Client Protection Principles for Microfinance, Social Performance Task Force for Microfinance, GSMA Code of Conduct for Mobile Network Operators, BTCA Responsible Digital Payments, OECD, GDPR, EU Privacy Directives, ISO Certification, etc.
2. MANAGE RISKS COMPREHENSIVELY WITH GROWTH OF DIGITAL INCLUSION
We acknowledge that investors play a role in ensuring that the risks that emerge from innovation are borne by those that are equipped to absorb them, i.e., not by end customers. Investors will identify and assess risks during their due diligence process and manage these during the course of investment. We encourage our investees to incorporate risks for customers or consumers into their business models and operations for a more comprehensive risk management framework.
Assess and manage risks more comprehensively, defined as all risks impacting (1) customers or consumers, (2)
providers and (3) financial markets sector/DFS ecosystem as relevant to the business model/market context.
Integrate consumer risk into institutional risk management systems, policies and procedures; include KPIs in
audit and control procedures, with regular and timely reporting to Board and Management for action.
As a group of investors, regularly exchange among ourselves on the new risks identified arising from the use of
new digital technologies; share lessons learned to promote and scale responsible digital inclusion.
3. FOSTER A PROPORTIONATE LEGAL AND REGULATORY FRAMEWORK
We support a prudent and proportionate legal and regulatory framework. As responsible investors, we commit to ensure compliance to existing regulations (including, by our investee companies) and to engage productively with policymakers so that the regulatory framework reflects both customer protection concerns and commercial concerns, and financial crime risk.
Regularly exchange insights within the investor community on regulatory challenges or lessons from operating
in markets with widely varying stages of market development (examples may include regulation to address
aggressive marketing techniques, terms & conditions displays on mobile screens, cooling off periods,
transparency in pricing/interest rates, standardized product features; ethical collection practices, etc).
Meet with (a) financial sector policymakers, regulators, and supervisors; and (b) IFI/DFIs during due diligence to
offer know-how, advice, and guidance as mediators in the private sector development and promotors of digital
3 financial inclusion. This potential action serves to avoid unintended dysfunctionalities of regulation or overreaction
in politically heated contexts.
Support local legal and regulatory requirements, particularly those that are intended to strengthen consumer
protection. Where such local regulatory requirements do not exist, or are inadequate, align with relevant
international or industry standards (e.g., codes of conduct).
Engage proactively with policymakers and regulators so that rule-making is informed by a firm understanding
of the technological and business model components of digital financial services that deepen financial
inclusion; consider ways to share data regarding how services are being used by under-served populations.
Participate in industry-wide initiatives or associations that develop tools or resources for financial services
providers intended to improve the quality of digital financial services (e.g., local bank or FinTech associations
that offer training to members).
4. FACILITATE INTEROPERABILITY AND INFRASTRUCTURES FOR DFS ECOSYSTEMS
We recognize the need for an ecosystem of enabling infrastructure for DFS and encourage interoperability, where appropriate, within that ecosystem. We encourage investee companies to take responsibility for the actions of agents, employees, and third-party service providers across the value chain. We will support investees to implement appropriate mechanisms for responsible provision of services along the value chain, and encourage investees that provide infrastructure services to providers of DFS to apply these Guidelines along the chain.
Support for financial/investment ecosystem, for donors/TA providers, innovation grants, incubators,
Support data exchange and research partnerships.
Support the interoperability of platforms and/or agents and clients so that customers of different schemes can
make payments to each other.
Promote responsibility across the supply chain (e.g. through a covenant in the legal agreements)
5. ESTABLISH CUSTOMER IDENTITY, DATA PRIVACY AND SECURITY STANDARD
We encourage the development, use and implementation, as relevant to market standards and in accordance with applicable laws and regulations, of customer identity and authentication systems by DFS providers. We promote the responsible use of data and practice of data management, including back-end technology infrastructure and/or other mechanisms to protect the privacy and security of customer data and help strengthen approaches for informed customer consent. We encourage the assessment of risk to both customers and providers in adopting various approaches and technologies.
Encourage and support the development and use of customer identity and authentication systems for
KYC/AML as relevant.
Promote and support customers’ personal data privacy rights, as well as informing customers about those
rights, including which data will be collected or shared, when, with whom, for what purpose, for how long and
with which associated risks.
Strengthen approaches for informed consent. For example, to use customer data only for the purpose
specified at the time the information is collected, unless explicitly agreed with and understood by the
Mitigate consumer risks such as data/analytics which could be used for explicit discriminatory purposes.
Encourage and support investees to collect consumer data on an opt-in basis. If applicable, to strive for a
balance between consumer-controlled vs. provider-proprietary data. Increasing customers’ control and use of
their digital data record could reduce the need for different lenders to collect extensive personal data.
Collaborate with investees, other investors and other stakeholders to develop new data use standards for
digital credit which are consumer-friendly and enhance competition, for example (CGAP 2017): (i) consent and
use restrictions (e.g. restricting use of data to a per-transaction basis, having clear user consent, and
prohibiting sharing or sale of consumer transactional data by those who collect it without express and
restricted consumer consent; (ii) easy, secure processes for customers to share their own data (e.g. encourage
a neutral channel through which customers could export data from their transactional accounts in a
standardized format); (iii) standards on what types of data should be shared vs. what should be kept private.
6. PROMOTE FAIR AND TRANSPARENT PRICING
We encourage and support investees to apply fair, risk-based and transparent pricing for all financial products and services that is affordable to consumers while allowing for investees to be sustainable and provide balanced returns to investors. We strive to reassess and balance fair prices paid by customers and the return generated for investors/investees, based on a broader assessment of the risks impacting the DFS ecosystem, which includes: customers, providers and financial markets sector. For savings products, investors encourage and support investees to provide real returns on the deposits of customers.
Review financial indicators, analyze the correlation of high effective interest rates (APR/EIR) with high return
on equity (ROE) and assets (ROA), high NPLs/write-offs, low loan loss reserves, low administrative/distribution
cost of digital lending, etc. For example, triple digit interest rates (APR or EIR) coupled with high, double digit
ROE as well as double digit PAR 30 can be an indication of unfair or irresponsible practices.
Apply a combination of two approaches to fair and responsible pricing: the market-based approach and the
balanced returns approach. The market-based approach compares, from the customer’s point of view, the full
price (i.e. the Annual Percentage Rate (APR) or the Effective Interest Rate (EIR)), product features and
opportunity costs of the DFS provider’s credit product to alternative offers in the market, such as credit
products offered by banks, microfinance institutions (MFIs) and informal moneylenders. The balanced returns
approach considers operating expenses and profits when determining fair pricing. Considering that pricing
decisions are based on cost of funds + operating costs + provisions + management’s choice of profit, the
objective is to balance the benefits for investors (return) with the benefits for customers (price). The principles
of fair pricing and balanced returns are particularly important in DFS, as the end-customers are generally
vulnerable, low-income people. Both investors and providers have a special responsibility to balance the
benefits for the institution with the benefits and risks for the customers. The more vulnerable the customer
segment, the stronger the focus should be on balanced returns. Review and consider the option of contractual
agreements of interest rate reductions (gradually reducing the price paid by customers) based on the
investee’s financial projections.
Consider the following pricing rationale for pricing decisions: in the early stage of development and growth of
the investee, the initial cost of investment and operations may require relatively higher prices/costs. As
economies of scale are reached, operating cost decrease and profitability increases, these benefits can be
passed on to customers.
For savings products, encourage and support investees to provide real returns on the deposits of customers.
7. IMPROVE DISCLOSURE OF TERMS AND CONDITIONS FOR CUSTOMERS
We will promote and support investees to improve disclosure of terms, conditions and pertinent information to customers through transparent, timely and clear communication that is easily faccessible. This includes appropriate product design and delivery as well as transparent disclosure of pricing by product or transaction (annualized/monthly terms), customer rights and obligations, and key supporting facts that enables customers to make informed decisions.
Encourage and support investees to disclose all relevant information transparently to customers in a clear,
complete and timely manner. This includes pricing by product, in annualized terms (APR/ EIR), terms and
conditions, customer rights as well as their responsibilities to the provider.
Encourage and support investees to proactively educate customers about pricing with the objective of
promoting financial literacy, capability and informed decision-making.
Encourage and support investees to tailor product and pricing disclosure to improve accessibility, simplicity
and comparability for the specific customer segment.
Encourage and support investees to provide disclosures in local, simple language or txt messages; using
multiple communication channels (verbal, visual and written form), such as through digital/mobile platforms
Encourage and support investees to provide key facts in legal consent forms, contracts, marketing materials,
public disclosure on website, local media/news channels
Encourage and support investees to avoid aggressive or push marketing practices; encourage opt-in marketing
for customers to mitigate risks from behavioral biases.
Encourage and support investees to help strengthen consumer financial awareness, including understanding
key terms & conditions before entering the contract.
8. ENHANCE CUSTOMER SERVICES FOR PROBLEM RESOLUTION AND PRODUCT INNOVATION
We will encourage and support investees to enhance customer services for feedback, effective problem or complaints resolution in a timely and responsive manner (including redress mechanisms) to build and sustain customer trust and improve the design and delivery of products and services.
Support the establishment of customer care services (call center) with responsive mechanisms for complaints
resolution both to resolve individual problems and to improve/tailor products based on ongoing customer
feedback throughout relationship.
Encourage informing customers’ of their rights and obligations, including how to complain, who to call, how to
register a complaint and the time towards resolution.
Promote tailoring, innovations in product design, and flexibility. Track, monitor and analyze customer
complaints to improve products and services. Investors may support investees through technical assistance to
pioneer innovations, such as digital tools that allow providers to have an insightful conversation with
customers before, during and after borrowing cycles to improve product suitability and customer
9. PREVENT OVER-INDEBTEDNESS, STRENGTHEN DIGITAL LITERACY AND FINANCIAL AWARENESS
We promote and support proactive, ongoing approaches that deliver innovative digital literacy & financial literacy and awareness initiatives for consumer protection, to help prevent over indebtedness and support financial capability, and informed decision-making throughout the customer relationship.
Encourage and support investees to proactively educate customers about pricing with the objective of
promoting financial literacy, meaningful comparison and informed decision-making.
Encourage and support investees to make lending decisions on the basis of the customers’ repayment capacity
and to ensure that customers are only encouraged to borrow when they have a real need.
Raise awareness among investees and their staff about the quantitative and qualitative aspects of a definition
of over-indebtedness. A qualitative definition includes a state in which a consumer has to make significant
sacrifices to his or her standard of living or business to repay debts.
Encourage cooling off periods defined as i) a period during which the consumer can decide to cancel the
product after purchase, ii) a period between the moment a credit product has been fully repaid and the
moment the consumer may request the same or a similar credit product again.
Encourage and support investees to innovate and test new ways of educating customers about “credit history”,
enable customers to check their personal credit history and apply positive framing of credit history, i.e.
highlighting that a good repayment track record is key to accessing future loans.
Work together as a group of investors and with DFS providers to develop innovative credit bureau solutions,
which encompass all possible sources of debt and include new valuable consumer data such as mobile money
and payment data.
Encourage investees to promote information sharing among providers to protect customers against overborrowing.
Promote, request and support ethical collection practices and responsible credit reporting.
10. TRACK PROGRESS TO MITIGATE RISKS AND EXPAND DFS OPPORTUNITIES
We encourage use of impact measurement industry standards for measuring and reporting lessons on responsible and sustainable performance by DFS providers.
Encourage fund managers and investees to apply or sign up to established impact industry reporting standards,
as may be relevant, for example: B Analytics/GIIRS/IRIS; MIX Market Financial Inclusion Data; SPTF, etc.
Work collaboratively as investors to update these existing standards for digital financial services.
Investors may support as relevant, alignment of social indicators (such as gender, age etc.) and reporting
metrics for investees to reduce the reporting burden.
Encourage investors and investees to publicly share impact results for cross learning and support of research
into client protection and over indebtedness.