Traveling the Africa and Asia conference circuit over the past month, it’s striking how the issues of responsible finance and client protection are suddenly prominent wherever microfinance providers and financial inclusion policy makers, funders and observers gather. From Africa , where the first Africa-wide conference on consumer protection drew over 200 participants, to the annual Indian Microfinance Summit “Doing Good and Doing Well” a surprising consensus has emerged around the need for action on multiple fronts, encompassing a range of responses from consumer education and financial capability, to regulation.

So I’ve been putting microfinance leaders – including the heads of BASIX, SKS, Arohan, Bandhan (all in India), Advans-Ghana, and Blue Financial Services (a South-Africa-based company with growing operations across Africa) – on the spot, asking them to talk about the pressures that make providers cut corners and adopt less than fully-admirable practices.

Here are some common threads from these conversations:

• We want to grow fast and drive towards efficiency — sometimes it’s a challenge to ensure responsible practices throughout the whole organization with so many new branches, managers, and staff. 
• We need capital to grow and our investors are also pushing us on growth, efficiency, and profitability, sometimes with short time horizons that make it hard to prioritize quality of products, operations, and customer service.
• We want to gain market share and beat out our competitors in getting to the favorable markets.  There’s a temptation to streamline credit procedures and employ aggressive sales and collections to be first.
• If we were fully forthcoming on our prices, terms and conditions, we’d lose out to our competitors unless everyone else did it too.
• Clients may not be 100% satisfied, but they (mostly) keep repaying their loans and coming back to us.

I admire the candor. And they had some excellent ideas  on how to shift incentives and get our sector known for responsible finance. For example, some providers are adjusting their products (payment frequency and terms) to make them better fit clients’ cash flows and circumstances. An important conversation is underway about the need to change our stance on delinquency. Expecting 99-100% on-time payment is both unrealistic and counter-productive, and we need to share openly the best ways to deal with delinquency, to reschedule loans when necessary, and to treat late-paying customers appropriately. I predict another round of debate within the field on loan officer incentives – how should compensation schemes strike the right balance between goals of efficiency, repayment and responsible treatment of clients? Providers in competitive markets are also acknowledging the phenomenon of “piling on” — where several MFIs move into a market that has been well-prepared by a competitor, so as to save the time and expense of doing their own legwork or finding a less well-served market to enter. 

These kinds of conversations, out in the open, are essential if we are to tackle the problems that are bubbling up in some places – rising PAR, mass defaults, raised eyebrows (or worse) of politicians and regulators, unflattering media coverage. We’re facing real risks – of core operations, loss of reputation, regulatory crackdowns, and most importantly, of course, client harm and loss of confidence. We need careful analysis and creative responses if our sector is to meet its commitment to the poor and to real long-term sustainability. Where do you think the most pressing priorities lie? And what ideas do you have to get the incentives aligned around responsible finance?