Does Good Client Protection Impact Financial Performance?

This paper presents the results of a statistical analysis performed to understand the relationship between client protection and financial performance. The analysis used the following measures to assess the financial performance of the institutions: Return on Equity (RoE), Return on Assets (RoA), Operating Expense Ratio (OER), and Portfolio at Risk more than 30 days (PAR 30), and measured how Client Protection Principles (CPPs) stand against them. Key observations include:

• With the exception of prevention of over-indebtedness, all the CPPs show a positive relationship either with RoA or RoE;
• Good practices in transparency, collection practices, ethical staff behavior, complaints resolution, and privacy all coincide with better financial returns;
• Ethical staff behavior and collection practices are linked to higher financial returns, which means that treating clients respectfully is good for an institution?s bottom line;
• Complaints resolution procedures and privacy of client data are positively linked to financial returns. This may mean that attention to client favors good financial performance, or it may indicate that MFIs with higher returns tend to invest in collecting feedback from clients, and in information systems that better protect client data.