Responsible Finance Forum

AN EMERGING BUSINESS CASE FOR CONSUMER PROTECTION

Source:  Partnership for Responsible Financial Inclusion

More than 100 financial service providers (FSPs) have been Smart Certified since 2013. The decision to become Smart Certified is often driven by an institution’s social commitment rather than influenced by the potential to have stronger financial results as a consequence of improved policies and processes. This paper evaluates key performance indicators (KPIs) of 22 FSPs that obtained certification between 2013 and 2015, highlighting outreach, portfolio quality and internal efficiency indicators post-certification.

This paper analyzes the 22 Certified FSPs using a geographical lens. From our analysis, several observations
emerged:

  1. Certified FSPs gained internal efficiencies post-certification across regions and had comparable performance to regional benchmarks. While, on average, the representative entities in the certified cohort are more mature and regulated than the MIX regional cohort, they experienced a growth in Gross Loan Portfolio (GLP) and borrowers in the periods following certification, FY14 to FY16. The growth rate of the GLP for the certified cohort was higher than that of the regional cohort. In the EECA where the cohort experienced a decline in growth of GLP, the decline was significantly less than that of the regional benchmark indicating stability likely due to strong internal practices and management.
  2. Certified FSPs tended to have lower PAR levels (below 7%)1 reflecting healthy management of loan portfolio risk. Additionally, these institutions had excellent risk management – risk coverage is generally over 100% which is highly desirable as many loans are non-collateralized.
  3. Compared to regional peers, certified FSPs had higher debt to equity ratios and profitability denoting increased access to credit markets, and potentially an increased ability to churn out profits better than other players in their region. Fourteen of the FSPs in the certified cohort are organized as NGOs and NBFIs, which are typically unable to take savings from clients, making it necessary to access external loans to grow their loan portfolios to increase profits.

While not all results were positive, the financial results for the three years following certification show promising results. Longer-term studies should be conducted to support the emerging case that certification leads to positive outcomes in financial results. Such findings would encourage leadership of FSPs to undertake Smart certification.

Originally published on PRFI’s website