After years of growth and experimentation, the financial sector has realized that in order to achieve financial inclusion and improve the living conditions of their clients, financial providers should adopt a client-centered approach. For many years it has focused on financial viability, but good financial performance does not necessarily guarantee customer satisfaction.
Responsible financial activity goes hand in hand with transparent, equitable and safe services that can offer benefits to poor and excluded clients. The implementation of a responsible finance model is based on two parameters: client protection and social performance management (SPM). We will focus here on the second parameter, the management of social performance.
SPM, which is the effective implementation of an institution’s mission in accordance with generally recognized social objectives, is essential for any financial institution pursuing a double financial and social mission. What, then, are the improvements in the operational practices of financial institutions?
Establishing a SPM strategy in a financial institution is particularly important and useful in solving a given operational problem. Problems with personnel manuals, procedures and training as well as common financial problems (customer departures, high PAR and staff turnover) can be solved using an SPM strategy. It therefore can lead to the following improvements in operational practices:
- The potential of staff is better utilized to achieve fixed objectives. To do this, staff receive SPM training to ensure their buy-in and the institution ensures that staff understand how their work contributes to the organization’s social mission. To this end, all employees can benefit from regular SPM training, and financial institutions can use the training as an opportunity to get feedback from staff, making changes so that the management systems are entirely in line with the social mission.
- The needs and preferences of the different categories of clients are better taken into account and the relationships between clients and staff are improved. The institution solicits customer feedback for product development and distribution (Customer Protection Standard 1.2), analyzes customer satisfaction and monitors the customer retention rate by customer characteristic; including the reasons for their departure.
- The institution’s products, services and distribution channels are well designed and benefit the clients, in line with the institution’s social objectives. To do this, the institution develops products that are client-specific and non-detrimental (Client Protection Standard 1.1), uses its understanding of client needs and preferences to reduce barriers to financial inclusion encountered by target clients and provides timely access to products and services that enable clients to reduce their risks and cope with common emergencies. The institution also creates other benefits for clients by giving them the opportunity to invest in economic opportunities and meet the anticipated needs of households through adequate sales practices (Client Protection Standard 1.3).
- Adequate standards of client protection are preserved by the institution. To do this, the institution protects the rights of its customers, builds a good reputation and contributes to the greater transparency and stability of the market. The data helps management decide how to define its policies, establish and enforce procedures and train employees to provide prudent and transparent financial services while treating clients with respect.
- The institution follows a written human resources policy that protects employees and creates a motivating work environment. To this end, a written human resources policy is available for all staff, complies with national legislation, and explains the rights of employees and that promote levels of staff remuneration constitute a living wage for employees. The institution also takes into account and responds to staff complaints through a formal and confidential complaint handling system.
- The institution ensures the satisfaction and retention of employees. To do this, it defends the rights of its employees and offers them a positive, safe and motivating work environment. It can also maximize its investment in staff training and hence limit its turnover. The data can assist management in determining its human resource policies, addressing workplace issues and introducing incentives to retain employees.
- The institution achieves its viability and profitability through responsible channels. To do this, it sets objectives for growth and profitability, which enable it to ensure its continuity while ensuring the well-being of its clientele. The data can help management choose its sources of funding, as well as how to work with investors to synchronize expectations. They also provide insight into how financial targets can be aligned with market conditions, how to set financial goals, how to balance social objectives, and how to allocate benefits.
- The risk of over-indebtedness of clients is avoided or reduced through a good analysis of loan applications. Indeed, when loan officers evaluate the eligibility of a client to receive a loan, in most cases, except for start – ups, they ensure that the client has sufficient and stable sources of income to repay the loan and also verify the other debts of the clients if they are likely to hinder repayment.
- Strict tracking of loans. Indeed, the institution is aware that effective monitoring of loans reduces delinquencies and bad debts. That is to say, it makes it possible to detect in time the indicators leading to an imminent failure. It therefore makes it possible to take appropriate measures to avoid failure or to manage it effectively.
- The institution has a good collection policy adhered to by its staff. Indeed, for a better recovery, the loan officer knows that it is necessary to maintain contact with the borrower and remind him days before the deadlines; so he/she know not to wait for an explanation after the default from the borrower. Also, unacceptable recovery practices can be identified in advance as well as related sanctions.
What to remember?
The implementation of a SPM strategy in an institution allows for the adaptation of policies and procedures (credit and human resources policy) and their compliance and the continuous training of staff in respect of operational practices. All this contributes to the change in the behavior of the staff and to a good and better improvement of relations with customers.
Document used: SPM Universal Standards Implementation Guide