SMART SAVINGS: IN THE SAVINGS PROCESS An Overview for Incorporating Client Protection Practices into the Savings Process by Microfinance Institutions www.smartcampaign.org
INTRODUCTION Smart Lending: Client Protection in the Savings Process is a tool to assist microfinance institutions (MFIs) in incorporating good client protection practices into their process for accepting savings deposits. The tool is applicable to a wide range of institutions, and can be adapted for use by banks, NGOs, and other types of financial institutions. The savings process is segmented into five key phases: (1) Promotions & Sales, (2) Application & Approval, (3) Opening & Servicing the Account, (4) Accepting Withdrawals & Paying Deposits, and (5) Closing the Account. Like other Smart Tools, 1 this tool is structured as follows: The tool identifies distinct Service Points (SP s) points of interaction between the client and the institution. For each Service Point, the tool: demonstrates how an MFI can model good practice in client protection in: their policies, and their operations; and identifies which Client Protection Principles are affected. The document provides recommendations for the use of client protection tools that could help MFIs improve client protection practices at each service point. These recommendations are listed in the Annex. Some of these tools have already been developed by the Smart Campaign, but for those not listed on our website, we encourage you to share your tools and/or tool ideas with us (info@smartcampaign.org). THE (short form listed below; for complete description, see www.smartcampaign.org). 1. Avoid Client Over-indebtedness 4. Ethical staff behavior 2. Transparent and responsible pricing 5. Mechanisms for redress of grievances 3. Appropriate collections practices 6. Privacy of client data 1 The Smart Campaign offers a wide range of tools for improving client protection practices among MFIs, networks, and investors. Among these are: Smart Lending: Client Protection in the Individual Loan Process; and Smart Lending: Client Protection in the Group Loan Process. Visit www.smartcampaign.org to download these tools. 2
PHASE 1. PROMOTION AND SALES SERVICE POINT (SP) SP1 SP2 SP3 ACTIVITY PROMOTIONS Institution promotes its savings product(s) to potential clients. SALES DIALOGUE Institution discusses with the client their financial needs and goals, to decide if the savings product is a good fit. PRODUCT DESCRIPTION Institution provides specific product information, including interest rates and client access to savings. Public disclosure of terms, conditions, fees, interest rates on savings, minimum balance requirements, and limits on withdrawals. All staff trained to speak to clients in local language, using clear terms the client can understand. Compliance with all local legal requirements for marketing of financial services. Internal audit checks staff interactions with clients for ethical behavior and compliance with client recruitment policies. PROTECTION PRACTICES Clear communication with clients always includes: Use of local language(s) Plain terminology Verbal explanation for illiterate clients For marketing materials specifically: Marketing materials should include: Basic eligibility requirements for taking a loan; Contact information for the institution; and Instructions for registering a complaint or question. Consider financial education messages for savings products promoted to youth. Follow guidelines on clear communication see SP #1. Discuss the client s needs (e.g., How does the product meet the client s needs? How does it help the client achieve financial goals?). Clearly describe: necessary documentation, eligibility criteria, interest rates, fees for withdrawal, withdrawal limits (frequency and amount), minimum and maximum balance, use of client savings in the case of credit default, and how the institution will use client s data. Encourage clients to raise questions and concerns. Describe all savings options to the client, when multiple products are available (money market, checking account, etc.). Describe the process for depositing and withdrawing savings, including: location of branches, ATMs, and other service points, typical time requirements, documentation, currencies available, and fees for deposit and withdrawal. Describe any other costs associated with the account (e.g. replacement fees for lost debit cards, account closing fees, overdraft fees, etc.). Explain whether and how savings are legally protected by a regulatory body. Explain to youth savers their rights and responsibilities, as well as those of the legal guardian (e.g. the guardian can access the account). Provide a written document for the client that summarizes all of the above (see SP #8). Transparency; Redress of Grievances Transparency; Ethical Staff Behavior; Privacy of Client Data Transparent and Responsible Pricing; Privacy of Client Data 3
PHASE 2. APPLICATION & APPROVAL SERVICE POINT (SP) SP4 SP5 SP6 APPLICATION FORM Institution guides client through the process of filling out an application. DATA COLLECTION Institution collects client data for account opening; explains process and protects data. DATA PRIVACY & MANAGEMENT Institution explains and ensures the security of client data through strong internal controls. Institutional policy dictates how the institution maintains the security and privacy of client data. Loan officers are trained in data management and how to explain data protection to clients. Staff is trained in how to help clients set savings goals. PROTECTION PRACTICES Follow guidelines on clear communication see SP #1. Allow the client to bring a third party to assist them in reading/understanding forms. Explain the client consent form and what a signature implies. Include institution s contact information on the application. Explain how application data will be used and stored. Take the opportunity to help clients set savings goals (not contractual) and record these on the application form or other documentation. If an additional signature is required on the application, explain the responsibilities and limitations for the signatory. Allow time for the client to consider the above information carefully before proceeding. Inform client on what personal and business information is needed and why. Disclose if the institution will use client information for marketing or cross-selling products. Explain institutional policy on data privacy. Explain process for how clients can update their information if it changes (e.g. change of address). Explain the use of a secret pin for savings or debit cards, and how to protect it. Explain how to access savings account information if pin or card is lost. Explain how client photos will be used and who will have access to them. If others are allowed to use client s savings account (such as family members): Explain the rights of other users regarding deposits and withdrawals, and Provide information on how to protect the account from abuse. For youth savings accounts, explain access limits for legal guardians and how to prevent misuse by guardians. Prevent staff misuse of client information through use of strong internal controls. Strong data security for an institution means: Internal controls/ IT management, Clearly-defined user access and hierarchy, and, Frequently changing passwords. Include standards for client data protection in agreements with contracted third parties. Obtain authorization from the client before sharing financial information with third parties. Transparency; Redress of Grievances; Privacy of Client Data Transparency; Privacy of Client Data Ethical Staff Behavior; Privacy of Client Data 4
PHASE 3: OPENING & SERVICING THE ACCOUNT SERVICE POINT (SP) SP7 SP8 SP9 ACCOUNT OPENING SPEECH Institution verbally reviews important account information before opening account. DOCUMENTATION Institution provides client with a summary document to take home. ONGOING CUSTOMER SERVICE Institution continuously supports client satisfaction and product understanding. Account opening process allows the client to ask questions and address concerns. Institutional Code of Ethics spells out values and standards of conduct required by all staff, and clearly defines sanctions for unethical behavior. Staff is evaluated and/or incentivized on the quality of their interactions with clients. Client complaints are taken seriously, investigated, and resolved in a timely manner. Staff is trained on the institution s complaints handling process. Clients receive copies/duplicates of any and all signed documentation. PROTECTION PRACTICES Follow guidelines on clear communication see SP #1. Verbally summarize any account documents, including the savings contract, and review the summary information sheet with the client (see SP #8, at right). Remind the client of any fees associated with account activity and minimum account balance requirements. Advise clients to ask for a receipt of account balance when making deposits or withdrawals. Explain how to receive confirmation of electronic transactions (e.g. ATM savings deposit). If savings is linked to credit account, explain any instance in which the institution can confiscate savings (e.g. if savings are confiscated in case of credit default). Inform the client how to contact the institution if they have questions or want to make changes to their account. Institution verbally reviews important account information before opening account. Provide the client with a summary document that includes: The rights and duties of both the client and the institution. Complaints information. Information on how to access and protect the pin number/account number and report potential fraud/theft. Information on how to deposit, withdrawal, and transfer money. Whether and how savings are legally protected by a regulatory body. All fees and interest. Encourage clients to raise questions and concerns regarding the documentation. Ensure that the client receives a signed copy of the summary sheet. Institution provides client with a summary document to take home. Follow guidelines on clear communication see SP #1. Honor account information requests in a timely way. Provide verbal account information to all clients. Alert clients to any changes in product terms, conditions, fees, interest rates, etc., in a timely manner. Document, investigate, and resolve client complaints in a timely manner. Internal audit or other monitor should check that complaints are resolved satisfactorily. Do not use or share client information or photos (for marketing, promotions, etc.) without client consent. Assist clients with monitoring savings goals when requested. Include institution contact information on all materials, and post in service points such as branch offices. Transparency; Privacy of Client Data; Ethical Staff Behavior Transparency Transparency; Ethical Staff Behavior; Redress of Grievances; Privacy of Client Data 5
PHASE 4. ACCEPTING DEPOSITS & PAYING WITHDRAWALS/INTEREST SERVICE POINT (SP) SP10 SP11 ACCEPTING DEPOSITS Institution accepts savings deposits from clients at various service locations. PAYING WITHDRAWALS AND INTEREST Institution honors client requests for savings withdrawals, and pays interest on schedule. The institution provides clients with easy access to complete account information. Institution trains cashiers to: Use all available means to verify the identification of clients/third parties before accepting deposits and paying withdrawals; and Provide a verbal summary of the transaction before finalizing. Clients are ideally notified before, and at least immediately after account balance falls below the minimum allowed. Account maintenance fees and fees for falling below the minimum balance do not exceed an established percentage of the average savings balance. PROTECTION PRACTICES Count deposits in front of the client and ask client to confirm the amount. Issue a transaction receipt after each transaction. If the institution accepts deposits in multiple currencies, inform the client of the current exchange rate on the currency the client is depositing. If ATM deposits are allowed, ensure ATMs are accessible for clients with low literacy, and that ATMs issue transaction receipts. Verify the identification of the client through use of photo, password, PIN number or other means, before paying withdrawals. Notify the client at the time of withdrawal if the transaction will incur a fee for falling below the minimum balance. If the institution accepts deposits in multiple currencies, inform the client of the current exchange rate on the currency client is withdrawing. Issue a transaction receipt after each transaction. Transparent and Responsible Pricing Transparent and Responsible Pricing; Privacy of Client Data 6
PHASE 5. CLOSING THE ACCOUNT SERVICE POINT (SP) SP12 CLOSING THE ACCOUNT The institution honors client request to close the account, and closes dormant client accounts only after multiple attempts to notify dormant account holders. Complaints handling policy requires that the institution systematically record and respond to client grievances. Staff resources are dedicated to complaints handling. Institution uses exit client grievances to improve understanding of client needs. Institutional policy provides a clear process for safely disposing of former-client data. Institution makes multiple attempts to notify clients with dormant accounts before closing the account. Institution provides account closing receipts to all exiting clients. PROTECTION PRACTICES Do not pressure the client to keep account open. Ask if the client is willing to share reason(s) for closing the account, especially whether the client has grievances to share with the institution. Handle grievances of former clients in the same way as existing clients record and respond to these grievances. Inform client on how the institution will treat personal and financial information after the account is closed (e.g. client personal and financial information will be erased from the system; or it will be saved and used for marketing purposes, etc.) Advise the client on how to properly dispose of any financial documentation, debit cards, etc. Inform the client if the institution will charge fees for dormant savings accounts. Ethical Staff Behavior; Redress of Grievances; Privacy of Client Data 7
ANNEX: TOOLS TO IMPROVE PRACTICE AT EACH SERVICE POINT Institutions can benefit from the many tools already available for download on the Smart Campaign website, at no cost. Tools include guides for client protection in the individual lending process and the savings process; mini case-studies; Excel-based tools for calculating appropriate loan size; guidelines on how to develop an institutional code of ethics; a client protection self-evaluation for MFIs, and many more. In the chart below, each service point is listed alongside a list of client protection tools that can improve an institution s ability to protect clients at that particular service point. Where resources already exist through the Smart Campaign, a link is provided to the website. Other tools have yet to be developed and we encourage MFIs to develop these on their own, and share these developments with the Smart Campaign (info@smartcampaign.org). SERVICE POINTS. The financial institution interacts with clients at the following service points: SP#1. MARKETING MATERIALS SP#2. SALES DIALOGUE SP#3. PRODUCT DESCRIPTION SP#4. APPLICATION SP#5. DATA COLLECTION SP#6. DATA PRIVACY AND MANAGEMENT SP#7. ACCOUNT OPENING SPEECH SP#8. DOCUMENTATION SP#9. ONGOING CUSTOMER SERVICE SP#10. ACCEPTING DEPOSITS & SP#11. PAYING WITHDRAWALS SP#12. CLOSING THE ACCOUNT TOOLS. At each service point, the financial institution can improve its ability to protect clients by using the following tools: Sample good practice promotional tools; Guide for creation of marketing materials. Sample good practice sales dialogues; Guide for talking with clients about their financial goals and needs. Guide for assessing client needs for available products; Sample good practice summary document. Guide on how to request information from a client; Sample plain-language savings account contract; Guide for helping clients set goals for savings. Checklist for information to cover with client regarding shared accounts; Guide for collecting financial and personal information Guidelines for developing data management protocols; Checklist for information to cover with client regarding savings/debit cards; Checklist for internal audit to verify institutional compliance with data security measures. 2 Guide for the account opening speech; Sample good practice speech Guidelines for summary document; Sample good practice summary document. Guidelines for serving illiterate clients; Checklist for informing clients of term changes; Guidelines for receiving and resolving client complaints; Sample consent for use of client information/photos; Sample Code of Ethics; 3 Guide: How to Develop an Institutional Code of Ethics. 4 Guidelines for honoring account information requests; Guidelines for client data security during ATM transactions; Checklist for discussing exchange rate information with clients. Guide for closing client account; Guide for handling exit client grievances; Guide for the treatment of ex-client data. 2 For more information on data security see Smart Note: Customized IT at Caja Morelia safeguards client data, here: http://smartcampaign.org/tools-a-resources/2/248 3 View sample Codes from around the world, here: http://smartcampaign.org/tools-a-resources/2/44. 4 Download the Smart Campaign s How to Develop an Institutional Code of Ethics here: http://smartcampaign.org/tools-a-resources/2/84. Browse sample Codes from around the world, here: http://smartcampaign.org/tools-a-resources/2/44. 8