CLIENT PROTECTION AND EDUCATION By: Dr. David O. Andah Ghana Microfinance Institutions Network

1. CLIENT PROTECTION AND EDUCATION By: Dr. David O. Andah Ghana Microfinance Institutions Network Accra - Ghana

2. Introduction • Started in the eighties as the provision of small short term loans often as additional to the welfare services to the poor. • The emphasis then was the provision credit.

3. Performance indicators; • Outreach; how many beneficiaries are accessing the credit. This was important because large numbers means more poor people are being reached with the welfare credit. • Portfolio size; how much credit has been disbursed

4. Introduction (contd.) • Current definition covers savings, money transfers, insurance and leasing. So now we have microcredit, micro-saving, micro-insurance etc. • Introduction of some commercial business principles in the operation of microfinance.

5. Why Client Protection Profile of Clients tends to be : • Uneducated or less educated with • Limited horizon of the financial operations of their own activities or contracts. • Lack functional financial literacy and • May not be aware of their rights and responsibilities in dealing with financial service providers, • Subject to abusive practices or unfair treatment

6. Commercialization and Competition • Attraction of diverse providers • Development of a plethora of financial products and services • Most target clients have limited awareness, knowledge and skills to enable them to differentiate between the products’ appropriateness, costs, and risks. • Inbalance of power between lenders and borrowers • Some providers are “rogue” lenders with less or no interest in the social goals of microfinance

7. Aggressive predatory lending to meet targets for outreach and size of loan portfolio • Clients’ acceptance of loans and services which they do not need • Some loans can hardly be serviced by the clients • May lead to over-indebtedness. • Information asymmetry • Financial decision based on inadequate information or undue pressure can lead to the household’s loss of income, assets and consumption

8. Microfinance clients are thus more vulnerable to misconduct by some of the providers and are less able to protect themselves Client Protectiontherefore seeks to address information asymmetries and other factors that limit the client’s ability to identify the most suitable products and avoid harmful products and practices. It also creates fair market place for healthy access competition among the providers.

9. Approaches to Client Protection The approaches to responsible finance in Ghana are through: • Consumer Education • Statutory Regulation • Self Regulations (Code of Conduct)

10. Consumer Education • Empowerment of clients through education in financial literacy • Creates awareness of minimum standards to be expected from the financial service providers . • National Financial Literacy Campaignunder the Ministry of Finance and Economic Planning Coverage includes; • Generic characteristics of financial products, • Household debt management, • Rights and obligations, • How to acquire right information at different stages in the use of financial services • How to take appropriate action on matters that affect one’s financial health

11. Annual Financial Literacy Week - apex bodies in the insurance, money and capital markets “dose” the country with information on their activities and products. • Means of the provision of consumer education are through the • Print and electronic media • Posters, • Exhibitions • Handouts • Street Procession • “Road Shows” using professional actors • Financial Literacy quiz for second cycle schools

12. Financial access issues are being included in household surveysby the Statistical Service to financial access data on; • How clients approach financial services • What education they need to enable them fully assert their economic power • How they can best be reached

13. GHAMFIN and SPEED Projectconcentrated mainly on the • Pocket Guides with ten miniature posters, each providing pictorial information of an aspect of consumer education • “Road Shows” which carried professional actors round the country to perform skits • Skits jointly developed based on illustrations in the Pocket Guide • Performances were on market days and inside the markets • Posters on consumer protection pasted at MFIs and public places in the area. • Staffs of area MFIs drawn to the shows grounds to responded to specific questions from the audience • Distribution of Pocket Guides to the audience. Additional copies left with MFIs

14. Assessment survey • Up to 100% increase in outreach • Clients reduced withdrawal and increased savings • Dormant accounts were reactivated • Improved customer services (regular meetings with the clients established and formalized; increased frequency of field visits; change of opening hours) • Bank clerks have better understanding of clients’ problems • “Eye opener for clients’ needs

15. National Strategy for Financial Literacyand Consumer Protection in the Microfinance Sector • Developed out of assessment survey • Linked to the National Financial Literacy Campaign • Adopted by the National Microfinance Forum which is hosted by the Ministry of Finance and Economic Planning Statutory Regulation • Law to comply with • Prescriptive • Statutory monitoring body • Invokes penalty

16. Borrowers and Lenders Act2008 (Act 773) • Preamble; A legal framework for credit to improve the standards of disclosure of information by borrowers and lenders, to prohibit certain credit practices, to promote a consistent enforcement framework related to credit, and other related matters

17. The provisions of this law include: 1. Supervisory and Enforcement Role of Bank of Ghana • The powers of the Bank of Ghana, as the regulator, in handling complaints and enforcing its decisions to ensure effective and fair protection of the client’s rights 2. Borrower Rights • Right to Apply for Credit • Protection against Discrimination • Protection of borrower Credit Rights • Confidentiality of Borrower’s data

18. 3. Disclosure of Information • Pre-agreement Disclosure • Principal amount • The proposed disbursement schedule • Interest rate stated as Annual Percentage Rate • Other credit costs • Proposed repayment schedule • The basis of any cost that may be assessed if the borrower defaults • Marketing Information

19. 4. Repayment and Recovery of Debt • Borrower’s and Guarantor’s Obligations 5. Enforcement of Borrower’s Obligation • Default in Payment • Remedies of Lender on Default • Sue the borrower • Realise the security

20. Self Regulation (Non-statutory regulation) • Bad practices create negative systemic effects such as; • Lack of trust • Loss of the sympathies of the general public • Key opinion leaders siding with defaulters • Attraction of unwanted and restrictive regulations

21. Association or institution regulates itself by establishing and enforcing standards of practice • Set as Code of Conduct for members or staff (how they should act) • Set a Code of Ethics (how we should act) • Rooted in the Values of the organization • Members or staff adhere to for their common good • Infractions are handled internally • Expelled members can continue infringements

22. Principles Of Client Protection • Avoidance of over-indebtedness • Transparent pricing • Appropriate collection practices • Ethical staff behavior • Mechanism for redress of grievances • Privacy of client data • Bedrock of good practice for microfinance institutions and associations worldwide. • GHAMFIN has signed onto Transparency International and Smart Campaign • GHAMFIN also promotes these as a content of workshops on Governance • Content of planned Social Performance Management workshops

23. Conclusion • In Ghana, the need for Client Protection is well established • All the three approaches, Education, Regulation and Code of Conduct, are engaged • Consumer Education empowers clients to protect themselves, • Statutory Regulation sets out the state’s provisions for client protection • Self Regulation (Code of Conduct) provides for the industry protecting the clients • For effective client protection therefore, all these arms must be present and operate harmoniously as they complement each other. • As a public good, consumer education should be the joint responsibility of the state and the industry.

24. YOUR ATTENTION IS APPRECIATED THANK YOU!