Dimension 3 - Client-centered Products and Services

Client-centered design means thinking through how financial and non-financial services help target clients to better manage their budgets and grow their income-generating activities and businesses and, as a result, to improve their livelihoods and achieve their economic goals. Designing client centric products/services and distribution channels requires in-depth understanding about the financial needs and product use of different client groups vary and how client satisfaction and exit varies by client group and the reasons behind these. Products and services should be designed to reduce barriers to financial access as well as helping clients achieve financial goals like coping with risk and emergencies, investing in opportunities, smoothing income or creating a safety net.

This dimension has 2 standards:

Standard 3.A The provider collects and analyzes data to understand clients' needs.
Standard 3.B The provider’s products, services, and channels benefit clients.

Resources for Dimension 3

Using Client Feedback to Inform Product Design. This webinar focuses on dimension 3 of the Universal Standards, Client-centric Products and Services, and in particular on using client feedback to inform product design. Webinar Brief and Slidedeck
The CGAP Customer Experience Toolkit equips organizations to create empowering customer experiences and includes a Workbook as well.
The Business Case for Customer Centricity

Standard 3.A The provider collects and analyzes data to understand clients' needs

Understanding client needs is key to ensuring that products and services are actually beneficial to clients in progressing toward their business and family goals. The standards go a step beyond “do no harm” of client protection and also focus on understanding the needs and preferences of different types of clients by conducting client satisfaction surveys, examining reasons for client exits, using that information to adjust products and services or develop new ones.

This standard has 3 essential practices:

Essential Practice 3.A.1: The provider conducts market research and pilot testing.
Essential Practice 3.A.2: The provider uses data to identify patterns of financial behavior by client segment.
Essential Practice 3.A.3: Collect client feedback on their experiences using products and services.

Resources for Standard 3A

3.A.1 The provider conducts market research and pilot testing.

Conduct client-centric market research

In addition to data collected to understand whether the social goals are met, market research on the client groups or segments in required to gain a deeper understanding of their needs, preferences, goals and any obstacles and transaction costs to using financial products/services and their distribution channels.

Traditionally, market research starts with a provider’s products and services (current or potential) and investigates whether clients like or dislike the different features of these. However, client-centric market research starts with the client, not the product. This means first understanding the lives of the target clients, and then designing or modifying products to satisfy their needs and priorities and help them achieve their goals. This type of market research requires to investigate multiple facets of target clients’ lives to understand the holistic picture of the challenges and opportunities the target clients face throughout their lifecycle (beyond purely financial aspects).

For example, in order to understand the needs and preferences of clients living in rural areas, financial information such as agricultural business types, monthly profit generated from these businesses, variations in seasonal income flows, and client demand for various financial services is required. In addition, the following questions require answers to understand their “non-financial” priorities: What are their goals for their families? What are their most significant vulnerabilities? What is their social status and how does that affect their ability and willingness to engage with service providers? For users of digital payment services, understanding is important of their comfort level with a mobile interface, the types of transactions they prefer to do digitally as opposed to face-to-face, and which user errors might affect the safety of the mobile product.

The provider can use multiple sources for client data, including client and field staff interviews, focus groups, surveys, field observations of target client behavior, participatory rapid appraisal, and data mining of the management information system (MIS) which is discussed in greater depth as part of essential practice 3A.2. The Market Research Techniques Table provides a comparison of the uses of various types of market research techniques.

Market research should include non-client members of the target client segments, and it should seek to identify whether the design of the products/services and their distribution channels unintentionally prevents certain people from accessing them

Field examples and Resources

Market Research Techniques Table

3.A.1.1 Before introducing new products, services, or delivery channels, the provider conducts market research that includes gathering the following data about its target clients:

3.A.1.1.1 Analysis of market share, market saturation, and potential market

3.A.1.1.2 Client profile data, including gender, age, location (urban/rural), and poverty/income level

3.A.1.1.3 Data on clients' needs, goals, and any obstacles to using financial services

Products and services are still often standardized, based on what the sector knows how to do rather than what clients need. Providing high-quality, well-adapted services requires first understanding the financial lives and behaviors of target clients through market research, and then designing the product. Market research is the study of clients and non-clients to identify financial needs, preferences, behaviors and barriers to accessing services.

Scoring guidance

Detail 3.A.1.1.1:

Score ’yes’, if the provider is analyzing thoroughly the potential market for new products/services by assessing the current market share and expected competition in all locations/regions where it intends to introduce the new products/services.
Score ‘partially’, if the provider is analyzing only rudimentarily the potential market for new products/services by relying on its last annual operational planning exercise without additional primary and secondary data collection, incl. the analysis of competitors.
Score ‘no’, if the provider is not carrying out potential market analysis for new products/services by just relying on informal discussions with branch managers and staff.

Detail 3.A.1.1.2:

Score ‘yes’, if the provider is designing new products/services based on in-depth client segmentation research (covering clients and non-clients) which differentiates client profile data according gender, age groups, location (urban/rural), income(poverty) level, etc.
Score ‘partially’, if the provider is designing new products/services based on limited and ad hoc client segmentation research (by excluding non-clients) by breaking down client profile data by gender of location only.
Score ‘no’, if the provider does not base its design of new product products/services on client segmentation research.

Detail 3.A.1.1.3:

Score ‘yes’, if the provider is designing new products/services based on in-depth research (covering clients and non-clients) on client needs and preferences for financial and non-financial products, client lifecycle goals, and obstacles in using financial services.
Score ‘partially’, if the provider is designing new products/services based on limited client research (by excluding non-clients) like ad hoc client surveys and/or on client needs and preferences for financial services only.
Score ‘no’, if the provider does not base its design of new product products/services on client research.

Sources of information

Market and client research reports
Product term sheets or product prototype descriptions
Interviews with marketing/ product development
Interviews with operations

Evidence to provide

Specify the most recent market and client research done (and refer to related reports, if available) and provide a summary of its results.
Market research should include an analysis of context to understand market saturation and potential market.
Data on clients’ needs/obstacles can refer to limits on digital capabilities for example

Field examples / Guidance for implementation 

Analysis of the context may include:

Market research to identify client demand (see below)
Sector analyses done by the professional association/country network or other actors (consultancy companies, supervisory authorities, multilateral and bilateral development organizations)
Analysis of the number of financial service providers in the areas where there are branches
Use of the MIMOSA Index for saturation analyses by country
Analyses on the capacity of the credit bureau

Regardless of the product or delivery channel, market research should examine:

Analysis of market share, market situation, and potential market
Characteristics of target clients or client segments (client profile data, including gender, age, location (urban/rural), poverty/income level, business type, formal literacy level);
Behaviors of target clients or client segments that affect their economic situation (e.g., savings habits);
The day-to-day and life-cycle financial needs of target clients or client segments (e.g., home improvements, school fees);
The economic and social opportunities and constraints faced by the target clients;
Barriers that target clients face to accessing the products/services (e.g., distance from branch offices, language barriers, lack of financial education, behavioral/psychological barriers such as only focusing on short-term needs);
Risks and common emergencies that target clients or client segments face (e.g., lack of health insurance, vulnerability to natural disasters);
The extent to which current products and services meet these above needs; and
How products/services could better address the above opportunities and constraints.

Resources for indicator 3.A.1.1

3.A.1.2 The provider conducts pilot tests before introducing a new product or making significant changes to an existing product.

3.A.1.2.1 The provider pilot tests products among clients with different socioeconomic and demographic characteristics.

3.A.1.2.2 The provider collects feedback on pilot products from both employees and clients.

Pilot-tests are necessary to verify understanding by clients, adaptation of services to target clients’ needs and preferences, and to avoid pre-defined expectations on how the services will be used and valued by the clients.

Scoring guidance

Detail 3.A.1.2.1:

Score ’yes’, if the provider follows a formal and well-defined pilot test process prior to introducing a new product or making significant changes to an existing product. This process should define clear targets:
1. tested with a reasonable sample of clients representative of the different client segments,
2. tested in at least two different branch locations (maybe a an urban and a rural one),
3. identify key indicators to monitor,
4. a deadline when KPIs are measured to assess the suitability of the product, etc.
Score ‘partially’, if the provider lacks a formal and well-defined pilot test process (as above-outlined) or makes significant shortcuts in the pilot test process. ‘Partially’ is also scored, if the provider has conducted a client survey or focus group discussions to gather client feedback on a product to be launched instead of a pilot test process.
Score ‘no’, if the provider is introducing a new product or making significant changes to an existing product with neither a pilot test process nor a client survey or focus group discussions to gather client feedback.

Detail 3.A.1.2.2:

Score ’yes’, if the provider follows a formal and well-defined pilot test process prior to introducing a new product or making significant changes to an existing product. This process should comprise the collection of systematic client and staff feedback on piloted products on a representative basis.
Score ‘partially’, if the provider lacks a formal and well-defined pilot test process with the collection of systematic client and staff feedback on a representative basis or makes significant shortcuts in the pilot test process. ‘Partially’ is also scored, if the provider has conducted a client survey or focus group discussions to gather client feedback on a product to be launched instead of a pilot test process.
Score ‘no’, if the provider is introducing a new product or making significant changes to an existing product without the collection of client and staff feedback neither as part of a pilot test process nor in the form of a client survey or focus group discussions.

Sources of information

Product fact sheet or prototype descriptions
Product pilot testing process, if described in a product development manual or elsewhere
Interview with Marketing / Product Development
Interview with Operations
Pilot test Report

Evidence to provide

Take a recent example and describe the pilot test process, its duration, the sample of target clients and a summary of the results and changes made to the product post pilot phase.
Confirm that pilot testing and feedback exist for all types of recent products (including insurance, payments, digital tools, etc…).

Resources for indicator 3.A.1.2

3.A.2 The provider uses data to identify patterns of financial behavior by client segment.

Analyze product usage

Product uptake refers to clients buying the provider’s products and services, signing up for a service (e.g., opting into SMS savings reminders), or entering into contract (e.g., opening a savings account). Product usage is different—it refers to actual transactions or interactions between the client and the products/services. The distinction is important, because many providers measure product success by uptake alone, measuring for example, the number of clients who purchase optional insurance or the number of savings accounts opened. Though uptake is an important measure of product suitability, product usage is a better indicator of how valuable products are to clients.

Monitor whether and how clients are using the products and services that they have purchased or signed up for—especially savings, insurance, and additional services designed to assist them in managing their finances. Transactional data on product usage can give important insights into financial behavior and uncover unmet needs or opportunities and barriers. Low usage should prompt to investigate the reasons that clients are not using the products over time. Transactional data should be analyzed by demographic and socioeconomic segment as it is unlikely that all client segments are using products in the same way.

Segment client data

Client segmentation can help divide a heterogeneous market into several smaller, more homogenous markets based on one or more meaningful characteristics. Providers should segment client data for all products, not just credit. Segmentation acknowledges that even among the “low income” population segment, peoples’ wants, needs, and behaviors are nuanced. The Segmentation Variables Table is a menu of possible segmentation variables to use with existing and potential clients.

Resources for 3.A.2

3.A.2.1 The provider analyzes transactional data (PAR, average loan size, loan repayments, savings deposits and withdrawals) by demographic and socioeconomic segments of its clients.

Scoring guidance

Score ‘yes’ if the provider is analyzing several transactional data across all different products and by client segments with demographic and socioeconomic characteristics like gender, age groups, location, income/poverty level, formal literacy level, sector, etc.
Score ’partially’ if the provider is analyzing transactional data for one product type only or with only one basic client segmentation like gender or location.
Score ‘no’ if the provider is not analyzing transactional data by client segments of different demographic or socioeconomic characteristics.

Sources of information

Interviews with marketing/ product development
Interviews with operations
Any relevant analytical report used for product development
Transaction reports: Reports broken down by client segments on PAR, average loan size, loan repayments, deposits and withdrawal, claims ratios, etc.

Evidence to provide

Specify the characteristics used to segment the transactional data (age, education, gender, employment status, etc.).

Field examples / Guidance for implementation 

Transactional data is generated from the clients transacting like loans requested, approved, loan amounts, repayments, savings account openings, savings account withdrawals/deposits, savings balances, etc.

It is useful to integrate the data collected to prepare the transaction: all type of information from clients, captured in MIS, that allows for analysis of repayment and allows for the transaction to take place. Transactional data are collected on a regular basis, based on tracking of any transaction, and sometimes directly from clients. Data on capacity to repay for example, tend to be reliable because the provider uses them to analyze clients’ repayment capacity. Data collected during a loan application process can also be quite detailed in terms of sources and amount of income for the client and its household.

Resources for indicator 3.A.2.1

Insights from Transactional Data

3.A.2.2 The provider analyzes product use (types and frequency) by demographic and socioeconomic segments of its clients.

Understanding which types of clients (men, women, urban, rural, by sector, by age groups, etc.) use different products provides insight into clients’ needs and preferences. Beyond product access, it is important to understand how clients actually used it.

Scoring guidance

Score ‘yes’ if the provider:
1. analyses the usage of all its products and
2. doing this by main client segmentation, like gender, location, age groups, formal literacy level, income/poverty level, and sector.
Score ‘partially’ if the provider meets only partially the above two conditions, like analyzing usage of loan products only or by very rudimentary client segmentation.
Score ‘no’ if the provider is analyzing the usage of loan products occasionally, but without any client segmentation.

Sources of information

Interviews with marketing/ product development
Interviews with operations
Any relevant analytical report used for product development or in marketing

Evidence to provide

Refer to reports that analyze product usage by client characteristic and how these reports have been used to understand clients’ needs and preferences as well as actual use of products.

Field examples / Guidance for implementation 

Example:

Providers are often communicating on the percentage of women clients, but direct interviews with these women borrowers, for example, may show that the loans are actually used by their husband, father, brother, or any other member of the family. In this case, access and usage differ and the needs of the women clients may not be served.
Segmenting savings data (e.g., deposit amount and frequency) by several relevant client characteristics (e.g., age groups, employment status, and gender) could provide valuable information on how savings habits vary among client segments. Combined with interviews with each of those segments, findings maybe that young people prefer to save for specific goals (e.g., education, car purchase) and would respond well to goal-oriented savings products, salaried employees want an easier way to deposit their paychecks, men benefit from savings reminder SMS messages, and women business owners need to be able to check their account balances from their mobile phones.

3.A.3 Collect client feedback on their experiences using products and services

The provider collects client feedback on their experiences using the products and services and delivery channels. The purpose of collecting feedback is to investigate whether clients use and value the financial products and services as expected and whether they face challenges accessing or using them.

Understanding client satisfaction

Collecting client satisfaction data is one specific type of market research. Providers should use one or more methods for collecting satisfaction data, such as a formal client satisfaction survey, client focus group discussions, or meetings between clients and employees to discuss client satisfaction (with the results shared with managers). It can be collected on an ongoing basis or at least every other year. Selecting a representative client sample is important to reduce bias. Client satisfaction is different from client complaints. Both types of data are important. They can be complementary—for example, if mining complaint data to better understand an area of low client satisfaction.

Client satisfaction data investigate the provider’s ability to meet client needs, such as: reducing risks and coping with common emergencies, investing in economic opportunities, and addressing anticipated household needs. Client feedback should address the following:

Who is the actual user of the product, and what is the end use of services (e.g., business working capital, consumption smoothing, lump sums for asset building and life events);
Overall satisfaction with the client experience and value of the products;
Satisfaction with the convenience, safety, and reliability of distribution channels to access the services;
Satisfaction with the timeliness, ease of procedures, conditions, and guarantees to obtain the services;

Client satisfaction surveys also allow to determine whether products are used as expected. If there is a gap between how products are designed to be used, and how they are actually used, then there is at risk of client exit, repayment problems, and/or not meeting the social goals.

Track client retention/exit

Client dormancy, cancellation, and exit are also good indicators of product appropriateness. Track client retention on a regular basis (at least annually) and by different segments (at least: client characteristics, products, branches/areas). Choose a retention formula, and use it consistently over time. Information to calculate client retention rates are usually available in the MIS if the MIS has a unique client identification system that allows to distinguish between exit clients and clients who are simply resting between loans (and who eventually re-join), as well as clients who have graduated to other institutions that offer larger loans. These important distinctions can affect retention rates significantly.

It is important to calculate client retention rates regularly with reporting to the board and senior management. A high exit rate across branches and certain client segments can be evidence of a product design failure. Segmenting the data by branch, and even by loan officer, helps management focus their attention more precisely on problem areas. In addition to monitoring the rate for potential client and portfolio problems, the board and senior management should determine a level of client retention that they consider “unacceptable”:a level that prompts further action (e.g., interviews with clients to inquire about the problem; placing particular branches/managers on probation; offering emergency loans after a natural disaster).

Understanding client exit and dormancy

Client survey questions should provide management with information to understand the reasons behind client exit and take corrective action. Sample client exit survey questions and examples of how exit data can be used to make operational and product adjustments are available. Some providers choose to conduct exit surveys on a regular basis. Others have found that exit survey responses tend to be similar over time, so they conduct exit surveys on an annual basis and when they wish to investigate specific problem areas (e.g., low client attendance at group meetings). Finally, look for ways to augment survey data with other client information including portfolio and demographic information from your institution’s MIS and additional market research gathered from focus groups, client interviews, and other methods. Exit data alone may not be sufficient to make conclusive decisions, but combining exit survey findings with other information provides a more complete picture of the client experience.

Field examples and guidance:

3.A.3.1 The provider conducts client satisfaction surveys. Minimum frequency: every other year

Regular client feedback is essential for making sure products meet client needs. Complaints reports are not sufficient. Satisfaction surveys or other systematic ways of collecting feedback provide insight into how products are actually used, perceived and appreciated by clients. These insights serve to design appropriate products. Examples of other systematic means of gathering feedback include client focus group discussions, or meetings between clients and employees to discuss client satisfaction.

If the survey focuses on specific products, the sample may be focused only on the users of these products. For general satisfaction surveys, a representative sample should be used.

Scoring guidance

Score ’yes’ if the provider:
1. has conducted a general client satisfaction survey in the past 24 months
2. based on a representative sample of clients.
Score ‘partially’ if one of the above two conditions are not met. For instance, the provider has conducted a client satisfaction survey in the past 24 months, but it was not based on a representative client sample.
Score ‘no’ if both above conditions are not met.

Sources of information

Client satisfaction survey methodology, questionnaires, and reports on the findings
Interviews with marketing/ product development
Interviews with operations
Interviews with clients and field staff

Evidence to provide

Specify the date of the most recent client satisfaction survey. If relevant, describe other forms of client feedback and its regularity. Specify the sample size of the most recent satisfaction survey. Provide a summary of the results.

Field examples / Guidance for implementation 

In case of highrisk areas (risks of over-indebtedness, higher levels of client complaints, etc.), client surveys may need to be conducted annually.

Resources for indicator 3.A.3.1

Ujjivan Collects Client Satisfaction Data Face-to-Face
Definition of a representative sample
Selecting a Sample Size
CGAP’s Customer Experience Workbook offers a sample customer satisfaction survey that guides the FSP through important factors to consider when conducting client satisfaction surveys, and it provides example questions about customers’ experiences at service locations.
Al Majmoua uses client satisfaction and client exit surveys to understand the client experience and make adjustments to products and services. This case study examines the technical aspects of the surveys, including sampling, training staff on survey use, and creating the questionnaires.
ASKI Philippines gathers client feedback on product features, non-financial services that complement microfinance, customer service, and how ASKI compares with key competitors.
Encuesta de satisfacción de la socias de Pro Mujer Argentina
Encuesta de satisfacción de clientes : Movimiento Manuela Ramos CrediMujer

3.A.3.2 The provider conducts interviews with dormant and/or exiting clients to look for evidence of product design failures.

Client drop-outs/dormancy represent lost investment for a provider and thus come at a cost. A high incidence of exits or inactive clients can indicate dissatisfaction, although it is natural for a certain percentage of clients to leave a provider when they no longer need services, when they move, or obtain access to a formal institution offering different services. Providers need to have an approximate idea of how many clients are leaving (or inactive) and why: are they dissatisfied or has financial access worsened their socio-economic situation? Or is it simply that they do not have an immediate financial service need, but may eventually come back?

Scoring guidance

Score ‘yes’ if:
1. the provider is conducting client drop-out or exit surveys and calculating client retention rates regularly as an established practice to identify product design failures and
2. has used the results for corrective action to improve its current products/services and their distribution channels and to design new products/services more client-centric.
Score ‘partially’ if the provider is conducting client drop-out or exit surveys and calculating client retention rates regularly to identify product design failures, but has not used the results to improve its products/services and their distribution channels.
Score ‘no’ if the provider is not conducting client drop-out or exit surveys to identify product design failures.

Sources of information

Client drop-out survey methodology, questionnaires, and reports on the findings
Client complaint reports
Client satisfaction and / or exit survey methodology, questionnaires, and reports on the findings
Interviews with marketing/ product development
Interviews with operations
Reports on interviews with exiting or dormant clients

Evidence to provide

Reports on client exit interviews: Specify how dormancy/drop-outs data is collected, and with what frequency it is analyzed.
Provide an example of how this information has been used to inform product design, operations and/or customer service.

Resources for indicator 3.A.3.2

The Smart Campaign tool Collecting and Using Client Exit Data provides detailed guidance on creating and using an exit survey instrument.
The SPTF's Learning from Exit Clients discusses how to collect and use exiting client data.

3.A.3.3 The provider investigates whether stresses at the household level make it more difficult for clients to use its products and services.

Sometimes, there are factors at the household level that limit clients’ or potential clients’ ability to use products and services. This is particularly true of women who may face opposition from their spouse to set up their own bank account or borrow. Women may also face time constraints from balancing their caregiving and income earning roles that limit their participation in certain products.

Financial stress can also place constraints on women’s time and mobility. The COVID-19 pandemic placed stress on households in several ways from closing off sources of income to limiting mobility to health crises. Providers should investigate these possible constraints and stresses in their client surveys and include this lens in their analysis.

Scoring guidance

Score ’yes’ if the provider:
1. includes questions in client interviews and surveys about factors in the household context that may affect product usage and
2. use this information to review its products/services and their distribution channels.
Score ’partially’ if the provider includes questions in client interviews and surveys about factors in the household context that may affect product usage, but does not use this information to review its products/services and their distribution channels .
Score ‘no’ if the provider includes questions in client interviews and surveys about factors in the household context that may affect product usage.

Sources of information

Interview with marketing / product development
Interview with operations
Interview with field staff
Client interviews and survey methodology, questionnaires and reports on the findings

Resources for indicator 3.A.3.3

Standard 3.B The provider’s products, services, and channels benefit clients.

Collecting client feedback and data on client outcomes should serve the purpose of offering suitable and client-centric products and services through appropriate channels that create client benefits. Standard 3B focuses on using client data (market research, client transactional and usage data, client satisfaction, complaints and exit surveys, and outcomes) to make decisions regarding the design and improvement of products and services to benefit clients.

This standard has 5 essential practices:

Essential Practice 3.B.1: The provider uses insights from client data to design products, services, and delivery channels.
Essential Practice 3.B.2 The provider removes barriers that prevent access to financial products and services.
Essential Practice 3.B.3: The provider's products, services, and channels protect clients from harm.
Essential Practice 3.B.4: The provider's products and services help clients reduce their vulnerability to shock and smooth consumption.
Essential Practice 3.B.5: The provider's products and services help clients achieve their goals.

Resources for Standard 3B

3.B.1 The provider uses insights from client data to design products, services, and delivery channels.

As discussed in the guidance for Standard 3A, providers should base product/ service/distribution channel decisions on market and client research. The example below demonstrates a distribution channel decision that was based on data collected through client surveys and MIS analysis.

Delivery Channel Choice based on Client Needs: An Example

Segmented client data show:

Clients living in the east? live within 2 km of their local branch office, and clients in the west? live within 10 km.
Clients in the west spend three times more on transportation to branches than clients in the east.
Over 85% of clients living in both the east and west own mobile phones.
Clients in both regions prefer the convenience of mobile banking.

Distribution channel decision based on client needs:

The provider decides to pilot mobile banking, as a majority of its clients has expressed demand for it. It begins with five branches located in the west, as these clients live further from their local branch offices and spend more money on transportation to the branches.

Koperasi Mitra Dhuafa (KOMIDA) in Indonesia offers us another example of how an organization can turn client survey data into actionable insights that inform product innovation. Many other factors are key, like technological opportunities and business models (incl. potential partnerships with Mobile Network Operators - MNOs), relative size of investment for the FSP, regulation, level of digital literacy of clients, etc.

To complement or deepen their understanding of client needs and behaviors, some providers use the Human Centered Design (HCD) process to turn client insights into suitable and beneficial products, services and distribution channels. In addition to offering a suite of products and services designed to fit clients’ financial lives, it is essential that the employees understand product suitability by being trained in how to match clients with the right products/services. A provider can have perfectly designed products, but in order for clients to benefit from them, staff must be able to assist clients in choosing the appropriate products and options.

Field Examples/Implementation Guidance:

3.B.1.1 The provider designs new products, services (financial and non-financial), and delivery channels using insights from market and pilot studies, client feedback, and client outcomes data.

Clients are the best source of information - gathered through market research, satisfaction surveys, client focus group discussions, complaints and any other client feedback system - to design client-centric products/services and their distribution channels.

Scoring guidance

Score ’yes’ if the provider designs new products, services and distribution channels based systematically on representative client feedback gathered through different client feedback systems, like market and pilot studies, client satisfaction, client outcomes, complaints, etc.
Score ’partially’ if the provider designs new products, services and distribution channels which is not based systematically on representative client feedback. It may use pre-product-launch information (market research, pilot studies) or post-product-launch (client satisfaction surveys, outcomes data) or informal client feedback only.
Score ‘no’ if the provider designs new products, services and their distribution channels without guidance from representative client feedback.

Sources of information

Product term sheets
Interviews with marketing/ product development
Interviews with operations
Interview with customer service
Product development policy/manual (if the organization has one)
Product suitability policy (if the organization has one)

Evidence to provide

Show how the management uses results of client feedback to improve products/services and their distribution channels.
Show how measures are discussed, implemented, and monitored, and records of these actions exist. The provider should evaluate the clients' ability to interact effectively with the technologies it uses to provide services and information.
Provide one or more specific examples of how client and market data has been used to inform product or service design.

Resources for indicator 3.B.1.1

Komida Uses Data-Driven Product Design

3.B.1.2 The provider modifies its existing products and services in response to clients’ needs, feedback, and outcomes.

As for new product design, clients are your best source of information to understand any failures or unsuitable features in your product.

Scoring guidance

Score ‘yes’ if the provider:
1. is modifying existing products/services and their distribution channels based systematically on representative client feedback gathered through different client feedback systems, like market and pilot studies, client satisfaction, client outcomes, complaints, etc. and
2. at least one concrete and documented example exists.
Score ‘partially’ if the provider is modifying existing products, services and their distribution channels which is not based systematically on representative client feedback. It may use not-representative and informal client feedback only.
Score ‘no’ if the provider is modifying existing products, services and their distribution channels without guidance from representative client feedback.

Sources of information

Product fact sheets
Interviews with marketing/ product development
Interviews with operations
Interview with customer service

Evidence to provide

Provide one or more specific examples of how client feedback has been used to modify a product or a service or its corresponding distribution channel.

Resources for indicator 3.B.1.2

3.B.1.3 The provider dedicates resources (funds and employee time) for ongoing development and improvement of products, services, and delivery channels.

The implementation of active client-focused product development and improvement requires involvement of staff and resources. This is a strategic decision that should be made in the planning and budgeting process and reflected by a dedicated unit (e.g. product development, market & client research) in the organizational chart.

Scoring guidance

Score ‘yes’ if the provider has institutionalized market and client research for the design and improvement of products/services and their distribution channels in terms of dedicated:
1. staff time (as reflected in job descriptions) and
2. an annual budget line for market research, client satisfaction surveys and other client feedback mechanisms.
Score ‘partially’ if dedicated staff is charged with market and client research for the design and improvement of products/services and their distribution channels, but there is no dedicated budget line for market research, client satisfaction surveys and other client feedback mechanisms. Score also ‘partially’, if dedicated staff financial resources are only available occasionally for market and client research and not on an ongoing basis.
Score ‘no’ if the provider has not institutionalized market and client research for the design and improvement of products/services and their distribution channels in terms of dedicated staff time and a budget line.

Sources of information

Budget or financial plan (detailed)
Interview with CEO / financial director
Interview with marketing / product development
Organizational chart/ job descriptions

Evidence to provide

Specify what is currently implemented (in terms of process and organization) and whether there is a specific budget allocated.

3.B.2 The provider removes barriers that prevent access to financial products and services.

Product Suitability and Features

Product suitability is one of the most important ways to protect clients’ interests and assist them to make economic progress. Unsuitable products and delivery channels create barriers that prevent access.

Barriers to access are factors that prevent target clients from using products and services. In addition to understanding how current clients and former clients use products and services, the provider should identify why non-clients from your target group do not use products and services.

Examples of such barriers include product features that do not match client income flows, distribution channels that are not convenient or affordable for clients, product terms that are too complicated for target clients to understand, and collateral or fee requirements that are set too high. Barriers can also include clients’ own behaviors, such as an over-focus on short-term needs, leading to reluctance to save or purchase insurance.

In addition to the products features, products/services should consider the financial capability of target clients, as this has significant implications for product design. Financial capability refers to a client’s capacity to act in his/her own financial best interest and to select and access financial services that suit his/her needs. Financial capability is based on a client’s literacy, attitudes, skills and consumer behavior. It is important to understand the target clients’ financial capability and how it affects their use of financial services.

The following are examples of how a client’s financial capability influences product uptake and access:

For group-based financial products, poorer people are often excluded by group members who believe them to be less reliable and trustworthy, or poorer people may self-exclude based on negative self-perception.
Many clients do not want to use distribution channels that allow family members to see or access their savings.
Some clients are more likely to save if they have set a savings goal, even if it is non-binding.
A client might refuse insurance because a premium expenditure is a certain and near-term expense, while the claim benefit is uncertain and distant.

Field Examples/Implementation Guidance

3.B.2.1 The provider offers loan sizes and loan terms that are suited to the client's economic profile, cash flow, and business type.

To address the challenges of financial inclusion, products should minimize barriers to entry by allowing for small amounts, loan collateral guarantees adapted to the assets of economically excluded populations, repayment schedules aligned with the target clients’ cash-flow (combined for the household and the business activities), and accessible distribution channels (e.g., credit/debit cards, mobile banking, points of service, agents), soft guarantees for MSME, etc.

Scoring guidance

Score ‘yes’ If a wide range of different loan terms (like size, tenor, repayment schedule, repayment modes, grace period, type and scope of collateral requirements, pre-payment conditions, etc.) for each loan product leads to loans tailor-made to the specific needs of each borrower and her/his household. This requires qualified credit staff in carrying out proper cash-flow analyses so as to advise each loan applicant on her/his most optimal loan terms.
Score ’partially’ if loans fit only partially the specific needs of each borrower and her/his household because of limited choices of loan terms available and/or credit staff have limited capacity in cash-flow analyses.
Score ‘no’ if the provider offers standardized loan products with no or little different loan terms to adjust to the specific needs of each borrower and her/his household or if credit staff do not carry out proper cash-flow analyses.
Verify consistency with 3B32 on collateral requirements and 3B31 on repayment schedule.

Sources of information

Strategy/business plan
Product policy and operational manuals
Product fact sheets and descriptions
Interviews with operations manager
Interviews with marketing/ product development
Interview with CEO
Client interviews, incl. focus groups (optional)

Evidence to provide

Specify how loan products are designed to promote financial inclusion. For example, are loan sizes small enough to be accessible to low-income clients if irregular cash flow? Are guarantee requirements for MSMEs soft enough to include informal MSMEs? Do repayment schedules make sense given the cash flows of rice farmers? Are there efforts to adapt distribution channels to meet specificities of the target client segments?

Field examples / Guidance for implementation 

The following product/service features should match the needs of target clients:

Size: Maximum and minimum loan sizes and savings requirements should match target clients’ income, business type, savings habits, etc.
Loan terms, repayment schedules and savings withdrawal conditions: Loan terms and repayment schedules should match the cash flows of target clients, and savings withdrawal conditions should be designed to provide target clients with maximum access to their savings when they need it. Association Base Fandima in Burkina Faso provides an example of how it completely redesigned the terms of its group lending product to reach its target clients.
Price: Prices should be affordable to clients. Guidance for standard 6B discusses setting prices that are affordable to clients.
Guarantee/collateral requirements: Collateral requirements should match target clients’ access to physical collateral and/or guarantors. VisionFund Uganda provides a useful example of revision to product terms and collateral.
Product use requirements: Requirements for product use should be consistent with target clients’ needs and livelihood activities.

To ensure financial inclusion, some questions can be checked with clients:

Did your last loan meet the needs for your last business activity? If not, why not?
What about the loan duration and size of the loan? Did it satisfy your needs? Why or why not?
Are you able to save on a regular basis? If not, what is limiting your options given the characteristics of our savings products?

Resources for indicator 3.B.2.1

3.B.2.2 The provider offers delivery channels that reduce barriers to access for clients.

3.B.2.2.1 The provider offers clients multiple delivery channels.

3.B.2.2.2 The provider uses technologies that are appropriate to the digital literacy of the target segments.

Barriers to access can be cultural, religious, and/or socio-economic, such as: language, distance from the provider’s service points, client transaction costs to visit the provider’s next service point, movement radius of women due to religious, caretaking, and security reasons, gender composition of the provider’s field staff, literacy requirements, technology skills or device requirements, etc. Proposing multiple distribution channels and ensuring adaptation to limited digital literacy can help in reaching excluded populations.

Important is to minimize client transaction costs in applying for, and using products and services in terms of transportation costs to and from the next service point, the number of visits required, the convenience of the timing and average time spent for these visits, and the total time spent to apply for a given product/service and to transact. This is best fulfilled, if the next service point is within 2 km of the clients’ residence with minimum visits required as most transactions and information exchanges are digitalized.

Scoring guidance

Detail 3.B.2.2.1:

Score ‘yes’ if the provider is offering several distribution channels for all main products that are adapted to the different client segments by requiring low client transaction costs.
Score ‘partially’ if the provider is offering only few distribution channels that are not well adapted to the different client segments with little consideration given to client transaction costs. For instance, digital loan repayments are offered via one partner bank, but most clients do not have an account with this partner bank and branches of this bank are far from the clients.
Score ‘no’ if the provider is not offering borrowers to repay their loans and/or make deposits via at least one digital channel and/or does not have service points within 2 km of the clients’ residences.

Detail 3.B.2.2.2:

Score ‘yes’ if the provider is regularly monitoring and ensuring that all its target clients (incl. clients with low literacy levels and of higher age brackets) are using effectively its digital distribution channels by offering them hands-on staff counseling and digital literacy trainings, as required.
Score ‘partially’ if the provider is monitoring only occasionally whether all its target clients are using effectively its digital distribution channels and/or does not provide effective client training in digital literacy.
Score ’no’ if the provider does not monitor whether all its target clients are using effectively its digital distribution channels and/or does not offer any client training in digital literacy.

Sources of information

Observations in at least two branches, incl. a rural branch or service point
Interview with operations
Interview with customer service / marketing
Client interviews

Evidence to provide

Describe the distribution channels and how they are adapted to the target clients. Calculation of the client transaction costs for applying and transacting for the main products/services.

Field examples / Guidance for implementation 

Distribution channels should be affordable, convenient, and reliable for all target client segments (e.g., mobile banking, smart cards/prepaid cards, points of sale, ATMs, or agents for remote areas if necessary). They should be adapted to overcome cultural, religious, and/or socio-economic barriers such as language, literacy levels, gender roles, etc. Fundación Genesis Empresarial provides an example of delivery channel innovation and adaptation to reduce barriers for its clients.

3.B.2.3 If the provider offers savings, it sets minimum requirements and withdrawal conditions that are compatible with the cash flows of the target segments

Clients may find it difficult to access saving products that have high or strict requirements in terms of initial deposit, maintaining a minimum balance, account management fees, withdrawal fees, or other conditions limiting withdrawals.

Scoring guidance

Score ‘NA (not applicable)’ if the provider does not offer savings, current or deposit accounts regardless whether or not the provider has regulatory approval to offer such accounts.
Score ‘yes’ if there are no limiting conditions on minimum balance, minimum transaction size, various fees, withdrawal conditions and so forth. This would apply in the case of:
1. a minimum account balance of 1 USD equivalent,
2. no minimum transaction size,
3. no fees for transactions, account balance queries, and payment receipts,
4. no withdrawal restrictions (except higher deposit interest rates forgone for term deposits), and
5. a maximum account opening and closure fee of 1 USD equivalent.
Score ‘partially’ if there are some limiting conditions on minimum balance, minimum transaction size, various fees, withdrawal conditions and so forth. For instance, there are minimum account balances of 2 or more USD equivalent or minimum transaction sizes or any fees for transactions, account balance queries, and payment receipts or withdrawals restricted to one per month.
Score ‘no’ if there are strongly limiting conditions on minimum balance, minimum transaction size, various fees, withdrawal conditions and so forth.

Sources of information

Deposit fact sheets, saving product description / brochure / marketing material

Evidence to provide

Refer to the product factsheets and product brochures setting the product terms and conditions and describe them briefly. Analyze whether and how they pose a barrier for the target clients.

3.B.3 The provider's products, services, and channels protect clients from harm.

Providers should take care to ensure that their products, services and distribution channels protect clients from harm. Some of the key areas to review to ensure they are aligned with best practices for client protection include:

Repayment schedules
Collateral and guarantor requirements
Currency risk
Social risks
Voluntary insurance
Monitoring of agent networks and digital channels

Repayment schedules

Repayment schedules should match the cash flows of target clients and their type of business. If repayment schedules are not aligned with the clients’ business cash flow and returns, the clients may be unable to pay on time, and suffer harm as a result of penalties, negative credit bureau reporting, and they may even fall into over-indebtedness. This does not only concern agricultural loans. Flexible repayment schedules are required for all clients to account for any kind of seasonality of income that may happen in any business or household.

Guarantee/collateral requirements:

A policy based on local norms should describe acceptable and unacceptable pledges of collateral and provide clear guidelines for how collateral is registered and valued. Such policy should not accept collateral items that would create severe hardship or affect the client’s earning ability or deprive the clients from essential needs. The collateral value should be based on a verifiable market price/resale value, verified by a manager or credit committee. The collateral value should not be excessive as regards to the loan amount. If clients have no asset to offer as collateral, alternative ways to guarantee their loans are required like guarantor, pledge on vehicle, etc.

Currency Risk

Managing foreign exchange (“FX”) rate risk is a complex task, but it is important to protect clients from FX risk to the extent possible. Currency mismatch occurs when the provider holds loan assets denominated in the local currency, but has hard currency debt financing on its balance sheet. In this scenario, providers may pass on currency risk by lending in hard currency to their customers or by indexing their lending interest rates to a given foreign exchange rate. However, because borrowers face higher than expected repayment amounts if the local currency is devalued and could suffer harm, providers should consider carefully other options to mitigate this risk before passing it on to clients.

The most direct way to protect clients from FX risk is to lend to them in local currency to the greatest extent possible. Protecting the provider against FX risk is also essential to safeguarding clients. If the provider borrows funds in hard currency, it develop closely monitor and assesses the FX exposure, supplemented by currency hedging without involving clients. The key ratio to monitor is the Foreign Exchange Risk (FER) Ratio, which calculates exposure to currency fluctuations using assets and liabilities, according to the following formula:
(Total Hard-currency Assets – Total Hard-currency Liabilities) / Total Net Assets

A higher ratio reflects a higher proportion of hard-currency assets relative to hard-currency liabilities, and therefore less vulnerability to currency fluctuations. The provider should set a target range for its FER ratio and then closely monitor its balance sheet to gauge its risk exposure. It can reduce FX risks by:

Maintaining a hard-currency deposit account (including setting a minimum hard-currency cash reserve threshold relative to hard-currency liabilities).
Borrowing in local instead of hard currency whenever possible, even if local rates are somewhat higher, including drawing on a local line of credit for short-term needs.
Engaging in “back-to-back borrowing,” in which the provider proceeds from a hard-currency loan into a hard currency account at a local bank, which then serves as collateral for a local currency loan.

If the provider passes the FX risk on to clients by lending in hard currency, it must inform clients of the risk using cost scenarios that help them understand how much more they will pay if the local currency is devalued. Friendship Bridge in Guatemala offers an example of how to manage FX risk responsibly while minimizing risks to clients.

Social Risks

Some types of client businesses (such as the production and sale of alcohol, the operation of nightclubs, etc.) carry high social risks for the community. Lending to these types of businesses requires additional due diligence to mitigate risk to the clients and their community. Social risks include child labor, forced labor, gender-based violence, etc. Depending on the provider’s portfolio breakdown by sector, social (and environmental risks) can be checked from IFC E&S risks by Industry sector.

Voluntary Insurance

Voluntary insurance are all insurance products that the provider do not take out as group policies that are bundled with loan or savings products. Voluntary insurance products tend to be rather expensive and thus offer little client value. As clients usually do not have the tools, data, or skills to assess the value of the insurance products, it is the provider’s responsibility to ensure that all insurance products offer client value. Details about how to assess the value of insurance can be found here.

Monitor Agents and Networks

While agent banking help reaching more clients and delivering new services, the provider gives up some control when using agents versus own staff. This phenomenon is heightened when using agents in conjunction with digital financial services. Many client are not only new to both formal finance and technology, they also live precarious financial lives that allow little room for error. The provider must monitor (typically by Internal Audit/internal control) and mitigate the following risks associated with agents and digital channels:

Inability to transact due to network downtime;
Insufficient agent liquidity or float, which also affects clients’ ability to transact;
Transaction mistakes that are difficult or impossible to correct;
Agent fraud that targets clients (e.g., charging clients extra fees);
Loss of client data privacy or security;
Insufficient recourse mechanisms available at the agent; and
Confusing user interfaces (e.g., mobile banking menus).

As agents and agent managers frequently underreport problems, the provider should collect client feedback on agents and networks as part of ongoing client satisfaction monitoring.

Solutions to agent/network problems will depend on thecapacity and the availability of cost-effective solutions. In some markets, for example, there is not an easy or low-cost fix for network downtime. A starting point for preventing problems is to make sure that agents are sufficiently trained in client-facing issues. Though the provider has no direct control over external agents who are managed by a third party, it is responsible for verifying that the third party trains their own representatives on at least the following topics:

Fair and responsible treatment of clients. The training is aligned with the provider’s Code of Conduct and spells out unacceptable behavior.
The provider’s debt collections practices and loan recovery procedures.
Not using aggressive sales techniques and to respect clients’ right to refuse products.
Loan analysis and the credit approval process.
How the complaints mechanism works, the role of complaints staff, how to appropriately manage complaints until they are resolved, and how to refer them to the appropriate person for investigation and resolution.
Policies and processes related to privacy of client data.

Resources for 3.B.3

3.B.3.1 The provider tailors repayment schedules to the client's cash flows and type of business.

Repayment schedules should match the cash flows of target clients and their activities to facilitate repayment. Credit products should be designed to require principal to be paid down regularly and or with flexible repayment schedules based on client cash flows. The only credit products that may not require principal to be paid regularly are loans with bullet payments (often agricultural loans associated with seasonality).

Scoring guidance

This indicator should be scored in line with 4.A.1.2.
Score ‘yes, if the provider tailors the loan repayment schedule based on a qualified cash flow analysis of the business and the household.
Score ‘partially’ if the provider determines the loan repayment schedule according to a limited cash flow analysis that does not capture all main household and business expenses and/or the seasonality of incomes.
Score ‘no’ if the loan repayment schedule is standardized without being determined by a minimum level of cash flow analysis.

Sources of information

Product factsheets and brochures
Interviews with marketing/ product development
Interviews with operations
Interviews with field staff
Interview with MIS department
Samples of repayment schedules for each loan product
Credit manual/loan approval process and loan evaluation forms

Evidence to provide

Check whether the provider tailors repayment schedules based on the cash flow analysis of the business and the households for all loan products and provide positive and negative loan case examples.

3.B.3.2 The provider's collateral and guarantor requirements do not create severe hardship for clients.

3.B.3.2.1 The provider has a list of assets that cannot be pledged as collateral, which includes items that would create severe hardship or significant loss of income earning ability for the client.

3.B.3.2.2 Collateral valuation is based on a verifiable market price/resale value. The credit committee or second level approval verifies the collateral valuation.

3.B.3.2.3 The minimum requirement for the value of collateral does not exceed two times the loan amount, and cash collateral does not exceed 20% of loan amount.

3.B.3.2.4 If the provider collects title documents, it returns them to the client once the loan is repaid.

Collateral requirements are part of product design. They should align with target clients’ access to physical collateral and/or guarantors. Collateral should not include items that would create severe hardship or deprive the client of the ability to earn income. “Soft” collateral reduces entry barriers for the low-income and excluded and can foster a relationship of trust between the provider and its clients.

Scoring guidance

Detail 3.B.3.2.1:

Score ‘yes’ if the provider is enforcing a formal policy in the form of a list of assets that cannot be pledged as collateral, including items that would create severe hardship (e.g. the residence of the borrower and her/his household members) or significant loss of income-earning capabilities (e.g. production equipment and machinery, livestock, etc.). Score also ‘yes’, if the provider does not pledge any physical assets as collateral.
Score ‘partially’ if the provider does not pledge certain assets as collateral that would create severe social and economic hardship for the borrower and her/his household members, but does not have a formal policy with a list of assets that cannot be pledged as collateral.
Score ‘no’ if the provider lacks an informal policy not to pledge certain assets as collateral that would create severe social and economic hardship for the borrower and her/his household members.
Score ‘N/A’ if the provider uses only group guarantee as collateral, and does not use physical collateral/assets or cash collateral.

Detail 3.B.3.2.2:

Score ‘yes’ if the collateral valuation is based on a verifiable market price/resale value which is verified by the credit committee or a second level approval. Score also ‘yes’, if the provider does not pledge any physical assets as collateral.
Score ‘partially’ if the collateral valuation is based on an estimated resale value, but not on a verifiable market price with little to no verification by the credit committee or a second level approval.
Score ‘no’ if the collateral valuation is based on the guesswork of the loan officer and the credit committee without reference to a verifiable market price/resale value.
Score ‘N/A’ if the provider uses only group guarantee as collateral, and does not use physical collateral/assets or cash collateral.

Detail 3.B.3.2.3:

Score ‘yes’ if:
1. the minimum value of collateral does not exceed 200% of the loan amount and
2. cash collateral does not exceed 20% of the loan amount.
Score ‘partially’ if one of the two above conditions are not fulfilled.
Score ‘no’ if both of the two above conditions are not fulfilled.
Score ‘N/A’ if the provider uses only group guarantee as collateral, and does not use physical collateral/assets or cash collateral.

Detail 3.B.3.2.4:

Score ‘yes’ if the provider returns all collected title documents to the client right away upon loan repayment. Score also ‘yes’, if the provider does not pledge any physical assets as collateral
Score ‘partially’ if the provider does not return all collected title documents to the client right away upon loan repayment.
Score ‘no’ if the provider does not return all collected title documents to the client upon loan repayment.
Score ‘N/A’ if the provider uses only group guarantee as collateral, and does not use physical collateral/assets or cash collateral.

Sources of information

Product factsheets and brochures
Credit Policy and Operation manual(s)
Interviews with operations
Interviews with loan officers
Interviews with legal department
Client interviews, incl. focus groups (optional)

Evidence to provide

Verify whether a list of assets as formal collateral policy or an informal understanding of what types of assets not to pledge exists. Discuss with loan officers how collateral valuation is done.
Specify where collateral requirements are defined. Briefly describe the collateral valuation process.

Field Examples/Implementation Guidance

If conducting client focus groups or interviews some questions to explore: Do you know anyone who has had difficulties repaying the loan? What has happened? Do you think this is fair?

Examples:

Assets that deprive borrowers of their basic survival capacity: goods that are necessary for day-to-day living, such as clothing, housewares required to feed a household; telephone; bed; radiators.

Land titles are generally not appropriate collateral for small loans and are an example of over-collateralizing a loan at great risk to the client. However, in some contexts, this is allowed by law and therefore the law prevails. In these cases, auditors can highlight the risk and suggest that the provider seeks out more appropriate forms of collateral.

Guarantor requirements can also create hardship. If only salaried individuals or landowners may be guarantors, often there are very few of those in a given community. This gives those individuals a lot of power over clients seeking loans, especially women.

3.B.3.3 The provider accepts alternative forms of collateral from clients whose gender or age creates barriers to access in the local context.

Alternative forms of collateral may be using a guarantor or pledging a vehicle or any other asset that are taking into account the specific barriers of target groups such as women or young people.

Scoring guidance

Score ’yes’ if the provider is using alternative forms of collateral for women, young, etc. to remove their specific barriers to access loans or not taking any guarantee or collateral.
Score ’partially’ if the provider is using collateral that is removing only partially the specific barriers of women, youth, etc. to access loans.
Score ‘no’ if the provider is using collateral with no consideration given to remove any specific barrier of women, youth, etc. to access loans.

Sources of information

Product factsheets and brochures
Credit Policy & Operational manual
Interviews with operations
Interviews with loan officers
Interviews with legal department
Client interviews, incl. focus groups (optional)

Evidence to provide

Identify whether there are specific client segments like women and youth that could be constrained by the collateral requirements in accessing loans. Explain whether and how the types of collateral that the provider requires are an alternative that does not create a barrier to access for women, young, etc.

3.B.3.4 If the provider lends in hard currency, it informs clients of the foreign exchange risk using cost scenarios. The provider can also justify the decision not to lend in local currency.

Foreign currency loans increase client risk due to devaluation risk. If the provider has access to local currency funding and the borrower’s operations are only in local currency, then loans should be in local currency. If the clients’ activities are linked to foreign currencies (exports of merchandise, for example), then foreign currency loans can make sense. In this case, the provider should make sure the borrower knows the risk, and repayment capacity analysis should take into account devaluation risk.

Scoring guidance

Score ‘N/A if the provider offers loans in local currency only even it is may borrow in foreign currency.
Score ‘yes’ if the provider
1. offers foreign currency loans only to borrowers who generate a significant part of their income in the same foreign currency (as they are exporting goods and/or services) and
2. explains these borrowers the foreign exchange risk using cost scenarios.
Score ‘partially’ if the provider only meets one of the above two conditions fully.
Score ‘no’ if the provider does not meet both of the above two conditions.

Sources of information

Credit manual
Product factsheets and brochures
Interviews with operations manager
Interviews with financial manager
Client interviews, incl. focus groups (optional)

Evidence to provide

For loans denominated in a foreign currency different from the main currency of the client source of income, demonstrate that the provider clearly explains pricing and cost scenarios to the clients, including a pessimistic scenario.

Please indicate the share of the portfolio in foreign currencies and how foreign exchange risk is addressed/ explained to clients.

Field examples / Guidance for implementation 

Examples of questions for clients:

If conducting Focus group, these are the type of questions that can be checked:
Do you receive loans in hard currency?
What is the currency used for your business (local or same hard currency)?
Did the provider explain how devaluation or valuation of the currency can affect your repayment?

Resources for indicator 3.B.3.4

Friendship Bridge Manages Foreign Exchange Risk

3.B.3.5 If the client business is related to sectors known to have high social risks, the provider conducts additional due diligence to mitigate risk.

The social risks associated with providers can remain low partly due to the limited size of the operation and the industry sector. However, in some cases clients may be involved with handling dangerous substances such as pesticides that can pose health or environmental risks or working in sectors subject to health risks or child / forced labor. Additional due diligence involves the identification, quantification and assessment of social risks associated with some sectors.

Scoring guidance

Score ’yes’ if the provider:
1. is conducting due diligences for high social risks sectors to identify risk mitigation measures and
2. incentivizing clients from high social risks sectors to apply such risk mitigation measures and monitoring them if and how they apply these measures.
Score ’partially’ if the provider is incentivizing clients from high social risks sectors to apply some risk mitigation measures, but not on a formal, systematic and regular basis or without monitoring the clients if and how they apply these measures.
Score ‘no’ if the provider is lending to clients from high social risks sectors, but is not incentivizing them to apply any risk mitigation measure.
Score ‘N/A’ if the providing is not lending to any high social risks sector.

Sources of information

Classification of risks for the provider’s portfolio
Credit Policy & Operational manual(s)
Interviews with operations, with loan officers

Evidence to provide

Show how the provider is identifying high social risks sectors and corresponding risk mitigation measures and how the provider is incentivizing its clients in applying risk mitigation measures. Search for any such formal policy, if available, and present selected case examples to demonstrate the related practice of the provider.

Field examples / Guidance for implementation 

The provider can refer to guidance by sector proposed

by FMO: Social and Environmental Management guidance – Part B- Field guide also available in French
by IFC: factsheets of E&S risk by Industry sector, also available in French.

To understand child labor, forced labor and human trafficking risk, you can download the Sweat and Toil app for your phone or read the reports here. The app summarizes data found in 3 reports that are updated annually (as they are due to US Congress): Data and research in this app are taken from ILAB's three flagship reports: Findings on the Worst Forms of Child Labor; List of Goods Produced by Child Labor or Forced Labor; and List of Products Produced by Forced or Indentured Child Labor.

Resources for indicator 3.B.3.5

3.B.3.6 If the provider offers voluntary insurance, it assesses the value of insurance products to clients.

3.B.3.6.1 The provider analyzes data on product use: product uptake, claims ratio, renewal rate, and coverage ratio.

3.B.3.6.2 The provider analyzes data on how it processes claims: claims rejection ratio, average time for claim's resolution, reasons for rejection of claims, reasons for lapses in coverage.

3.B.3.6.3 The provider analyzes data on client experience with insurance: demographics of those covered, complaints, client satisfaction.

3.B.3.6.4 If the claims ratio for life insurance is below 60%, the provider asks the insurance provider to justify the reason.

Scoring guidance

Detail 3.B.3.6.1:

Score ‘N/A’ if the provider does not facilitate/offer any voluntary insurance product regardless whether the provider is offering compulsory group insurance cover to selected client segments (like credit life plus for all borrowers with loan amounts up to a certain amount).
Score ‘yes’ if the provider:
1. is analyzing regularly (at least annually) the client value of each voluntary insurance product facilitated/offered by calculating the following insurance performance indicators: product update, claims ratio, renewable rate, and coverage ratio and
2. is negotiating with the underwriter for better terms when the client value is below an acceptable level.
Score ‘partially’ if the provider is not meeting fully the two above-mentioned conditions. For instance, the provider is calculating just some insurance performance indicators and not regularly and/or does not negotiate with the underwriter for better terms when the client value is below an acceptable level.
Score ‘no’ if the provider does not meet both of the two above-mentioned conditions.

Detail 3.B.3.6.2:

Score ‘N/A’ if the provider does not facilitate/offer any voluntary insurance product regardless whether the provider is offering compulsory group insurance cover to selected client segments.
Score ‘yes’ if the provider:
1. is analyzing regularly (at least annually) the client value of each voluntary insurance product facilitated/offered by evaluating the claims process in terms of: claims rejection ratio, claims rejection ratio, average time for claim’ resolution, reasons for rejection of claims, and reasons for lapses in coverage and
2. is negotiating with the underwriter for a more client-centric claims process when client value is below an acceptable level.
Score ‘partially’ if the provider is not meeting fully the two above-mentioned conditions. For instance, the provider is evaluating the claims process only partially and not regularly and/or does not negotiate with the underwriter for a more client-centric claims process if client value is below an acceptable level.
Score ‘no’ if the provider does not meet both of the two above-mentioned conditions.

Detail 3.B.3.6.3:

Score ‘N/A’ if the provider does not facilitate/offer any voluntary insurance product regardless whether the provider is offering compulsory group insurance cover to selected client segments.
Score ‘yes’ if the provider:
1. is analyzing regularly (at least annually) the client value of each voluntary insurance product facilitated/offered through systematic client segmented feedback on a representative level and
2. is negotiating with the underwriter for improving product terms and conditions based on the client feedback.
Score ‘partially’ if the provider is not meeting fully the two above-mentioned conditions. For instance, the provider is not analyzing client value systematically through client segmented feedback and not regularly and/or does not negotiate with the underwriter for improving product terms and conditions based on the client feedback.
Score ‘no’ if the provider does not meet both of the two above-mentioned conditions.

Detail 3.B.3.6.4:

Score ‘N/A’ if the provider does not facilitate/offer any voluntary insurance product regardless whether the provider is offering compulsory group insurance cover to selected client segments.
Score ‘yes’ if the provider:
1. is monitoring annually the claim ratios of each life insurance product and
2. is negotiating with the underwriter for lower life insurance premiums when the claims ratio is below 60%.
Score ‘partially’ if the provider is not meeting fully the two above-mentioned conditions. For instance, the provider is not monitoring the claim ratios of all life insurance products and not regularly and/or does not negotiate with the underwriter for lower life insurance premiums when the claims ratio is below 60%.
Score ‘no’ if the provider does not meet both of the two above-mentioned conditions.

Sources of information

Interview with the department in charge of the insurance products, and, if possible, with the project manager of the underwriter
Insurance monitoring reports
Interview with clients on their insurance experience

Field examples / Guidance for implementation

Definitions:

Voluntary insurance are all insurance products that the provider’s clients can freely select. The provider usually facilitates the update of such products through a partnership with an underwriter (often via an agent partnership agreement or just be referral depending on the respective micro-insurance regulation).
Life insurance is where the insurer promises to pay a sum of money to a pre-determined beneficiary when the insured person dies or after a pre-determined period. Because this indicator is about “voluntary insurance” you are not assessing here a compulsory credit life insurance, bundled with the loan, that would cover the outstanding loan amount in case of the death of the borrower.
Claims ratio is the total amount of claims paid out by the insurer divided by the total amount of premium paid to the insurer. This ratio means that the insurer should be paying out benefits of at least 60% of what it earned from the insurance product, as a whole. If not, it means that the premium price should be lowered to maintain an acceptable client value.

Resources for indicator 3.B.3.6

Microfund for Women (Jordan) Insurance Products

3.B.3.7 If the provider uses agents, it monitors agent liquidity and whether agents respect client protection practices and has mechanisms to address problems as needed.

There are many different types of agents. The main distinction is whether they are working exclusively for the provider (e.g. local people supporting branch staff in serving clients in their own communities on a commission basis like receiving a monthly percentage of the loan interest paid by the borrowers in the local community concerned) or as independent agents for other providers as well (e.g. individual service providers or licensed mobile money providers). Many agents offer cash-in and cash-out services to the clients of the provider, but there are also agents who just collect loan repayments for the branch staff or do not handle cash at all. The provider needs to monitor agent liquidity (i.e. whether clients are able to access funds at all times) only for its agents with cash-out functions. The provider must monitor compliance of all agents with its own client protection practices which is easier with exclusive agents compared to independent agents.

Scoring guidance

Score ‘N/A’ if the provider does not use any type of agents.
Score “yes” if the provider:
1. is monitoring regularly (at least annually) that all its agents are complying with its own client protection practices, incl. easy access to a client complaints mechanism, and
2. is addressing problems as needed.

In the case that the provider has agents with cash-out functions, it:

1. is monitoring agent liquidity regularly (at least monthly on a sample basis) to ensure sufficient liquidity at all times for its clients, and
2. is addressing problems as needed.

Score ‘partially’ if the provider does not comply fully with one of the two above-mentioned conditions to ensure that all agents comply with its client protection practices, but complies fully with both conditions related to the agents with cash-out function or vice versa.
Score ‘no’ if the provider does not meet both of the two above-mentioned conditions for monitoring the compliance of all agents with its client protection practices even if it monitors agent liquidity.

3.B.3.8 If the provider uses digital channels, it monitors whether the following problems occur and has mechanisms to address problems as needed:

3.B.3.8.1 Transaction errors such as transaction that are not completed or are incorrectly completed; funds transferred to an incorrect account; funds sent to a receiver who was not able to cash out the funds within a certain period of time

3.B.3.8.2 System malfunctions such as extended outage, scheduled downtime, or processing delays

Digital channels are all channels that rely on technology to deliver a service. For instance, payment cards, money transfers, digital loans, online banking websites or apps etc…

Sources of information

Detail 3.B.3.8.1:

Score ‘N/A’ if the provider does not offer digital distribution channels to its clients.
Score ‘yes’ if the provider
1. is monitoring constantly the well-functioning of all transactions via its digital distribution channels and
2. has mechanisms in place to address transaction errors swiftly (like not or incorrectly completed transactions, funds sent to a receiver who could not cash out the funds within a given time, etc.).
Score ‘partially’ if the provider is not meeting fully the two above-mentioned conditions. For instance, the provider is not monitoring timely transaction errors and/or does not detect all types of transaction errors or cannot address all transaction errors swiftly.
Score ‘no’ if the provider does not meet both of the two above-mentioned conditions.

Detail 3.B.3.8.2:

Score ‘N/A’ if the provider does not offer digital distribution channels to its clients.
Score ‘yes’ if the provider
1. is monitoring constantly the well-functioning of the system of its digital distribution channels and
2. has mechanisms in place to address system malfunctions (like extended outage, scheduled downtime or processing delays).

Score ‘partially’ if the provider is not meeting fully the two above-mentioned conditions. For instance, the provider has no effective mechanisms in place to address extended outages.
Score ‘no’ if the provider does not meet both of the two above-mentioned conditions.

Sources of information

Interview with operations
Interview with IT department
Interview with clients who are using digital distribution channels

3.B.4 The provider's products and services help clients reduce their vulnerability to shock and smooth consumption.

Reducing Client Risks

Clients need a diverse and flexible set of products/services to reduce risks and cope with emergencies. The provider may offer some products and services like insurance, mobile money transfer, and non-financial services indirectly through partners. Example of products/services which help clients to reduce risks and cope with emergencies include:

Loans to cope with emergencies and reduce risks, including, but not limited to emergency loans;
Rescheduling or restructuring of loans, when appropriate;
Savings to cope with emergencies and reduce risks, including products that allow clients to withdraw money rapidly and without complicated procedures;
Insurance, including, but not limited to coverage for credit-life, life, health, assets (e.g., home), and agriculture;
Payments/remittances services that allow clients to quickly receive funds from other people when needed;
Training services to strengthen clients’ capacities to prevent risks (e.g., health education), or to strengthen their capacities to cope with risks (e.g. women’s empowerment, or business skills);
Funds or reserves earmarked in case of natural disasters, such as an emergency fund against which clients can borrow at zero interest; and
Group risk transfer coverage for all clients against natural disasters and for all farmers against input losses through drought and flood. Group policy covers of the provider may be feasible and affordable if a substantive number of clients are covered (e.g. by insuring its agricultural loan portfolio against adverse weather events). Another option for the provider is to help clients linking to partly or fully subsidized national agricultural insurance and/or social protection programs.

Resources for 3.B.4

3.B.4.1 The provider offers products and services for basic needs, such as housing, energy, and education.

Providers should support clients and their household members in getting access to basic needs to ensure the minimum required quality of their living standards.

Scoring Guidance

Score ’yes’ either if the provider
1. offers several targeted, specially designed products and services to help clients in meeting their basic needs (such as housing, energy, health, and education) or
2. demonstrates that its products and services are flexible enough to meet clients’ basic needs.
Score ‘partially’ if the provider does not meet fully both above-mentioned conditions. For instance, it may offer just one specially designed product/service to help clients in meeting their basic needs or its existing products/services have limited flexibility for clients to meet their basic needs.
Score ’no’ if the provider does not meet both above-mentioned conditions. The provider does not offer a single product/service that helps clients meeting their basic needs and the existing products/services are too inflexible and their use too restrictive to help clients in meeting their basic needs.

Source of information

Product factsheets and brochures
Client interviews

Evidence to provide

Product manuals and marketing materials should include products and product terms that allow clients to meet basic needs.
The general loan or savings account products should not have use restrictions and have flexible enough terms that clients can use them to meet their basic needs.

3.B.4.2 The provider offers products and services that help clients maintain stable levels of expenditure despite income fluctuation or emergencies. Select all that apply:

3.B.4.2.1 Emergency loans

3.B.4.2.2 Savings with an easy withdrawal process

3.B.4.2.3 Voluntary insurance

3.B.4.2.4 Non-financial services

Reducing vulnerability calls for financial and non-financial services that allow clients to cope with risks and emergencies. Understanding clients’ situations through market research makes it possible to design products that allow clients to manage risks and cope with emergencies.

The insurance claims process should not put an undue burden on the client to follow up and inquire about the claims progress, resubmit the paperwork, or travel in person to request or provide information. Clients have preferably more than one channel for submitting or following up on a claim.

Scoring guidance

Detail 3.B.4.2.1:

Score ‘yes’ if the provider offers an emergency loan product at free or concessional interest rate to all clients who suffer from different types of an emergency, incl. an unexpected loss of income.
Score ‘partially’ if the provider offers an emergency loan product to some client segments only and to a specific type of an emergency only (e.g. a health emergency).
Score ‘no’ if the provider does not offer any emergency loan product.

Detail 3.B.4.2.2:

Score ‘N/A’ if the provider does not offer any deposit/savings services regardless whether or not it has regulatory approval to offer deposit/savings services.
Score ‘yes’ if the provider offers deposit/savings services with an easy and very fast unconditional withdrawal process.
Score ‘partially’ if the provider allows clients to withdraw their savings easier and faster in the case of an emergency.
Score ‘no’ if the provider does not offer deposit/savings services with an easy and fast withdrawal process in the case of an emergency.

Detail 3.B.4.2.3:

Score ‘N/A’ if the provider does not facilitate/offer any voluntary insurance products regardless whether the provider is offering compulsory group insurance cover to selected client segments.
Score ‘yes’ if the provider facilitates/offers one or more voluntary insurance products of high client value that helps clients to better cope with emergencies, such as an affordable hospital cash insurance or voluntary top-ups of group life insurance covers to cover the spouse additionally.
Score ‘partially’ if the provider facilitates/offers one or more voluntary insurance products of medium client value that do help clients to cope slightly better with emergencies.
Score ‘no’ if the provider facilitates/offers one or more voluntary insurance products of very low client value that do not help clients to better cope with emergencies. For instance, they carry many exclusions, come with cumbersome claims procedures or are not affordable for the clients.

Detail 3.B.4.2.4:

Score ‘yes’ if the provider offers several client-centric non-financial services (directly or indirectly via partnerships) that help clients to better cope with emergencies or help prevent them, like health diagnostic checks, training in preventive health, training in financial literacy and business management, etc.
Score ‘partially’ if the provider offers at least one non-financial service (directly or indirectly via partnerships) that helps clients to better cope with emergencies or help prevent them.
Score ‘no’ if the provider does not offer any non-financial service that helps clients to better cope with emergencies or help prevent them.

Sources of information

Credit Policy & Operational manual(s)
Other Product Policy & Operational manual(s) for deposit and insurance products
Client satisfaction surveys
Market research reports
Interviews with operations manager
Interviews with marketing/ product development manager
Client interviews, incl. focus groups (optional)

Evidence to provide

Savings must be voluntary and withdrawals easily accessible.
Emergency loans may be labelled as such, or may be “regular” loans that can be given over a short term (less than 3 months), a very fast turnaround time, and that do not require a specific purpose, to allow clients to quickly address unforeseeable circumstances.
Types of voluntary insurance include: credit life, life, home owners’, agriculture, health, workplace, etc.

Resources for indicator 3.B.4.2

3.B.5 The provider's products and services help clients achieve their goals.

Products and Services That Help Clients Achieve Their Goals

Providers should consider how products and services create benefits for clients, including the ability to invest in economic opportunities and address anticipated household needs at each life cycle stage. These products can include:

Business loans, such as start-up business capital, working capital, lines of credit, and alternative forms of collateral to facilitate productive loans (e.g., leasing machinery for a business);
Loans for specific life cycle events such as weddings, funerals, education, and home improvements;
Savings products that address life cycle needs such as youth savings, educational savings, housing savings, wedding savings, funeral savings, and pension savings;
Education savings plan to finance the future education of children combined with a life insurance cover for the parents (the insurance will make the remaining deposits in the case of the death of one or both parents); and
Loans combined with a savings component for specific life cycle events (e.g. upfront savings of 20 or 30% with the remaining amount as house improvement loan.

This example demonstrates a product decision based on the provider’s analysis of client needs that helps clients to address anticipated household needs.

3.B.5.1 The provider offers training to clients in areas where they have skill gaps that prevent them from achieving their goals.

A wide range of well-adapted trainings and business development services can help clients be prepared to seize economic opportunities, anticipate household needs, and achieve their economic and social goals.

Scoring guidance

Score ’yes’ if the provider is offering (directly or indirectly via partnerships) client-centric training to the majority of its clients for them to overcome skill gaps that prevent them from achieving their goals.
Score ’partially’ if the provider is offering (directly or indirectly via partnerships) client-centric training to less than 20% of its clients for them to overcome skill gaps that prevent them from achieving their goals.
Score ‘no’, if the provider is not offering any training to its clients for them to overcome skill gaps that prevent them from achieving their family goals.

Sources of information

Training manuals
Product/training program description
Interviews with operations manager, branch managers
Client interviews, incl. focus groups (optional)

Evidence to provide

Specify the training plan of the provider, how the training is delivered (in class-room or digitally), and the number of clients who have access to these trainings.

3.B.5.2 The provider offers products/services that enable clients to invest in economic opportunities such as business loans for start-up, working capital, and investment.

A wide range of well-adapted products can translate into a wide range of possibilities for clients to seize economic opportunities.

Scoring guidance

Score ’yes’ if the providers is offering a wide range of financial products with flexible terms and size that enable clients to invest effectively in economic opportunities, such as business loans for investment, working capital, and investment.
Score ’partially’ if the provider is offering one or two business loan products that do account for less than 50% of the gross loan portfolio. For instance, the provider is offering working capital loans only or additionally just short-term investment loans of up to two years.
Score ‘no’ if the provider is not offering client-centric business loans.

Sources of information

Credit Policy & Operational manual(s)
Product description
Interviews with operations manager, branch managers
Client interviews, incl. focus groups (optional)

Evidence to provide

Specify the product's purpose and terms that allow it to fit with productive/economic opportunity needs.

Field Examples/implementation guidance

Providing wide range of business loans may mean making higher-risk loans for the provider in investing in innovative sectors, value chains or start-up.
Short-term loans with monthly repayment are poorly suited to many productive activities. Providers are better positioned to serve artisan and agricultural sectors, for example, by adapting terms, conditions and loan amounts to the specificities of these sectors.

The provider can also offer loans to entrepreneurs, linked with non-financial services for financial literacy, business skills, and market access. Examples of other products include: home improvement loans or housing loans, fixed-term deposits, leasing options, pension services, loans for agriculture, enterprise skills development, business development services, SME loans, checking accounts, etc.

3.B.5.3 The provider offers products/services for major life events such as weddings, maternity care/child birth, housing, higher education, and funerals.

A wide range of well-adapted products and services can translate into a wide range of possibilities for clients to address anticipated household needs at each life cycle stage.

Scoring guidance

Score ’yes’ if the provider offers a wide range of well-adapted savings, loan, insurance or combined products/services that help clients to finance effectively major life cycle events, like weddings, child birth, housing, children’s education, and funerals.
Score ’partially’ if the provider offers only one or two products/services that help clients to finance major life cycle events.
Score ‘no’ if the provider does not offer a single product/service that helps clients to finance major life cycle events.

Sources of information

Loan Policy & Operational manual(s)
Savings Policy & operational manual(s)
Insurance policy & Operational manual(s)
Product fact sheets and brochures
Interviews with operations manager, branch managers
Client interviews, incl. focus groups (optional)

Evidence to provide

Specify the purpose and terms of all products/services that help clients to finance major life cycle events.

Resources for indicator 3.B.5.3

Komida Uses Data-Driven Product Design