Client Protection: The State of Practice – A Look at Client Protection Practices in Pakistan’s Microfinance Industry

This note attempts to summarize the current state of client protection practices in Pakistan. It discusses results of an assessment conducted for ten microfinance providers (MFPs) in 2013 based on a methodology developed by the Smart Campaign. These ten MFPs account for approximately 70% of the market in terms of number of clients and approximately 65% in terms of gross loan portfolio. Hence, the paper suggests that the results of the study can be considered as largely representative of large to mid-sized MFPs operating in the country. Key recommendations to improve consumer protection include:

• MFPs should take client data privacy seriously;
• Mid-sized MFPs need to further formalize their product development mechanisms;
• MFPs must formulate policies regarding use of data obtained from the microfinance credit bureau and determine acceptable debt thresholds for clients;
• MFPs should move toward standardized disclosures on the annualized percentage rate interest calculation formula, and move away from flat interest rate pricing;
• Most MFPs must formalize policies and procedures to comply with minimum standards of practice for fair and respectful treatment of clients;
• MFPs should create avenues for clients to air their suggestions, concerns, and grievances.