Safeguarding in microfinance: from ‘Nice-to-Have’ to ‘Must-Have’

Each year, November 25 marks the International Day for the Elimination of Violence against Women.

It’s a reminder that ending gender-based violence requires action not only in homes and communities but also within the institutions meant to empower women and children. This call to action also holds true for microfinance institutions.

For decades, the microfinance sector has faced intense scrutiny due to client over-indebtedness, harmful lending and collection practices, leading to the exploitation of low-income households by the people and institutions meant to help them.

Often referred to as the dark side of microfinance, clients who face extreme pressures and families who struggle to pay their loans get trapped in a vicious cycle of debt, leading to distress and, sadly, even death by suicide. Yet, this must not define the sector. Microfinance when done right, has the power to end poverty, restore dignity, build resilience, and create brighter futures for families, especially children.  But that only happens when safeguarding is non-negotiable.

No excuse for abuse

At VisionFund, it is our moral obligation to ensure that every client and community member is safe whenever they interact with our staff or receive our financial services. Safeguarding is not optional—it is mission-critical. We cannot fulfill our Livelihoods Promise, our commitment to help families build sustainable and brighter futures for their children, if any form of harm, abuse, or exploitation occurs in our name.  Such actions are never acceptable, and we stand firmly against them.

Recent trends show that safeguarding violations in microfinance take the form of client intimidation, aggressive sales techniques, coercive loan collection, and improper collateral seizure. It typically happens at the point of credit collection, could be linked to fraudulent activities, and often constitutes inappropriate sexual relationships between MFI staff and their clients.

While the term ‘safeguarding’ is more commonly associated with the development and humanitarian context than the financial services sector, the principle holds true to us and cannot be overemphasised. Financial institutions must proactively prevent harm, encourage reporting, and respond when violations occur, especially to vulnerable people.

What safeguarding means in the context of microfinance

• Prevention through safe recruitment and staff onboarding, staff training in ethical conduct, and responsible loan management practices.
• Educating people about their rights, expected staff behaviours, and the process for reporting misconduct.
• Creation of guidelines to address the use of child labour in the businesses of people who availed our financial services.   
• Empowerment of leaders to build organisational cultures that reject exploitation and prioritise the well-being of the people we are working with.
• Accountability through clear reporting mechanisms, incident management protocols, and a survivor-centered approach in safeguarding investigations.

Simply put, microfinance institutions cannot do harm, but if they do, they must respond as quickly as they can.  Without safeguarding, microfinance institutions risk losing the trust of customers, lenders, the public, and, at an existential level, their license to operate and exist. 

Power in microfinance

I recall my conversations during a visit to a branch office of VisionFund Kenya, where we unpacked the power we carry as a microfinance institution. We are in a privileged position to enable financial services to the most underserved segment of the population, mostly women. The majority of our staff are male, and most of our clients are women. If we are no prepared, this power, status, or trusted position could be misused by anyone in the organisation for any sexual or other exploitative purposes. After all, safeguarding incidents are rooted in the abuse of power.

Staff from the Narok branch affirmed that safeguarding must be taken seriously by microfinance organisations as they engage with vulnerable clients like the Maasai tribe of Kenya. It requires a shift in mindset and personal commitment to the idea that the power we hold is transformative and not abusive.  

Put on a safeguarding lens

Research from the Consultative Group to Assist the Poor (CGAP) shows us that overall client satisfaction increases when clients are treated with dignity and when they receive a respectful attitude from microfinance institution staff. The 60 Decibels Microfinance Index 2024 also shows that clients who know how to report abuse or unfair treatment and clearly understand their loan terms experience better financial results, such as improved financial management, increased savings, and reduced stress.

Safeguarding, therefore, is not only about preventing abuse, but also enhancing impact. When the people we work with feel safe and respected, they are more likely to thrive financially.

The microfinance sector must make it a mission to pursue safe and responsible business practices. We need greater attention to how microfinance institutions demonstrate fair and respectful treatment of customers, including those with financial obligations considered as ‘delinquent’ or ‘defaulting’. We must see financial inclusion through a lens where clients are at the centre and their safety and well-being are paramount.

As we mark November 25, let’s remember that ending violence against women begins with ensuring safety wherever women seek opportunity. Protecting those we serve from harm and abuse is central to who we are and everything we do. After all, financial inclusion must never come at the expense of human dignity, safety, and protection.