Responsible Finance in Ghana, Kenya, Tanzania, and Uganda Synthesys Report Published By

Promoting Financial Sector Dialogue: Making Finance Work for Africa

Ghana Kenya Uganda Tanzania

Responsible Finance in Ghana, Kenya, Tanzania, and Uganda Synthesys Report Published by

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Registered offices Bonn and Eschborn, Germany

Friedrich-Ebert-Allee 40 53113 Bonn, Germany Phone: +49 228 44 60-0 Fax: +49 228 44 60-17 66

Dag-Hammarskjöld-Weg 1-5 65760 Eschborn, Germany Phone: +49 61 96 79-0 Fax: +49 61 96 79-11 15 Email: [email protected] Internet: [email protected]

Author: Pim Engels with contributions from Denise Dias and Kate McKee

Pictures: Pictures on the front and back page © KfW-Bildarchiv/Fotoagentur photothek.net

Design: Alexandra Müller

Eschborn, November 2011

On 1 January 2011, the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH was formed. It brings together the long-standing expertise of the Deutscher Entwicklungsdienst gGmbH (DED), the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH and InWEnt – Internationale Weiterbildung und Entwicklung gGmbH. For further information, go to www.giz.de. Contents

Executive Summary 03 1 Introduction 04 1.1 Background to the Synthesis Report 04 1.2 Introduction to Responsible Finance in Africa 05 Consumer protection regulation by governments 06 Self-regualtion: industry standards of practice and codes of conduct 06 Financial capability and education 07 2 Responsible Finance Diagnostic Studies in Selected African Countries 08 2.1 Responsible Finance in Ghana 08 Financial sector profile of Ghana 08 Access to finance in Ghana 09 Consumer protection regulation 10 Self-regulation 11 Financial capability 12 Recommendations of the diagnostic study 12 2.2 Responsible Finance in Kenya 13 Financial sector profile of Kenya 13 Access to finance in Kenya 14 Consumer protection regulation 15 Self-regulation 17 Financial capability 17 Recommendations of the diagnostic study 17 2.3 Responsible Finance in Tanzania 18 Financial sector profile of Tanzania 18 Access to finance in Tanzania 19 Consumer protection regulation 20 Self-regulation 21 Financial capability 21 Recommendations of the diagnostic study 22 2.3 Responsible Finance in Uganda 23 Financial sector profile of Uganda 23 Access to finance in Uganda 24 Consumer protection regulation 26 Self-regulation 27 Financial capability 27 Recommendations of the diagnostic study 28 3 Interesting Emerging Practices and Closing Thoughts 29 3.1 Consumer protection regulation 29 Towards effective interest rate disclosure in Kenya 29 Regulating nonbank mobile financial services: experiences from M-PESA in Kenya 30 Consumer protection regulation in Africa: closing thoughts 30 3.2 Self-regulation 31 The experience of AMFIU in Uganda 31 Self-regulation for consumer protection in Africa: closing thoughts 32 3.3 Financial capability and education 32 The work of the Financial Education Partnership in Kenya 32 The national strategy for financial literacy and consumer education in Ghana 33 Financial capability and education in Africa: closing thoughts 34 3.4 Cross-border Learning 35 Appendix: Financial Sector Regulatory Framework 37 List of Abbreviations

APR Annual Percentage Rate ASSFIN Association of Financial NGOs (Ghana) AMFI Association of Microfinance Institutions (Kenya) AMFIU Association of Microfinance Institutions of Uganda ARB Apex Bank Association of Rural Banks (Kenya) BoG Bank of Ghana BoT Bank of Tanzania BoU Bank of Uganda BSD Banking Supervisory Department (Ghana) CBoK Central Bank of Kenya CCK Communication Commission of Kenya CBA Community Banks Association Tanzania CGAP Consultative Group for Assisting the Poor CIN Consumer Information Network (Kenya) CCUA Cooperative of Credit Unions Association (Ghana) CUA Credit Union Association (Ghana) DCCA Department of Cooperatives and the Credit Union Association (Ghana) GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit EAC East African Community ECOWAS Economic Community of West African States FAP Financial Access Partnership (Kenya) FEPP Financial Education and Protection Program (Kenya) FEP Financial Education Partnership (Kenya) FLF Financial Literacy Foundation (Uganda) FSDK Financial Sector Deepening (Kenya) FSDU Financial Sector Deepening Uganda GAB Ghana Association of Bankers GES Ghana Education Service GHAMFIN Ghana Microfinance Institution Network ICRO Investigation and Consumer Reporting Office (Ghana) KBA Kenya Banker Association KYC Know Your Customer MFI Microfinance Institution MFTC Microfinance Technical Committee (Tanzania) MoAFSC Ministry of Agriculture, Food Security and Cooperatives (Tanzania) MoCDM Ministry of Co-operative Development and Marketing (Kenya) MoFK Ministry of Finance (Kenya) MoFT Ministry of Finance (Tanzania) MoFEPG Ministry of Finance and Economic Planning (Ghana) MoFEPU Ministry of Finance and Economic Planning (Uganda) NSPD National Payment System Department (Kenya) NEPAD New Partnership for Africa’s Development NBFI Non Bank Financial Institution RS Repayment Schedule RFSPT Rural Financial Services Programme (Tanzania) RFSPU Rural Financial Services Programme (Uganda) RFSST Rural Financial Services Strategy (Tanzania) RFSSU Rural Financial Services Strategy (Uganda) SACCO Savings and Credit Cooperative Organisation SCCULT Savings and Credit Cooperatives League of Tanzania SME Small and Medium Enterprises SSA Sub-Saharan Africa TBA Tanzania Bankers Association TAMFI Tanzanian Association of Microfinance Institutions TCC Total Cost of Credit UBA Uganda Bankers’ Association UCPA Uganda Consumers’ Protection Association UCSCU Uganda Cooperative Savings and Credit Union KUSCO Union of Savings and Credit Cooperatives (Kenya) WAMI West African Monetary Institute WAMZ West African Monetary Zone WB World Bank Executive Summary

Executive Summary

nsights from the MFW4A conference »Promoting The final section highlights interesting practices in the IFinancial Capability and Consumer Protection, A studied countries in three areas: consumer protection Step Forward towards Financial Inclusion in Africa«, regulation, self-regulation and financial education and held in 2009, demonstrate the importance of respon- capability. Presenting these experiences allows greater sible finance to unleash the potential of African finan- knowledge sharing and provides an insight into the op- cial sectors to drive economic development and reduce portunities and challenges across these selected markets, poverty across the continent. In the new approach to and useful lessons for other African countries. It conclu- responsible finance governments, financial service pro- des each area with thoughts for the future of responsible viders, a variety of stakeholders and consumers engage finance in Africa, such as the value of cross-border lear- in three mutually reinforcing pillars: consumer protec- ning and outreach; the need to find workable solutions tion by governments, self-regulation by financial service to improve market conduct in semi-formal and infor- providers (and other financial industry actors such as mal markets; the usefulness of cross-market consumer investors), and improvement of financial capability and protection regulations and oversight; and the value of consumer awareness at the client level. Above all, this strengthening existing industry associations and net- approach to responsible finance encourages innovation works. In the field of financial capability, working in to stimulate, expand and improve access to sound and partnerships and towards a national strategy and using safe financial services in developing markets. edutainment and mass media are also discussed.

Three Pillar Approach to Responsible Finance

 Consumer protection regulation

 Industry self-regulation

 Financial capability and consumer awareness

Following the 2009 conference, responsible finance diagnostic studies on consumer protection regulation, self-regulation and financial capability have been commissioned and conducted in Ghana, Kenya, Tanzania, and Uganda. The objective of this report is to review these diagnostics, identify interesting practices within these countries, and present some thoughts for the future of responsible finance in Africa. Following a short introduction, the report summarizes each country diagnostic, including an introduction to the local financial sector, the current state of access to finance, and review of the diagnostic’s findings and recommendations for the improvement of consumer protection and financial capability.

03 1 Introduction

1 Introduction

1.1 Background to the Synthesis to be capable of managing better their financial assets Report and liabilities by understanding their rights and responsibilities and the services they use contributes to heal- Poor households and low-income individuals often thy and sustainable financial inclusion. In addition, if have limited access to formal financial services, such as there is healthy competition, service providers benefit, payments, savings, loans, and insurance. Consequently, in the medium and long run, from adopting policies, they lack the assets needed to finance life-cycle events practices, and products that protect their customers’ (e.g. birth, marriage, and education), remain vulnerable interests. Individual providers may also see a value in to adverse shocks, and have to revert to expensive and responsible delivery of services to safeguard their own less-reliable informal sources of finance. Even if these reputation and that of the industry as a whole, although services are available, low-income individuals, rural conflicts between short-term commercial interest and communities and sometimes small and medium enter- the long-term business case may arise. prises (SMEs) may continue to face a variety of barriers in terms of physical access, affordability and eligibility. Participants at the 2009 MFW4A conference on »Pro- moting Financial Capability and Consumer Protection The definition of responsible finance is the delivery – A Step forward towards Financial Inclusion in Africa« of financial services in a transparent, equitable, and agreed that it is important to strike the right balance sustainable fashion. The role of financial capability in between promoting access to financial services and pro- achieving consumer protection also is receiving greater tecting consumers1. Following the conference, respon- recognition. The new approach to responsible finance sible finance diagnostics were carried out in Ghana, Ke- encourages initiatives to improve financial capability nya, Tanzania, and Uganda. and consumer awareness while demanding regulations, practices, and products that avoid unfair or harmful • The Responsible Finance Diagnostic in Ghana was treatment of clients. commissioned by GIZ2. The study documented the state of regulation, self-regulation and financial capability and provided policy recommendations. Three Pillar Approach to Responsible Finance • In Kenya, the Ministry of Finance and the Consumer Protection Task Force of the Financial Education and  Consumer protection regulation Protection Program commissioned the Consumer Pro-  Industry self-regulation tection Diagnostic to identify consumer protection issues in the mass market and make recommendations for im-  Financial capability and consumer proving consumer protection and education.3 The Fi- awareness nancial Sector Deepening Kenya and CGAP supported the diagnostic.

The recognition that sound and inclusive financial sectors are drivers of economic development and poverty 1 The 2009 MFW4A conference on 8 and 9 September 2009 was held in Accra, Ghana. See Conference Publication Financial reduction is one rationale behind this approach. Finan- Capability and Consumer Protection – A way Forward to Financial cial sector development is built around systemic stabili- Inclusion in Africa, by GIZ and CGAP, 2010. 2 The Deutsche Gesellschaft für Internationale Zusammenarbeit ty and sound institutions; it also requires a balance bet- (GIZ) GmbH was formed on 1 January 2011. It brings together the ween the interests of customers and those of financial long-standing expertise of DED, GIZ and InWEnt. For further information, go to www.giz.de. service providers. Empowering low-income individuals 3 See http://fepkenya.org/Activities/Fepp_march10.html.

04 1 Introduction

• In 2009, the Bank of Tanzania and Financial Sec- ted 7 million to 10 million more Africans were driven tor Deepening-Tanzania commissioned the Tanzania into poverty5. Financial Literacy Strategy study, with the objective of developing a national strategy to improve financial liter- The establishment of effective financial consumer pro- acy, setting targets and recommending a mechanism to tection laws, regulations, and supervision has become monitor and evaluate progress and effectiveness. more relevant than ever. The appropriate regulatory and enforcement approach will vary across countries accor- • In 2010, the Bank of Uganda and GIZ commissi- ding to their stage of financial sector development, fi- oned the study Developing an Effective Framework for nancial inclusion, regulatory and supervisory capacity, Financial Literacy and Financial Consumer Protection in and financial capability of consumers. The challenge for Uganda to map current arrangements, actors and ini- policymakers in developing markets is to extend basic tiatives in financial literacy and consumer protection, consumer protections while promoting the develop- and define key elements of a strategic framework to ment of more inclusive financial markets. strengthen these areas.

Drawing lessons from these diagnostics could help support the implementation of policies and measures Sub-Saharan Africa Access to 6 to improve responsible finance in Sub-Saharan Africa. Finance in 2009 This report aims to summarise the country studies, se- On average, there are 163 bank ac- lect interesting practices among them, and close with counts per 1,000 adults in Sub-Saharan some observations about emerging issues and next steps Africa (SSA) compared to 635 in in financial consumer protection and education. developing countries. This indicator varies widely among countries in the region, ranging from 6 in Guinea-Bissau 1.2 Introduction to Responsible to 2,109 in Mauritius. Average deposit size per capita is much higher in SSA Finance in Africa (at 193 percent) than in developing and On average less than 20 percent of households in Africa high-income countries, suggesting con- have access to formal financial services. There is growing centration of accounts in few wealthy interest in Sub-Saharan African countries on strengthe- clients. Apart from deposit services, ning consumer protection and financial capability and there are only 28 bank loans per 1,000 adults in SSA compared to 245 in consumer awareness as critical steps towards inclusive developing countries. Again, there is a financial sectors.4 wide variation in this indicator, ranging from 479 bank loans per 1,000 adults in The 2008 global financial crisis only intensified the fo- Israel to only 4 in Liberia. cus on ensuring responsible financial practices in both developed and developing markets. As a consequence of the crisis, Africa’s economic growth dropped from 5,2 percent in 2008 to 1,6 percent in 2009 and an estima-

4 While the evidence on what works in financial capability interven- tions and programs is limited, there is clearly growing interest in how to support consumers in financial markets. This ranges from promo- 5 See also Africa’s Pulse, An Analysis of Trends Shaping Africa’s Eco- ting awareness of products and consumer rights to understanding the nomic Future, by The World Bank, 2010. implications of behavioural economics and psychology on financial 6 Financial Access 2010 Sub-Saharan Africa Factsheet, by CGAP and decision-making. the World Bank, 2010.

05 1 Introduction

Consumer protection regulation by sible, inexpensive, speedy and understandable for all governments types of consumers. Ideally, service providers would be responsible for receiving and resolving disputes as the Today, specific consumer protection regulation for first instance. In many cases a third-party dispute re- the financial sector is being implemented, drafted, or solution mechanism, such as an ombudsman, would planned in a number of African countries. Effective be advisable where feasible. The effectiveness of such consumer protection regulation and supervision help mechanisms can be heightened with the use of so-cal- strengthening public confidence and, if well-designed led »watchdogs« and consumer advocates. Consumer and -enforced, it brings discipline to the market, encou- complaints provide a valuable source of information rages innovation, and stimulates healthy competition. for providers and regulators to identify consumer issues At a minimum, such a regulatory framework should and trends in market practices, and for supervisors to aim for three dimensions of financial consumer pro- respond with appropriate enforcement.8 tection: transparency, fair treatment, and effective re- course7. First, the general low level of transparency and Generally, the regulatory framework for microfinance the deep information asymmetry between providers and in Sub-Saharan Africa (SSA) is strong and often reflects consumers that is common in developing countries calls international acceptable practices.9 However, there re- for targeted action. Information is power, and power main weaknesses in the implementation and enforce- imbalances weaken financial systems and harm consu- ment of such regulation, due to limited capacity, tools, mers. Low levels of financial capability of consumers and resources.10 It is not surprising that this weakness only reinforce the power imbalance. Disclosure rules would carry over from prudential supervision to consu- can promote transparency by ensuring standardized, mer protection oversight. This can lead, in some cases, to simple and comparable information on prices, terms, over-reliance on self-regulation for consumer protection conditions, and risks to consumers. purposes. Self-regulation – despite its value – should not be a substitute for proper regulation. Moreover, alt- Second, healthy inclusion calls for well-informed and hough most African countries have non-governmental empowered consumers. Rules to promote equitable consumer protection agencies, many are also weak and treatment and to deter unfair practices protect inexpe- lack enforcement powers, underscoring the importance rienced and vulnerable consumers, help them safeguard of attention by financial sector regulators.11 their privacy, prevent discrimination, and prevent unre- asonable entry barriers by service providers. Essentially, Self-regulation: industry standards of these measures are important factors to allow inexpe- practice and codes of conduct rienced and vulnerable clients to access and use formal financial markets in a safe manner. There are many international industry-wide initiatives for the development and implementation of standards Third, regulation should require and enable effective incorporating good practices in customer relationship, recourse that builds confidence and trust among consumers. Service providers should offer mechanisms to 8 See also Major Challenges in Financial Capability and Consumer report complaints, errors, and abuses, which are acces- Protection in Africa, presentation by Nomsa Motshegare (National Credit Regulator South Africa), 2009; and Financial Capacity De- velopment and Consumer Protection in Africa: Progress in Financial 7 See also Consumer Protection in Credit Markets, by the Financial Inclusion in Africa, presentation by Konzo Traré (Banque Centrale Access Initiative, 2009; Consumer Protection Regulation in Low Ac- Des Etats De L’Afrique de L’Ouest), 2009. cess Environments: Opportunities to Promote Responsible Finance, 9 Since 2002, microfinance-specific laws and regulations have been by CGAP, 2010; and Consumer Protection, Levelling the Playing drafted, adopted, or implemented in many countries. Field in Financial Inclusion, by the Alliance for Financial Inclusion, 10 See also Sub-Saharan Africa 2009 Microfinance Analysis and 2010. Benchmarking Report, by CGAP, 2010, and 2009 Arab Microfinance Analysis and Benchmarking Report, by CGAP, 2010. 11 See also Consumer Protection; What is already Happening in Af- rica?, presentation by Karen Losse (GIZ) and Christopher Musoke (Genesis Analytics), 2009.

06 1 Introduction business ethics, and social performance. The Smart the first time. At the same time, the number and ty- Campaign calls for voluntary adoption of common pes of service providers – including non-bank entities client protection principles; Microfinance Transparen- and non-financial entities providing payments services cy offers a platform to increase pricing transparency in – are growing. Financial capability is a concept that the global microfinance industry (especially through goes beyond familiarity with basic financial terms and country-level analysis of microcredit prices); and the procedures to embrace the combination of knowledge, Social Performance Task Force (which was established understanding, skills, and behaviour which consumers to develop a common social performance framework need to make sound decisions for their economic and for microfinance) now incorporates the six Smart Cam- social circumstances.13 It encompasses the consumers’ paign principles. Increasingly, the international com- understanding of financial products and concepts, their munity and local regulators expect microfinance pro- risks and opportunities, and their own rights and obli- viders to implement basic measures to protect clients gations. from harmful practices and ensure fair and transparent treatment. For example, investors and donors may cre- The objective of financial capability efforts is to empo- ate strong incentives by assessing compliance with the wer consumers to make better choices, know where to client protection principles during their screening and seek help, and take other actions to improve their finan- monitoring, publicly endorsing the principles, creating cial wellbeing. Financial capability is also necessary to awareness, and urging providers to improve products realize the full benefits of consumer protection regulati- and practices.12 on such as transparency and disclosure norms.14 It also helps foster efficiency and quality of financial services and increase market confidence; hence it may have po- sitive impact in systemic stability and competition. The Client Protection Principles – The Smart Campaign Both regulation and financial capability initiatives could benefit from insights of behavioural economics.15 • Avoidance of over-indebtedness There is growing evidence that consumers’ behavioural • Transparent and Responsible Pricing biases, vulnerability to marketing and to their value • Appropriate Collections Practices of commitment may determine financial behaviour as • Ethical Staff Behaviour much as information, knowledge, or skills. This finding helps explain the mixed results of financial literacy and • Mechanisms for Redress of Grievances education programs worldwide that do not take into • Privacy of Client Data consideration consumers’ behavioural attributes. Ad- ding de-biasing techniques, and training in decision- making and accountability to financial education may Financial capability and education be useful, although more research on the effectiveness of such techniques is required. Efforts to improve financial capability and education in Africa are especially relevant. A large number of consumers are entering the formal financial markets for

12 In January 2011, the Principles for Investors in Inclusive Finance 13 See also Financial Capability – What Works, presentation by Mar- were launched in The Hague, as an initiative of a core group of in- garet Miller (CGAP), 2009. vestors and HRH Princess Máxima of the Netherlands, the UN 14 The Case of Financial Literacy in Developing Countries, Pro- Secretary-General’s Special Advocate for Inclusive Finance for Deve- moting Access to Finance by Empowering Consumers, by Nicholas lopment. Signatories of the Principles commit to adhere to and pro- Godfrey (DFID), Margaret Miller (World Bank Group), Bruno Stark mote principles on: (1) range of services, (2) client protection, (3) fair (OECD) and Evelyn Stark (CGAP), 2009. treatment, (4) responsible investment, (5) transparency, (6) balanced 15 Psychology and Economics: what it Means for Microfinance by returns, and (7) standards. See also Investors Implementing the Client Sendhil Mullainathan and Sudha Krishnan, 2008; Consumer Protec- Protection Principles in Microfinance by CGAP, 2010. tion in Consumer Markets by David Porteous, 2009.

07 2 Responsible Finance Diagnostic Studies in Selected African Countries

2 Responsible Finance Diagnostic Studies in Selected African Countries

2.1 Responsible Finance in Ghana Financial Service Providers 200917

Formal Financial Sector Country at a Glance Commercial Banks 40 GDP/Capita ($, 2009) 655 Rural and Community Banks 134 Income share held by lowest 5.2 20 % (2006) Savings and Loan Companies 18 Poverty gap at $2 a day 22.3 Mortgage Finance Companies 1 (%, PPP, 2006) Leasing and Finance Companies 7 Population (2009) 23,837,261

Rural population Financial House 19 49 (2009, % population) Foreign Exchange Bureaus 277 Adult Literacy Rate 66 (2008, %, >15 years of age) Semi-Formal Financial Sector

Human Development Index Credit Unions 529 130th (169) (Global, 2010) Financial NGOs > 45 Strength of Legal Rights Index 7 (0-10) (2009) Informal Financial Sector

Ease of Doing Business Rank 5th (46) SuSu Collectors 1,500-4,500 (Sub-Saharan Africa, 2011)

Microfinance Business Environ- 4th (54) The regulated sector is largely made up of banks and ment Rank (Global, 2010) non-bank financial institutions (NBFIs), under the purview of the Bank of Ghana (BoG). The Banking Act Financial sector profile of Ghana (2004) is the main statute governing commercial banks, rural and community banks, and savings and loan com- Over the past years, the financial system in Ghana has panies. The NBFIs Act (2008) governs NBFIs and other undergone a process of development, transformation, and licensed moneylenders, but excludes microfinance pro- expansion, supported by government efforts, internatio- viders with risk assets inferior to certain thresholds and nal environment and domestic economic development. those whose sources of funds do not include deposits In addition, the sector has received significant support from the public. Branchless banking is a growing busi- from development partners. The introduction of a univer- ness in Ghana. BoG has issued the Guidelines for Bran- sal banking license in 2003 helped spurring competition, chless Banking, authorising regulated institutions to of- innovation and technological advances. However, rapid fer a variety of electronic transactions outside branches growth and rising funding costs led to more risk-taking by and using non-bank agents. financial institutions and, despite strengthened supervision, the rapid expansion created vulnerabilities and challenges for the sector, and risks for financial consumers.16 17 Responsible Finance Diagnostic in Ghana report; Bank of Ghana 2009 Annual Report, by the Bank of Ghana, 2009. 16 See also http://www.mfw4a.org/ghana.html. 08 2 Responsible Finance Diagnostic Studies in Selected African Countries

Although the NBFIs Act includes credit unions, the adult population has no access to, and never made use BoG has abstained from supervising them, leaving the of, any form of financial service or product. Usage and task to the Department of Cooperatives (DC) and to access is much higher in urban areas, while achieving self-regulation by the Cooperative of Credit Unions As- only 26 percent of the adult population in rural areas sociation (CCUA). Draft regulations and supervisory has access to services. The BoG points to a number of guidelines are being prepared by the BoG to provide for financial inclusion reforms in areas of: improving finan- a more effective regulatory framework for this sector. cial capability, limiting multiple borrowing, introdu- cing basic account, facilitating rural finance, enabling There is little information available on the role and func- branchless banking, and revising know your customer tioning of financial NGOs in Ghana. Informal financial (KYC) rules.20 service providers include traditional SuSu collectors and other type of moneylenders. There is no financial regu- FinAccess 200921 lation applicable to this sector. Some argue that high Proportion of adults Total capital requirements deter most financial NGOs from Urban Rural making use of 2009 transforming into a NBFI or a savings and loan com- Formal financial pany. A recent study, commissioned by the Ministry of 34 % 52 % 21 % Finance and Economic Planning (MoFEPG) sought to institutions 18 develop a regulatory framework for this sector , which Semi-formal financial 7 % 9 % 5 % is self-regulated by often weak industry associations.19 institutions

Informal financial 15 % 11 % 18 % Access to finance in Ghana institutions

No access to any form Alongside the expansion of the regulated financial sec- 44 % 29 % 55 % of financial services tor, Ghana experienced a continuous growth in number of semi-formal and informal microfinance providers serving SMEs, micro-entrepreneurs, and low-income In 2008, a total number of 26 MFIs reported infor- households. Regulated institutions also increasingly mation on the MixMarket. This market mostly serves downstream to this clientele, particularly savings and women borrowers with microenterprise loans, concen- loan companies. Despite the growth and diversity of the trating their operations in urban areas. Competition microfinance sector, only larger MFIs fall under the re- and penetration in rural areas seems to be increasing.22 gulation and supervision of the BoG. Ghana’s microfinance sector ranked 4th in SSA in number of borrowers, and is one of the top-five destina- According to the Responsible Finance Diagnostic in tions in SSA for cross-border funding.23 Ghana report, access to formal financial institutions is restricted to educated middle- to high-income earners, leaving out a large number of people to be served by semi-formal and informal providers, or remain unser- ved. FinScope survey shows that low level of income is perceived as the most significant obstacle to financial inclusion; financial literacy is identified as an un- 20 Financial Access 2010, The State of Financial Inclusion Through the derlying barrier. FinScope finds that 44 percent of the Crisis, CGAP and The World Bank, 2010. »Know your customer« requirements are designed to ensure that the financial system is not used for illicit purposes, such as money laundering and terrorist financing. 18 Study of Regulatory and Supervisory Framework for MFIs in 21 FinScope Ghana 2009 survey, see also http://www.finscope.co.za. the semi-formal and informal sectors, by CDC Consult Limited, 22 Global Microscope on the Microfinance Business Environment, 2010. by the Economist Intelligence Unit, 2010. 19 Global Microscope on the Microfinance Business Environment, 23 Sub-Saharan Africa 2009, Microfinance Analysis and Benchmar- by the Economist Intelligence Unit, 2010. king Report, by MIX and CGAP, 2010.

09 2 Responsible Finance Diagnostic Studies in Selected African Countries

The Borrowers and Lenders Act requires absolute con- MixMarket Trends 200824 sistency in credit transactions through disclosure stan- Number of reporting MFIs 26 dards and provides for enforcement of orders to lenders, borrowers or guarantors. The act protects a borrower’s Number of depositors 1,047,634 right to apply for credit and not be discriminated. Accor- Number of borrowers 354,293 ding to the BoG, provisions to restrict unfair treatment cover deceptive advertisement, unfair or high-pressure Women borrowers (% of number 68 % selling practices, abusive collection, and breach of con- of borrowers) fidentiality. The lender is obliged to disclose the initial (Median) average deposit 26 $109 credit limit, the account balance, annual interest rates , balance (USD) non-interest charges, minimum payment, due dates, (Median) average loan balance other charges or penalties, and recourse rights and pro- $267 (USD) cesses.27 In 2010, deriving from the Borrowers and Len- ders Act, a collateral registry commenced operations in Ghana.28 Consumer protection regulation The Credit Reporting Act provided for the creation of Ghana does not have general regulations or laws on con- the first credit reference bureau in West Africa. XDS sumer protection or a specific framework for financial Data Ghana Limited29 provides services to banks, NB- consumer protection. The Ministry of Trade has taken FIs, and other retail companies providing credit. The steps to establish a Consumer Protection Authority co- Act stipulates that credit information maintained by a vering all economic sectors. The regulatory framework bureau can only be used as reference for lending activi- that should provide for such institution would also pro- ties. It allows financial institutions to submit informati- vide for a consumers claims court. The Consumer Pro- on on borrowers and defaulters without the consent of tection Agency is a non-governmental body that works the customer. to protect consumers’ rights in all economic sectors.25 The BoG’s Banking Supervision Department (BSD) The current financial sector regulations have some monitors regulated institutions to ensure compliance provisions for protecting financial consumers, but the with statutory requirements, such as prudential norms, overall framework can be considered under-developed. in addition to some consumer protection provisions The BoG is responsible for dealing with any unlawful or such as the requirement for institutions to implement improper practices of regulated institutions under the complaint resolution mechanisms, ensure that their Banking Act which, in the same manner as the NBFIs products do not put consumers at significant risk of Act, the Borrowers and Lending Act, and the Credit over-indebtedness, comply with high ethical standards Reporting Act, has some consumer protection provisi- in the treatment of clients, ensure transparency in depo- ons. The Banking Act and NBFIs Act have provisions sits and loans products. To enforce these provisions the in the area of: safety of deposits, assurance of returns BoG may: issue warnings to providers, require them to of savings, and confidentiality of client data. The Ban- refund charges and withdraw misleading advertisement, king Act provides determines that disclosure of client impose fines and penalties, and issue public notice of vi- information may only happen with the customer’s prior written consent. The NBFI Act requires strict confiden- 26 Besides, a significant development is the publication of information on annual percentage rates (APRs), on available saving and tiality in the conduct of transactions. lending interest rates, in the newspaper by the Bank of Ghana. Note- worthy, Ghana does not have specific provisions in respect of lending rates. 27 Financial Access 2010, The State of Financial Inclusion Through the Crisis, CGAP and The World Bank, 2010. 24 Data from MixMarket. 28 See also http://www.bog.gov.gh/index1.php?linkid=325. 25 See also http://www.consumerprotectiongh.org. 29 See also http://www.xdsdata.com/.

10 2 Responsible Finance Diagnostic Studies in Selected African Countries olations. Remedial actions do not include withdrawing Self regulation the offender’s license to operate.30 In reality, the BoG seems to have limited capacity to fulfil the above man- According to the diagnostic report, there are various date and frequently delegates responsibility to industry industry associations that issue self-regulations and ad- associations.31 vocate for the rights of their members. They do not usually play a significant role in consumer protection. The The BoG also has an Investigation and Consumer Re- absence of enforcement powers and tools and voluntary porting Office (ICRO), to: receive complaints, peti- membership limit their ability to enforce codes of con- tions and grievances from the public, investigate fraud duct and consumer protection principles. In addition, reports from banks and the public, enforce directives re- many of these entities face constraints in terms of ca- lated to entry, exit and other issues of banks and NBFIs, pacity and funding. Hence, the report concludes that and maintain an updated database of former executives self-regulation is generally weak. who would not be allowed to assume new positions in financial institutions. The ICRO is also responsible for Financial Service Industry Associations educating consumers on their rights and responsibili- Provider ties. Commercial Banks Association of Bankers32

Rural and Community Association of Rural Complaints Year Banks Banks (ARB Apex Bank)33 and Cases handled by Cooperative Credit Union ICRO 2005 2006 2007 2008 Credit Unions Association (CCUA)34

Customer Association of Financial 48 24 76 135 Financial NGOs complaint NGOs (ASSFIN) Fraud investi- 25 41 130 142 Cooperative SuSu gation SuSu Collectors Collectors Association 35 Enforcement (GCSCA) and surveil- 192 121 151 231 Ghana Microfinance lance MFIs Institution Network 36 Total number (GHAMFIN) 265 186 357 508 of cases

Although credit unions are regulated under the NBFIs Since semi-formal and informal financial service provi- Act, the BoG would allow the CCUA to (self) regulate ders are not subject to regulation by the BoG, the afo- and supervise its members, pending on the introduc- rementioned MoFEPG study calls for enhanced client tion of the new Credit Union Act. The CCUA has issu- protection in this market. ed provisions covering the Client Protection Principles and has created a deposit guarantee scheme.

The Association of Financial NGOs (ASSFIN) attracts only smaller NGOs. ASSFIN’s influence over its mem-

32 See also http://www.ghanaassociationofbankers.com/. 30 Financial Access 2010, The State of Financial Inclusion Through 33 See also http://www.arbapexbank.com/. the Crisis, CGAP and The World Bank, 2010. 34 See also http://www.cuaghana.com/. 31 Global Microscope on the Microfinance Business Environment, 35 See also http://www.ghanasusu.com/. by the Economist Intelligence Unit, 2010. 36 See also http://www.ghamfin.org/.

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bers and the enforcement of self-regulations are consi- nered with GHAMFIN to hold a one-day conference dered weak. The Ghana Co-operative SuSu Collectors on »Promoting Financial Capability and Consumer Pro- Association (GCSCA) has developed business conduct tection in Ghana« in September 2009. Providers also guidelines for its members, including for the protec- organize workplace programmes also take place during tion of clients’ deposits, but finds it hard to enforce and periods of severance and redundancy. Another emerging monitor compliance. Moreover, there are no redress practice is routine visits by financial institutions to work- mechanisms for consumers using the Susu collectors, places. Although these visits are targeted at selling their although there have been reports of loss of savings in the products and services, brief presentations on the need for system. The Ghana Microfinance Institution Network savings and financial planning for life events are given. (GHAMFIN) promotes consumer protection and education amongst its members.37 Due to limited financial Development organizations play an active role in this resources, GHAMFIN is unable to develop and imple- field. For example, the WB developed a financial literacy ment programmes without external support, and also methodology for women; SPEED Ghana developed ed- has limited enforcement powers to oversee implemen- ucational materials, radio programmes and road shows39 tation of its Client Protection Principles. and offers technical assistance to providers. GIZ is planning to develop a toolbox of financial literacy for MFIs Financial capability and their clients.40 In addition, several NGOs are involved in financial capability programmes. For example, a The MoFEPG is creating a specialized unit to deal with coalition of SNV, Aflatoun, WADEP and Plan Ghana consumer education and financial literacy, in addition provides social and financial edication to children aged to its Microfinance Unit. Already, the National Forum between 6-18. on Microfinance (2009) approved the National Strategy for Financial Literacy and Consumer Education in the Recommendations of the diagnostic Microfinance Sector, managed by the MoFEPG. The mi- study nistry organizes Financial Literacy Weeks, Financial Li- teracy Road Shows, and other related programmes. The The diagnostic report concludes that i) the regulatory fra- incorporation of financial literacy into the educational mework for consumer protection and self-regulation in system faces challenges due to the lack of financial and Ghana are still inadequate; ii) market conduct regulation qualified human resources and an inadequate research covering the semiformal and informal markets should be base. A task force of MoFEPG, GES and GIZ has been considered; iii) the work of the ICRO is not well known established to find solutions to this situation, and the fea- by the public and additional resources may be required to sibility of integrating financial literacy to the curriculum promote awareness; iv) better practices at the institutional of pre-tertiary schools. level should be promoted through pressure by stakeholders. In addition, it recommends that existing industry associ- Initiatives by service providers and industry associations ations be supported by MoFEPG and other stakeholders have been rather limited to promote financial capability. through capacity building and be encouraged to include They play various roles such as using financial advisors or client protection principles in their codes of conduct. relationship officers to educate clients, or offering training in basic financial products and decision-making, promo- Furthermore, the diagnostic recommends that workplace ting certain behaviours within specific segments of their financial capability programmes be encouraged in paral- clientele (e. g. individual business owners38), but most of lel to programs at schools. Partnerships led by MoFEPG the initiatives focus on promoting the institutions’ own should be strengthened and the use of electronic media in products and services. In addition, the government part- local languages should be pursued.

37 See also http://www.speedghana.org/. 39 See also http://www.speedghana.org/. 38 See also http://www.believe-begin-become.com. 40 See also http://www.giz.de/en/weltweit/afrika/ghana/16866.htm.

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2.2 Responsible Finance in Kenya Financial Service Providers 200942

Formal Financial Sector Country at a Glance Commercial Banks 44 GDP/Capita ($, 2009) 759 Mortgage Finance Companies 2 Income share held by lowest 4.7 20 % (2005) Foreign Exchange Bureaus 130 Poverty gap at $2 a day 15.1 Deposit-Taking MFIs 3 (%, PPP, 2005) Deposit-Taking SACCOs (estimate) 215 Population (2009) 39,802,015 Semi-Formal Financial Sector Rural population 78 (2009, % population) Non-Deposit Taking MFIs Unknown Adult Literacy Rate 87 (2008, %, >15 years of age) Non-Deposit Taking SACCOs 3,000-5,000

Human Development Index Financial NGOs Unknown 128th (169) (Global, 2010) Informal Financial Sector Strength of Legal Rights Index 10 (0-10) (2009) ASCAs Unknown

Ease of Doing Business Rank 9th (46) ROSCAs Unknown (Sub-Saharan Africa, 2011) Money lenders (»Shylocks«) Unknown Microfinance Business Environ- 10th (54) ment Rank (Global, 2010) Under the Central Bank of Kenya Act, the Central Bank of Kenya (CBoK) is the regulator and supervi- Financial sector profile of Kenya sor of banks and NBFIs (mortgage finance companies, foreign exchange bureaus, and deposit-taking MFIs). Over the past decades the Kenyan financial system The Banking Act provides the basis for further regulati- has faced two serious banking crises (mid-1980’s and ons issued by the CoBK. The Microfinance Act (2006) 1990’s). In 1995, the banking sector was liberalised, established a clear distinction between non-deposit ta- allowing for more dynamism and competition and to- king and deposit taking microfinance providers. Only day the country has one of most developed financial the former are under the purview of the CBoK. The systems in SSA. Yet, it remains vulnerable to political act empowers the Ministry of Finance (MoFK) to issue pressure and weakness in the supervisory authority.41 regulations for the remaining MFIs. In 2008 the CBoK issued the Microfinance (Deposit-Taking Microfinance Institutions) Regulations while the MoFK has not yet promulgated any regulations for non-depository providers.

Savings and credit cooperatives (SACCOs) are registered by the Ministry of Co-operative Development and Mar-

42 Consumer Protection Diagnostic Kenya study; Bank Supervision 41 See also http://www.mfw4a.org/kenya.html. Annual Report 2009, by the Bank of Kenya, 2009.

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keting (MoCDM) under the Cooperative Societies Act Salama offers 11,000 farmers insurance against financial (1997). So far, there is little information available about losses caused by drought or excessive rain, with com- the sector, which does not seem to receive much super- pensations being paid via M-PESA. The Mbale pension vision by the MoCDM. The new SACCO Act (2009) product, with over 18,000 informal sector workers en- establishes a comprehensive regulation and supervision rolled, allows clients to make deposit towards their re- framework for SACCOs, turning them into formal fi- tirement via M-PESA and Zap44. Curiously, Kenya has nancial institutions subject to prudential supervision by no specific regulations governing the provision of mo- the SACCO Societies Regulatory Authority (SASRA), bile financial services by nonbanks or banks. (In Kenya which has started operations in 2010. The MoCDM es- mobile financial service providers are owned by mobile timates that 215 SACCOs – the largest ones, covering telephone operators, which are not clearly covered by over 80 % of total SACCO membership – will apply the CBoK regulation and supervision). for the new license.43 The SACCO Societies (Deposit- Taking SACCO Business) Regulations were issued by The financial sector is also characterised by the wi- the MoCDM in 2010. While the regulations address despread use of nonbank agents for the delivery of fi- certain aspects of disclosure and credit and collection nancial services, most notably the mobile financial ser- practices, they focus on prudential, operational, and re- vices described above. The Finance Act (2010) enables porting requirements. the use of agents by banks and microfinance providers. The Guideline on Agent Banking (2010) sets detailed Financial services have been also provided through standards, subjects this business to the supervision of mobile phones, by nonbank (nonfinancial) entities. the CBoK and extends comprehensive consumer pro- M-PESA (a mobile payments service offered through tection provisions to agent banking services. a partnership between Safaricom and Vodafone) domi- nates this market, although other competitors, such as The informal financial sector in Kenya includes accu- Zain’s Zap and Essar Telecom Kenya’s yuCash, are en- mulating savings and credit associations (ASCAs), ro- tering the market. M-PESA enables a range of money tating savings and credit associations (ROSCAs), mer- transfer, cash-flow management and banking services chants who sell on credit, and traditional moneylenders through mobile phones and nonbank agents. M-PESA or »shylocks«. has developed the largest customer base of any financial service provider in Kenya by serving over 13 million Access to finance in Kenya customers. Apart from mobile payment services, there are a number of new offerings that go beyond pay- The Government of Kenya has developed the Vision ments (many using M-PESA platform). For instance, 2030 Strategy which includes promoting financial in- Credit Direct Kenya Limited is piloting a loan product clusion, increasing transparency and affordability, and using ATM transaction data from Kenswitch. M-PESA competition in banking and other financial services. and Zap clients can receive a cash advance over their Financial Sector Deepening Kenya (FSDK) supports handset in approximately 10 seconds. M-Kesho is an the development of inclusive finance as a means to sti- interest-bearing savings account at Equity Bank that mulate reduce poverty and works on three themes: core can be opened and operated at M-PESA agents. Equity financial system, rural finance, and finance for growth.45 Bank also offers a personal accident insurance policy to FSDK cooperates with a wide range of partners such as M-Kesho holders and an instant loan product. Kilimo government agencies, non-governmental organisations, and the private sector. 43 In recent years, as many as 215 SACCOs have developed services that are referred to as »front office service activities« (FOSAs). The development of the FOSAs appears to have been an important impetus for the new SACCO Act. The SACCOs with FOSA operations are 44 See also Branchless Banking 2010: Who’s Served? At what price? perceived to be reaching out beyond their previously closed mem- What’s next?, by Claudia McKay and Mark Pickens, Focus Note 66 bership to the public with more sophisticated services and opera- by CGAP, September 2010. tions. 45 See also http://www.fsdkenya.org/.

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FinAccess 2006 and 200946

Total Total Proportion of adults making use of Urban Rural Urban Rural 2006 2009

Formal financial institutions 19 % 32 % 15 % 23 % 41 % 18 %

Semi-formal financial institutions (including the M-PESA mobile-banking 7.5 % 3.5 % 8.5 % 18 % 21 % 17 % service)

Informal financial institutions 35 % 23 % 39 % 27 % 16.5 % 30 %

No access to any form of financial 38 % 42 % 37 % 33 % 36 % 21 % services

The FinAccess 2009 report indicates that 45 percent of for microfinance in 2008. There is little information the adult population uses only semi-formal and informal available on the role and functioning of financial NGOs financial services. According to the Country Diagnostic in Kenya. Report Kenya report, the largest segment of the informal sector is comprised of ASCAs, ROSCAs, merchants who sell on credit, and moneylenders. The total number MixMarket Trends 200849 of providers is unknown. Notwithstanding the fact that Number of reporting MFIs 16 33 percent of the adult population has no access to any form of financial services, FinAccess concludes that the Number of depositors 4,933,377 country has made progress on this front and the CBoK points to policy reforms in the areas of SME finance, Number of borrowers 1,108,872 47 microfinance, rural finance, and branchless banking. Women borrowers (% of number 58 % of borrowers) Estimates of SACCOs membership range between 2.0 (Median) average deposit $131 and 6.2 million. According to FinAccess 2009, between balance (USD) 2006 and 2009 the share of the adult population using (Median) average loan balance SACCOs declined from 13.1 percent to 9 percent. The $281 (USD) share of the adult population using MFIs doubled from 1.7 percent to 3.4 percent. In 2008 16 Kenyan MFIs reported to the MixMarket, including two licensed Consumer protection regulation deposit-taking entities.48 MFIs reporting to the Mis- Market offer a high percentage of consumer loans com- There are no general consumer protection law or re- pared to microenterprise loans. Kenya figured in the gulations in Kenya. Yet, the pending Consumer Pro- top-five SSA countries attracting cross-border funding tection Bill and Competition Bill could provide for comprehensive competition and consumer protection 46 FinAccess National Survey 2009, dynamics of Kenya’s changing regimes, including provisions for financial consumers. financial landscape, by FinAccess, 2009. 47 Financial Access 2010, The State of Financial Inclusion Through In addition, the Competition Bill would establish a the Crisis, CGAP and The World Bank, 2010. Competition Authority to cover all goods and services 48 Faulu Kenya was licensed in 2009, Kenya Women Finance Trust was licensed in 2010. Four commercial banks explicitly target the including financial services. The CBoK does not have microfinance sector by providing both regular commercial banking services and microfinance services: Equity Bank, K-Rep, Family Bank, and Co-operative Bank. 49 Data from MixMarket.

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a clear mandate on consumer protection. However, the As the new regulator of SACCOs, SASRA would be able Banking Act includes some relevant provisions which to issue and enforce consumer protection rules, but it would be enforced by the CBoK. The CBoK reports currently lacks capacity to undertake this task. The new that it monitors compliance with such provisions by SACCO Act mandates disclosure of all fees and condi- analyzing adverts and conducting interviews, focus tions associated with savings accounts and loans, and groups, consumer research, and on-site inspections. covers fair treatment. However, the regulations do not Enforcement measures may include warnings, requiring set standard calculation and disclosure formats. The act providers to withdraw misleading advertisement, impo- also establishes a deposit guarantee fund. The MoCDM sing fines and penalties, and withdrawing the offender’s regulations – covering SACCOS that do not apply for license to operate.50 the new license – do not govern disclosure, but require SACCOs to offer recourse channels. Currently, clients The Banking Act provides guidelines on business prac- may take complaints to the District or Provincial Coo- tices, such as the prohibition of charging fees on savings perative Officer, who facilitates resolution or forwards and fixed deposit accounts, and the requirement to seek the case to the MoCDM Inquiries and Inspectorate prior approval of the Minister to increase interest rates Division. The MoCDM has no enforcement authority, and charges. However, diagnostic report points to defi- but liaises with the SACCO and refers unresolved cases ciencies in disclosure practices. No regulation sets stan- to an independent Cooperative Tribunal. According dards for the disclosure and calculation of bank fees and to the diagnostic report, the process is slow but more charges, or bundling of insurance and loan products (a effective and less cumbersome than the court system. widespread practice). CBoK reports that restrictions The MoCDM does not gather and analyze complaints on unfair treatment cover deceptive advertisement and information. unauthorized use of client data or breach of client confidentiality.51 There is no requirement for banks to esta- The diagnostic points out that civil-society activity in blish internal dispute resolution mechanisms, but the consumer advocacy and education is nascent. The Con- CBoK reportedly requires such measures through its su- sumer Information Network (CIN) advocates for con- pervisory review, and facilitates resolution of consumer sumer rights, provides consumer advice and assistance complaints. The number of complaints handled by the in recourse, and disseminates information. CIN focuses CBoK is very low, and the diagnostic suggests this may its work on food safety, health and trade but has, none- be due to underreporting and dysfunction in dispute re- theless, received 1,251 complaints from financial con- solution. The regulatory framework applicable to banks sumers in 2009. would extend to MFIs as well. Consumer Information Network of Kenya The diagnostic suggests that privacy regulations are generally underdeveloped, with the exception of credit re- Financial Services Complaints 2009 porting rules. The CBoK is responsible for licensing and Insurance 274 supervising credit bureaus and has mandated all banks to report to a credit bureau and expects to mandate the Banking 129 52 reporting of all MFIs eventually. Investments (IPOs) 362

SACCOs 188

Mobile Banking 72

Retirement Benefits 21 50 Financial Access 2010, The State of Financial Inclusion Through the Crisis, CGAP and The World Bank, 2010. Others 205 51 ibidem 52 Global Microscope on the Microfinance Business Environment, by the Economist Intelligence Unit, 2010.

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Self-regulation 2008 to identify existing initiatives and pilot activities56, identify priorities and outline the path for a national Financial Service Industry Associations strategy based on public-private partnerships and en- Provider compassing multiple delivery channels and methods. The FSDK study also highlighted the work of Kenya’s Kenya Banker Commercial Banks Association (KBA) Insurance Regulatory Authority with radio broadca- sting to educate users of insurance products. Union of Savings and SACCOs Credit Co-operatives The CBoK has launched activities to raise aware- (KUSCCO)53 ness about deposit safety and the Retirement Benefits Association of Micro- Authority has undertaken similar efforts to encourage MFIs finance Institutions of formal and informal workers to use pension products. 54 Kenya (AMFI) Furthermore, FSDK supports a pilot project to relay financial literacy messages through the TV soap opera The Kenya Banker Association (KBA) advocates for the »Makutano Junction«. Like in Ghana, research shows interests of commercial banks. It offers third-party re- that radio and television are the most common sources course for consumers but it seems that this service, in of information about personal finance among Kenya’s practice, only deals with significant cases. The Asso- youth and young adults, followed by word of mouth.57 ciation of Microfinance Institutions of Kenya (AMFI) works to build capacity in the microfinance industry. Its Financial service providers, such as Faulu Kenya, Post membership ranges from formal to informal microfi- Bank, Co-operative Bank and Equity bank, also have nance services providers and serves more than 6 million some initiatives in consumer awareness and financial clients.53 AMFI recently published a code of conduct capability. For example, Equity Bank has established a for its members that included relevant consumer pro- call centre that is advertised through plasma screens in tection measures. Kenya microfinance sector partici- banking halls, leaflets, face-to-face communication with pates in the MF Transparency’s Transparent Pricing customers, ATMs and ATM cards. Initiative.54 Recommendations of the diagnostic Financial capapbility study

FinAccess 2009 revealed gaps in consumer awareness Consumer survey findings from the diagnostic study in and financial capability, particularly in the rural areas. Kenya reveal two main concerns about business practices Most survey respondents turned to friends and family in Kenya: i) abusive practices resulting from incidents of for financial advice, while only 25 percent would turn fraud or carelessness; ii) other abusive practices, such as to their financial institution. Formed in 2007, the Fi- inadequate loan collection practices. Apart from this, the nancial Education and Protection Program (FEPP) is a diagnostic points out that the welfare of consumers may public-private partnership to drive implementation of be compromised by the lack of effective disclosure and financial education and consumer protection initiatives effective dispute resolution mechanisms, which should and eventual development of a comprehensive natio- be created or improved. The report concludes that regu- nal strategy.55 FSDK commissioned a scoping study in lations provide some protection to consumers but in an incomplete and inconsistent manner across the financial 53 ibidem 54 MF Transparency is an international non-governmental organi- 56 See also http://www.fsdkenya.org/pdf_documents/08.08.FSD_Finan- zation founded in 2008 with the purpose of facilitating transparent cial_Education_Kenya.pdf. markets through the dissemination of true cost information to all 57 Development Research Brief Young African’s Access to Financial market stakeholders. See also http://www.mftransparency.org/data/ Information and Services: Lessons from Surveys in Kenya and Ghana, countries/ke/. by AudienceScaped, 2010. AudienceScaped is funded by the Bill & 55 See also http://www.fepkenya.org. Melinda Gates Foundation, see also http://www.audiencescapes.org.

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sector. The diagnostic draws attention to the particular Financial sector profile of Tanzania importance of improving transparency in mass-market financial services. The report presents a number of re- In the late 1980s, Tanzania’s financial sector was among commendations addressing the most immediate priori- the least developed in Africa. In the early 1990s, the Go- ties and that could be implemented under the current vernment of Tanzania started financial sector reforms mandate of existing financial regulators. that stimulated rapid expansion of financial intermediation to support economic growth. Nevertheless, the The diagnostic study does not deal with self-regulation banking sector is still relatively small and inefficient, in depth. and access to finance remains a challenge.58

The diagnostic highlights that consumer education is an important component of an incremental approach to in- Financial Service Providers 200959 creased consumer protection in Kenya. The FEPP has al- Formal Financial Sector ready brought together most of the key players in Kenya from the public and private sector and provides a strong Commercial Banks 27 forum through which to develop and implement a credible national strategy. The study provides recommendations for Financial Institutions 13 the development and implementation of a national strate- Foreign Exchange Bureaus 176 gy, focused on the priorities identified in previous studies. Semi-Formal Financial Sector

2.3 Responsible Finance in Tanzania SACCOs 2,500-5,200 Financial NGOs 5

Country at a Glance Informal Financial Sector

GDP/Capita ($, 2009) 509 ROSCAs Unknown Income share held by lowest n/a ASCAs Unknown 20 % (2005) VSLAs Unknown Poverty gap at $2 a day n/a (%, PPP, 2005) VICOBAs Unknown Population (2009) 43,739,051 Moneylenders Unknown Rural population 74 (2009, % population) The Bank of Tanzania (BoT) regulates and supervises Adult Literacy Rate 73 commercial banks, regional banks, financial institu- (2008, %, >15 years of age) tions, and SACCOs. The National Microfinance Policy Human Development Index of Tanzania (2000) articulates the vision and strategy 148th (169) (Global, 2010) for the development of the microfinance industry60, es- Strength of Legal Rights Index 8 (0-10) (2009) 58 United Republic of Tanzania: Financial System Stability Assess- Ease of Doing Business Rank ment Update, by IMF, June 2010. 14th (46) 59 Banking Supervision, by the Bank of Tanzania, 2010; Global (Sub-Saharan Africa, 2011) Microscope on the Microfinance Business Environment, by the Econo- mist Intelligence Unit, 2010; Tanzania Financial Literacy Strategy, by Microfinance Business Environ- 24th (54) Marketworx, 2009. ment Rank (Global, 2010) 60 See also http://www.tanzania.go.tz/pdf/nationalmicrofinancepolicy. pdf.

18 2 Responsible Finance Diagnostic Studies in Selected African Countries tablishing guidelines for the integration of microfinance services; over a third relies on informal providers. Ac- into the mainstream financial sector. The BoT regulates cess levels are higher in general in Tanzania Mainland and supervises formal financial institutions providing than in Zanzibar. Access is also much higher in urban microfinance and the so-called microfinance compa- settings than rural areas, although 72 percent of the po- nies (MFCs), based on the regulations on Microfinance pulation lives in rural areas. Fifty seven percent of the Companies and Microcredit Activities (2005). The re- rural areas adult population does not have access to any gulations allow for credit only NGOs and SACCOs to type of financial services. become financial institutions or MFCs. Yet, no tran- sition of the type has been made, due to high capital FinScope 200663 requirements, among other reasons.61 Proportion of adults Mainland Zanzibar making use of SACCOs are regulated by the BoT and by the Registrar of Cooperative Societies at the Ministry of Agriculture, Formal financial 9 % 10 % Food Security and Cooperatives (MoAFSC). In Zan- institutions zibar SACCOs are regulated by the Registrar of Coo- Semi-formal financial 4 % 3 % perative Societies through the Zanzibar Cooperative institutions Act (1986). According to the diagnostic report, total Informal financial SACCO membership is approximately 861,732, with a 35 % 28 % institutions strong male bias. In reality, there are a handful of large No access to any form SACCOs and a multitude of small ones. 52 % 59 % of financial services

Financial NGOs are overseen by the Ministry of Fi- nance (MoFT). The National Board of Accountants The BoT has several responsibilities related to financial and Auditors is responsible for monitoring transparen- inclusion, such as: improving financial capability, re- cy and ensuring NGOs meet financial disclosure requi- gulating microfinance, promoting savings, promoting rements. NGOs receiving international donor funding SME finance and access to finance in rural areas. In are subject to the Public Finance Law.62 The informal 2009, policy reforms to improve financial inclusion in financial sector includes rotating savings and credit as- Tanzania covered facilitating SME access to finance and sociations (ROSCAs), accumulating savings and credit enabling microfinance.63 associations (ASCAs), village savings and loans associations (VSLAs) and village community banks (VICO- The government has launched several financial inclusi- BAs). Some have a strong rural bias. According to the on programs. The Rural Financial Services Programme diagnostic report this sector has experienced substantial (RFSPT) is a 9-year programme (2002-2011) which growth, but remains unregulated. aims at increasing income, assets and food security of poor rural households. It has an access to finance com- Access to finance in Tanzania ponent to encourage savings mobilization and income- generating activities through the development of rural According to the 2006 FinScope, access to financial financial services systems. This component proposes to services in Tanzania was extremely low, reaching only i) establish or strengthen linkages between financial in- approximately 9 percent of the adult population. The stitutions and MFIs; ii) support financial institutions in survey revealed that more than half (54 percent) of the providing microfinance; iii) support NGOs to extend adult population had no access to any kind of financial their services; iv) strengthen MFI apex associations; v)

61 Global Microscope on the Microfinance Business Environment, 63 See also http://www.fsdt.or.tz/images/uploads/english-finscope2006. by the Economist Intelligence Unit, 2010. PRIDE-TZ and pdf. A second FinScope consumer survey is being conducted and a SEDA. FinScope Small Business survey is also underway. The results will be 62 ibidem launched in 2010.

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implement a decentralized regulatory and supervisory Consumer protection regulation framework developed by the BoT; and vi) improve performance in the microfinance sector. The Fair Competition Act (2003) is implemented by the Fair Competition Commission and aims to promo- The Rural Financial Services Strategy (RFSST) sets te effective competition, innovation and good market recommendations to strengthen SACCOs, as they are conduct, increase efficiency in the production, distri- often the only financial institutions in rural areas. At bution and supply of goods and services, and protect the end of 2008, fifty seven percent of the SACCOs consumers. The act makes no explicit reference to fi- on Tanzania Mainland were based in rural areas. The nancial services or financial consumers. However, many sector has been plagued with challenges such as weak of its provisions are very relevant to financial consumer governance and deficient supervision by the Registrar of protection. The act establishes the National Consumer Cooperatives on Tanzania Mainland. Accordingly, the Advocacy Council and the Fair Competition Tribunal.66 Government of Tanzania has created the Rural Finance The diagnostic report concludes that recourse mecha- Support Programme to build capacity in SACCOs and nisms for financial services are poorly developed. agricultural MSMEs. The Bank of Tanzania Act mandates the BoT to set up a The microfinance sector is very diverse, comprising credit reference bureau specialized in the collection and commercial banks, financial institutions, SACCOs, sale of credit performance information of individuals MFCs, informal microfinance service providers, and and companies, to provide services to banks, financial NGOs. Also, a number of government-owned insti- institutions and other credit bureaus. This is currently tutions provide retail and wholesale microfinance. The underway. The Bankers Association in Tanzania (TBA) exact number of microfinance providers is unknown. has its own credit reference bureau, which is used by Similar to Ghana, MFIs in Tanzania have a relatively TBA members only. A number of provisions in the high share of microenterprise loans compared to con- Banking and Financial Institutions Act refer to the sumer loans.64 protection of financial consumers, such as guidelines on client information protection and fair treatment of consumers. MixMarket Trends 200865 The microfinance regulation addresses different consu- Number of reporting MFIs 10 mer protection issues. It provides that the contract bet- Number of depositors 341,942 ween a financial institution and a borrower shall state the nominal interest rate, and that borrowers shall be Number of borrowers 270,077 permitted to make partial or total prepayments. It pro- Women borrowers (% of number hibits unilateral modifications to interest rates or loan 73 % of borrowers) conditions by the services provider. The BoT shall monitor the collection practices and shall instruct institu- (Median) average deposit $88 balance (USD) tions to discontinue abusive practices.

(Median) average loan balance $150 (USD)

64 Sub-Saharan Africa 2009, Microfinance Analysis and Benchmar- king Report, by MIX and CGAP, 2010. 66 Financial Inclusion Regulation Center, CGAP. See also http:// 65 Data from MixMarket. www.cgap.org/p/site/c/regulation_center/.

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Self-regulation Financial capability

Financial Service Industry Associations The diagnostic report presents a scoping study of finan- Provider cial education programmes and initiatives in Tanzania. Most of the stakeholders that participated in the study Tanzania Bankers Commercial Banks indicated their interest and willingness to support fi- Association (TBA)67 nancial education. The BoT’s Financial Market Tech- Rural and Community Community Banks Asso- nical Committee has implemented a public education 68 Banks ciation Tanzania (CBA) campaign based on a recommendation of the First Savings and Credit Financial Sector Assessment Programme for Tanzania Cooperatives League of (2003). The campaign included seminars, workshops, SACCOs Tanzania (SCCULT) exhibits at trade shows, brochures and booklets, and a Dunduliza TV and radio campaign. The BoT is also developing Tanzanian Association of the Financial Literacy and Education Strategy under its MFIs Microfinance Institutions Microfinance Technical Committee. The IFC and the (TAMFI)69 BoT are designing an education programme to support the eventual launch of the credit bureau. According to the diagnostic report, the Tanzanian Ban- kers Association (TBA) is a strong industry associati- The Ministry of Education and Vocational Training re- on. Currently, TBA has 34 members and membership gulates education in Tanzania. The Tanzania Institute of is open to all licensed banks and financial institutions. Education (TIE) is the curricula developer and the Vo- It is developing its code of practice, which would pro- cational Educational and Training Authority (VETA) is vide conduct standards and key commitments such as responsible for vocational training issues. Currently, the confidentiality, protection and dispute resolution. The- educational sector is undergoing fundamental reforms re is little information available about the Community to improve access, quality, and efficiency in the use of Banks Association Tanzania (CBA). resources. The Donor Partner Group (DPG) on education coordinates foreign assistance to this effort. The sec- The Savings and Credit Cooperatives League of Tanzania tor is comprised of both formal and informal education (SCCULT) is the body for mainland SACCOs. It has institutions. The formal school sector has curricular and has a total of 1,455 members and acts as lobbying and extra-curricular teaching. The non-formal adult educa- advocacy body, provides capacity building, and financial tion and the VETAs focus on practical education. The services to members. According to the diagnostic report, diagnostic report points out that financial education is SCCULT acknowledges SACCOs have been showing not included in the formal primary and secondary cur- low performance and believes that financial education ricula or the vocational training system. The Ministry will improve this situation. Dunduliza is a network of expressed willingness to add financial education to the SACCOs operating in seven regions in Tanzania. It offers Zanzibar school curriculum. The MoEVT was invited trainings and technical support. The Tanzanian Associ- to sit on of the MFTC for purposes of the Financial Li- ation of Microfinance Institutions (TAMFI) represents teracy Strategy assignment. There is little coordination the microfinance sector, aiming at creating a suitable re- for developing training programmes and materials on gulatory environment for microfinance through lobby- micro and small-scale businesses between government ing and advocacy and by providing services to members. agencies including VETA, the Ministry of Labour, Em- TAMFI (relatively small) membership is voluntary and ployment and Youth Development (MoLEYD), SIDO open to all microfinance services providers. and others.

67 See also http://www.tanzaniabankers.org/. The Tanzania Bankers Association (TBA) has expressed 68 See also http://www.cba.or.tz/. 69 See also http://www.tamfi.com/. its strong support to financial education. Many financi-

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al institutions have financial education initiatives such supervision of this sector remains a challenge. Also, the- as Exim Bank’s centres for financial education targeted re is need to improve recourse mechanisms. at women involved in agriculture. Several banks offering microfinance conduct classroom-based training The study finds low and declining levels of financial li- for new clients, before issuing loans, and may also offer teracy, especially among rural communities, and a need training to MSMEs. Various SACCO networks, MFI- to increase knowledge about various concepts, such as NGOs and VSLAs and VICOBAs offer training to how to save and how to calculate an interest rate. It con- their members with components of financial education cludes that only a few financial education programmes and a focus on the need to save. According to the di- are available and no government policy has yet been de- agnostic report, these programmes could be improved veloped for this area. It emphasizes that Tanzania has a and extend outreach beyond clients. CRDB has expe- relatively young population and hence the need for ear- rimented with innovative delivery of education through ly intervention. While multiple organisations focus on village theatre not only to existing SACCO members the youth, the study finds lack of coordination between but whole communities. Several financial NGOs have enterprise development, funding and financial access financial education programmes. PLAN International programmes. This lack of coordination poses a chal- also provides development programmes to communi- lenge for the successful implementation of education ties with components of financial education. VSLA and initiatives. While an increasing number of children are VICOBA programs are seen as potential strong vehicles accessing formal schooling, the study finds growing evi- for financial education efforts in rural areas. dence that the quality of formal education is declining.

In the NGO sector, Technoserve is involved in small The use of alternative channels such as the Internet, and and micro businesses in the agriculture sector and pro- media platforms is recommended in the report, but it vides advisory services and training on record keeping, may imply low outreach and high cost. The numerous financial management, and accounting, although does programmes aimed at stimulating the agricultural sec- not have a standard curriculum, which is currently tor could be possible channels for financial education. being developed. Despite all challenges, the study concludes that Tanza- nia has the opportunity to put in place a well-structured Recommendations of the diagnostic and pro-active financial education strategy, recommen- study ding the government to take action to prevent consumer protection problems and facilitate the implementation The Tanzania Financial Literacy Strategy study does not of such a programme. The report also recommends a look at consumer protection regulation and self-regula- national strategy to promote financial education among tion in depth. It points out that expansion of financial stakeholders (e.g. government, private sector and civic services and products implies that financial consumers society), to optimise resources, assure coordination, en- are increasingly faced with a complex set of options and courage partnerships, guide and support stakeholders, decisions. The predominantly rural population relies on and to share lessons learned to ensure ongoing improve- informal and semi-formal providers, but regulation and ment of financial education programmes.

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2.4 Responsible Finance in Uganda Financial Service Providers 200970

Formal Financial Sector Country at a Glance Commercial Banks 22 GDP/Capita ($, 2009) 481 Credit Institutions 3 Income share held by lowest 6.1 20 % (2005) Deposit-taking Microfinance 3 Institutions Poverty gap at $2 a day 36.4 (%, PPP, 2005) Foreign Exchange Bureaus 150

Population (2009) 32,709,865 Money Remitters 33 Rural population 87 Semi-Formal Financial Sector (2009, % population) SACCOs 2,081-4,030 Adult Literacy Rate 75 (2008, %, >15 years of age) NGOs Unknown Human Development Index 143th (169) Informal Financial Sector (Global, 2010)

Strength of Legal Rights Index VSLAs Unknown 7 (0-10) (2009) ASCAs Unknown Ease of Doing Business Rank 12th (46) (Sub-Saharan Africa, 2011) ROSCAs Unknown

Microfinance Business Environ- VICOBAs Unknown 11th (54) ment Rank (Global, 2010) Moneylenders Unknown

Financial sector profile of Uganda The Bank of Uganda (BoU) is responsible for supervi- Although Uganda’s banking sector has grown rapidly sing, regulating, controlling and disciplining commer- over the past three years, the financial system remains cial banks, credit institutions, and deposit-taking MFIs. narrow and shallow. According to the Developing an The Financial Institutions Act (2004) is the main law Effective Framework for Financial Literacy and Finan- governing commercial banks and credit institutions. cial Consumer Protection in Uganda diagnostic study, Efforts to bring MFIs under regulation started in the much work remains to be done to increase the depth 1990s. Currently, the BoU supervises MFIs according and breadth of the system so it can contribute to econo- to a four-tier framework. mic growth and poverty alleviation.70

70 Developing an Effective Framework for Financial Literacy and Financial Consumer Protection in Uganda report; Annual Report 2008/2009, by the BoU, 2009.

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Financial Services

Tier Type of Deposit- Checking Foreign Foreign Exchange Money Remittance Busi- Institution Taking Account Currency Businesses nesses Account

1 Banks Yes Yes Yes Yes Yes

Credit 2 Yes No No Yes (license by BoU) Yes (license by BoU) Institutions

Deposit- 3 Yes No No Yes (license by BoU) Yes (license by BoU) taking MFIs

4 Other No No No Only companies limited by shares qualify

The first, second, and third tiers are comprised of com- Access to finance in Uganda mercial banks, credit institutions and deposit-taking microfinance institutions and are governed by the Competition in the banking sector is driving greater Microfinance Deposit-taking Institutions Act (2003). coverage although banks’ operations still concentrate The act sets lower initial capital requirement but higher in urban and semi-urban areas. In 2006, FinScope re- capital adequacy ratio compared to commercial banks vealed a significant divide in access to finance between and credit institutions.71 urban and rural populations. According the 2009 Fin- scope, access to financial services has improved; alt- The fourth tier, comprised of semi-formal and informal hough the majority of the population continues to rely institutions (SACCOs, credit-only NGOs, and savings on informal financial institutions and service providers. and loan associations), is not supervised. SACCOs In the Making Finance Work for Uganda report, the are registered (but not supervised) by the Ministry of WB makes a number of suggestions for improving ac- Tourism, Trade and Industry (MTTI) under the Coo- cess to finance and the supply of term finance, such as perative Societies Statute (1991). Other microfinance developing rural and agricultural banking services and service providers are registered under the Companies payments and remittance systems, reforming the pensi- Act (2000). Financial NGOs are registered under the on system, developing the housing finance market, and Non-governmental Organizations Act (1989) and re- increasing private financing of infrastructure.72 gulated by the National NGO Board of the Ministry of Internal Affairs. The informal sector encompasses VSLAs, ASCA, ROSCAs, and moneylenders. All together, tier 4 institutions vary in size, complexity, and sophistication. The institutions are not allowed to take deposits but seem to use different instruments, such as membership contributions, to attract public funding. The diagnostic study estimates that this sector reaches over 2.6 million clients. 72 Making Finance Work for Uganda, by the World Bank, December 2010. Topics for the study were identified in consultation with the Government of Ugandan following up on the IMF/World Bank Fi- nancial Sector Assessment Program Update of 2005 and the World Bank Country Economic Memorandum of 2007. The objective of 71 See also Microfinance Regulation – Who Benefits? Uganda’s Expe- the study was to contribute to the continuing policy dialogue on fi- rience in Regulating Microfinance Deposit Taking Institutions, presen- nancial sector development in Uganda, and to contribute towards the tation by the Governor of the BoU, held at the International Con- preparation and implementation of the National Development Plan ference on Microfinance Regulation in Dhaka, Bangladesh, March (2009-2013) and the implementation of the Financial Markets Deve- 2010. lopment Plan (2008-2012) in Uganda.

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FinAccess 2006 and 200946

Total Total Proportion of adults making use of Urban Rural Urban Rural 2006 2009

Formal financial institutions 18 % 32 % 14 % 22 % 38 % 15 %

Semi-formal financial institutions 3 % 3 % 3 % 7 % 9 % 7 %

Informal financial institutions 17 % 13 % 18 % 43 % 25 % 47 %

No access to any form of financial 62 % 52 % 65 % 28 % 28 % 31 % services

In 2006, the Government of Uganda adopted the Fi- Finance Deposit-taking Institutions Act (2003)76 but nance Services Strategy (RFSSU) to develop rural finan- no new licenses have been granted since 2007. A few cial infrastructure focusing on the role of SACCOs. The deposit-taking MFIs have graduated into credit institu- strategy was implemented through the Rural Financial tions.77 Most NGOs seem unwilling or unable to meet Services Programme (RFSPU), which aimed at: i) en- the licensing requirements. Although banks are allowed couraging new SACCOs and strengthening and sup- to have microfinance portfolios, only two banks are porting existing ones to expand; ii) strengthening apex active in this market.78 In 2008, 13 MFIs reported to institutions, regional networks and financial linkages the MixMarket. In 2008 Uganda was one of the top- with banks; iii) strengthening regulation and supervisi- five SSA countries attracting cross-border funding for on, including support to the SACCO Regulatory Agen- microfinance. cy. 74 The Ministry of Finance and Economic Planning (MoFEPU) created the Department of Microfinance to 79 manage the RFSSU and designated the Uganda Coo- MixMarket Trends 2008 peratives, Savings and Credit Union (UCSCU) to be- Number of reporting MFIs 13 come the primary apex organisation for the sector. The Government of Uganda provides wholesale funding Number of depositors 1,161,753 to SACCOs through the Microfinance Support Cen- Number of borrowers 323,047 ter. The diagnostic study reports that, mid-2010, the Commissioner of Cooperatives reported the existence Women borrowers (% of number 46 % of 4,030 SACCOs, a substantial increase from 676 of borrowers) SACCOs in 2006. SACCOs are operational throug- (Median) average deposit $67 hout the country, but less often in the Northern and balance (USD) North-Eastern regions.75 (Median) average loan balance $330 (USD) Several microfinance providers have been licensed as deposit-taking entities by the BoU following the Micro

73 FinScope Uganda 2006 and 2009 survey, see also http://www.finscope.co.za. 76 Uganda Microfinance Limited, FINCA Uganda, Pride Microfi- 74 See also http://www.rfspug.org/. In 2007, the Rural Financial Ser- nance, and Uganda Finance. vices Strategy was aligned with the Prosperity for All strategy, to sti- 77 Post Bank Uganda, Mercantile Credit Bank Limited, and Fau- mulate economic growth throughout the country, of the Government lu. of Uganda. 78 Global Microscope on the Microfinance Business Environment, 75 Making Finance Work for Uganda, by the World Bank, December by the Economist Intelligence Unit, 2010. 2010. 79 Data from MixMarket.

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In 2008, the BoU launched the Financial Markets De- BoU. In 1994 the Deposit Insurance Scheme was crea- velopment Plan 2008-2012, creating a framework to ted to provide partial insurance for depositors’ funds in develop financial markets and support efficient mobi- the event of bank failures. lization of resources. The plan focuses on regulatory harmonization, infrastructure development, increase of Enforcement of consumer protection provisions by the the investor base, deepening of markets, capacity buil- BoU may include onsite inspections and enforcement ding, regional integration, promotion of cost effective actions such as warnings, requiring providers to refund financial intermediation and information disseminati- charges, and imposing fines and penalties.83 The BoU on. The BoU also developed a Microfinance Policy for has a specialised unit to oversee deposit-taking MFIs.84 2005-2015. The BoU reports that regulatory standards for complaints resolution by financial institutions exist, cove- USAID’s Rural SPEED (2004-2007) aimed at pro- ring procedures, timeliness of response, and accessibili- moting savings, transparency, and good governance ty. 85 External dispute resolution and other enforcement to stimulate economic growth and increase wealth by mechanisms for aggrieved consumers are not in place, expanding access to financial services in rural areas. although a small claims court system and mediation It provided technical assistance and grant funding to and arbitration would be established by the draft Con- partner financial institutions to support training and sumer Protection Act. mentoring, development of new products and delivery channels, and public awareness. USAID reports that The Consumers’ Protection Association (UCPA) is a project’s partners have now stronger operations and non-governmental entity that educates consumers, de- offer an expanded range of products to rural commu- fends consumer rights, provides legal services, acts as nities. a watchdog. The Consumer Education Trust (CON- SENT) is an independent civil society organization Consumer protection regulation that seeks to empower consumers, increase awareness, promote ethical practices among businesses, and engage Uganda has no regulatory framework for general consu- policymakers to enact pro-consumer policies.86 mer protection. There is a draft Competition Law and draft Consumer Protection regulations, which have not yet been passed, but these would have limited applica- bility to financial services.80 However, the current regulatory framework includes some consumer protection provisions. The Financial Institutions Act has several provisions to protect client information and confidentiality, including penalties on credit reference bureaus that incur in wrongful use of client information.81 The Microfinance Deposit-taking Institutions Act governs the provision of negative information to credit bureaus, requiring advance notice to the customer.82 It also mandates the establishments of the Microfinance Deposit- taking Institutions Deposit Protection Fund within the

83 Financial Access 2010, The State of Financial Inclusion Through 80 See also A Study Report on Selected Trade Laws – Consumer Pro- the Crisis, CGAP and The World Bank, 2010. tecting Law, Uganda Law Commission, 2004. 84 Global Microscope on the Microfinance Business Environment, 81 In 2008, the BoU approved Compuscan, a private credit bureau. by the Economist Intelligence Unit, 2010. Global Microscope on the Microfinance Business Environment, by 85 Financial Access 2010, The State of Financial Inclusion Through the Economist Intelligence Unit, 2010. the Crisis, CGAP and The World Bank, 2010. 82 Financial Inclusion Regulation Center, CGAP. See also http:// 86 Both UCPA and CONSENT are member of Consumer Internati- www.cgap.org/p/site/c/regulation_center/. onal. See also http://www.consumersinternational.org/.

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Self-regulation Many SACCOs are members of UCSCU, Uganda Coo- perative Alliance (UCA), or AMFIU. UCSCU regulates Financial Service Industry Associations and supervises SACCOs, playing an important role in Provider strengthening their operations under the Rural Financi- al Services Strategy. It provides advocacy, training, and Uganda Bankers’ Associ- Commercial Banks education for members. However, the diagnostic study ation (UBA)87 concludes that UCSCU lacks the institutional capacity Association of Micro- to carry out its duties adequately. Alternatively, UCA is finance Institutions of MFIs also an umbrella organization for cooperatives and of- Uganda (AMFIU)88 fers advocacy and lobbying on behalf of its members, in Uganda Cooperative addition to institutional capacity building. Alliance (UCA)89 SACCOs Uganda Cooperative Sa- Financial capability vings and Credit Unions 90 (UCSCU) There are a number of financial education and capability programs in place, but the diagnostic report Following the request from stakeholders including the concludes that in the absence of a national strategy on government and the BoU, the Uganda Bankers› Associ- financial literacy, the existing programmes are largely ation (UBA) developed a Code of Good Banking Prac- uncoordinated and less effective. They are often driven tice. The code guides banks in their relationship with by the availability of donor funds rather than by strate- clients and has provisions on fair treatment. However, gic and common objectives. The report claims that the- adoption of the code is voluntary. According to the dia- re is a lack of understanding of the concept of financial gnostic study, the code is not specific about how provi- literacy. For example, it is often confused with business ders can achieve fair treatment nor is it comprehensive skills training and focused on the training MFIs carry enough in financial consumer protection issues. out before granting loans.

AMFIU engages in a number of activities including Work on financial literacy has been carried out sin- research and advocacy, capacity building, consumer ce 2004 by the Financial Sector Deepening Uganda education, information dissemination, performance (FSDU), together with the Consumer Affairs Sub- monitoring and complaints handling. Mid 2009, the Committee.92 They have an initiative to educate con- Association represented 117 members. AMFIU has im- sumers on their rights and responsibilities and about plemented a Consumer Education and Transparency the types of financial products and institutions which Programme, developed a Consumer Code of Practice, has been rolled out nationally through radio, printed and published a Consumer Financial Education Hand- materials, live presentations, drama performances, and book. In cooperation with MF Transparency, AMFIU newspaper inserts, and training of trainers by Microfi- plans to allow MF Transparency to collect and publish nance Opportunities. pricing data, marking the launch of the programme Af- rica to Price Responsibly and Educate on Interest Ra- Other examples of financial education initiatives inclu- tes.91 de the work of FINCA Uganda with Nike Foundation to provide financial education to adolescent girls in the slum areas of Katwe and Kawempe and FINCA’s work 87 See also http://www.ugandabankers.org/. with Private Education Development Network to te- 88 See also http://www.amfiu.org.ug/. ach primary school pupils to save by setting up savings 89 See also http://www.uca.co.ug/. 90 See also http://www.ucscu.co.ug. 91 See also http://www.mftransparency.org/pages/mftransparency-and- 92 See also http://www.fsdu.or.ug/. The Financial Sector Deepening the-association-of-microfinance-institutions-of-uganda-to-launch-the- Uganda project of the UK Department for International Develop- transparent-pricing-initiative-in-uganda/. ment (DFID) ran between 2004 and 2007.

27 2 Responsible Finance Diagnostic Studies in Selected African Countries

clubs. Also, the work of Investors Club on investment save regularly and use savings accounts, understand advice and financial literacy, in addition to the annual importance of saving, planning, budgeting and ban- Financial Literacy Week and its financial literacy cli- king, and set their financial goals. The Capital Markets nics that promote savings.93 The BoU also participates: Authority runs a Secondary Schools Challenge to ed- with several partners from the private sector, it is imple- ucate Advanced Level students on financial matters.95 menting a national public awareness campaign for the Credit Reference Bureau and the financial card system. Recommendations of the diagnostic The New Vision, a leading Ugandan newspaper, has a study weekly personal finance column usually including one or two items on savings, credit or budgeting. On tele- The Developing an Effective Framework for Financial Li- vision, the soap opera »Makutano Junction« tackles a teracy and Financial Consumer Protection in Uganda stu- variety of issues including personal finance. dy concludes that Uganda needs to strengthen financial consumer protection regulation and financial literacy in In 2008, industry associations, together with their re- cost-effective and proportionate manner. The diagnostic spective regulators, established the Financial Literacy notes that banking regulation focuses almost exclusively Foundation (FLF) to run the Financial Literacy Week on prudential issues and consumer protection is large- and financial literacy clinics in partnership with the ly left to industry self-regulation. Regulations should Investors Club. The Foundation plans to conduct a require providers to disclose information clearly, fairly national financial literacy survey and develop financial and timely. Furthermore, the report highlights that cli- literacy booklets in English and in local languages. The ents of tier 4 financial institutions are, in average, likely creation of FLF demonstrates the willingness of some to be more vulnerable than customers of other types of stakeholders to work together. However, the diagnostic financial institutions, but these providers are not regu- study points out that FLF has limited resources. In ad- lated. The diagnostic recommends that proportionate dition, it involves a limited range of stakeholders. regulations be issued for tier 4.

Between 2004-2007, AMFIU implemented a nation- The study does not deal with self-regulation in depth. wide campaign named Uganda’s Three Year Experience It finds that a number of financial literacy programmes Educating the Consumers on Financial Services. The have been undertaken and overall, these programmes campaign addressed knowledge of consumers’ rights have largely been piecemeal and uncoordinated and and responsibilities; types and uses of financial pro- lack strategic direction. The report recommends a nati- ducts; and the difference between types of financial onal strategy for financial literacy to be developed and institutions. The campaign used a variety of channels implemented under the leadership of the BoU, with including rural radio, posters, flyers, music, dance and engagement of a broad range of partners. Also, such drama, and the newspaper MoneyWorld was published strategy will require a wide range of delivery channels in five languages. and techniques; clear, simple and compelling messages; capable resources; programmes for training trainers; Financial education in schools assumes particular im- and the inclusion of personal finance into schools cur- portance considering that 56 percent of the populati- ricula and workplace programmes. The report suggests on is below the age of 16. Formed in 2004, the Private undertaking a financial literacy baseline survey and em- Education Development Network (PEDN), a Ugandan phasizes the importance of testing the effectiveness of NGO, has been undertaking financial literacy work programmes and resources. Monitoring and evaluation with schoolchildren in several locations using the Af- should enable informed decisions regarding continu- latoun methodology.94 PEDN teaches graduates to ation, discontinuation or modification of active programmes and the creation of new ones.

93 See also http://www.investorsclub-ug.com/. 94 See also http://www.pedn.org. 95 See also http://www.cmauganda.co.ug.

28 3 Interesting Emerging Practices and Closing Thoughts

3 Interesting Emerging Practices and Closing Thoughts

he diagnostic studies note a number of interesting calculate and disclose interest rates to consumers. Bet- Temerging practices in responsible finance. Dis- ween 2003 and 2006, the CBoK published bank len- cussing such practices allows for the sharing of know- ding rates and charges, but this did not result in pri- ledge and may provide an insight into the current state ce reduction as the published figures were considered and future of responsible finance, and the opportuni- complex and consumers were often unaware of them.98 ties, challenges and lessons learned across the selected A FSDK study in 200999 found that users of credit pro- countries. Successful examples may be useful as well for ducts, in particular those in rural areas, did not under- other countries in Africa and elsewhere characterized by stand existing interest rate measures and disclosures. low-access and low-income environments. However, re- The combination of the repayment schedule (RS) and plication of the practices may be difficult or inadequate total cost of credit (TCC) was found to be helpful and due to differences in local contexts; careful diagnosis, easier to relate to a consumer’s monthly budget. Whi- experimentation and adaptation is advisable. The MF- le more complex than the other measures, the annual W4A conference »Promoting Financial Capability and percentage rate (APR) was also appreciated by consu- Consumer Protection, A Step Forward towards Finan- mers participating in the focus group discussions orga- cial Inclusion in Africa« encouraged relevant inputs to nized by the research team. The study concluded that improve responsible finance in Africa.96 CGAP and the three interest rate measures should be reported in a GIZ have aimed to capture the results of the conference standardized manner, together with easy-to-understand in a publication97 that included contributions from a explanations. The RS + TCC would be phased in first, number of key speakers. This section highlights some with a requirement for standardized APR reporting to of the experiences shared in the publication and in the come later. country diagnostics, followed by closing thoughts for the improvement of the three pillars of responsible fi- Adopting a standard measure for interest rates on lo- nance in Sub-Saharan Africa: financial consumer pro- ans would require regulation and specific consumer tection, self-regulation and financial capability. dissemination and awareness efforts. The supporting disclosure regime and its enforcement would need to be as comprehensive as possible in terms of scope, en- 3.1 Consumer protection regulation compassing as many types of lenders in the financial sector as possible. As awareness and acceptance of stan- Towards effective interest rate dis- dardized credit disclosure measures increased over time, closure in Kenya consideration could also be given to adopting standard disclosures for savings products. The study also recom- The overall cost of credit or savings products can be dif- mended help-lines, workshops, and a media campaign ficult to understand, in particular for inexperienced and to educate consumers and to build awareness. The com- low-income financial consumers and micro-entrepre- prehensive consumer protection diagnostic carried out neurs. In addition, comparability and price shopping by CGAP and FSD-Kenya in 2010 confirmed the va- may be constrained by lack of a standardized ways to lidity of this incremental approach to improved price transparency.

96 The 2009 MFW4A Conference Promoting Financial Capability and Consumer Protection, A Step Forward towards Financial Inclu- sion in Africa was held 8 and 9 September 2009, Accra, Ghana. See 98 It is also interesting to note that a 2007 pricing survey revealed the also http://www.mfw4a.org/financial-capability/financial-capability- complex array of charges across the banking sector. In total 53 types conference.html. of current account charges and 8 different fees associated with loans 97 Conference Publication Financial Capability and Consumer Pro- were identified by the survey. tection – A way Forward in Financial Inclusion in Africa, by GIZ and 99 See also http://www.fsdkenya.org/pdf_documents/09-06-03_Defini- CGAP, 2010. tion_of_Std_Interest_Measures.pdf.

29 3 Interesting Emerging Practices and Closing Thoughts

Regulating nonbank mobile financial ting innovation around early business models. Now, ho- services: experiences from M-PESA wever, the sector is growing fast and evolving, creating in Kenya new challenges for this approach. It will be more difficult for the CBoK to apply this approach consistently as In Kenya, mobile financial services have evolved in a new players with different products, systems, and capa- largely undefined regulatory space. The CBoK and city seek to enter the market. Moreover, consumers are mobile financial service providers have worked under already adapting the M-PESA service in ways that bring the understanding that the sector regulation would the service closer to the regulatory definition of ban- be clarified in the future, under an eventual national king, adding to the challenges.101 The diagnostic report payments system law. Protecting mobile payment users concludes that risks of system problems, performance while promoting innovation, development and expansi- issues, and even company failures will increase, with on of inclusive financial markets can be challenging for negative implication for consumers, unless regulation policymakers in Kenya and elsewhere.100 The M-PESA keeps pace with the industry. case shows that nonbank providers can have their own incentives, such as reputation, to act responsibly, par- Consumer protection regulation in ticularly when the regulator is informed and watchful. Africa: closing thoughts From the outset of the M-PESA business, the CBoK has engaged closely with and provided guidance to M-PE- Regulation and supervision is fundamental to consu- SA and other industry players. Kenya’s mobile financial mer protection and supports responsible finance. By services providers have developed their own approaches ensuring minimum business conduct standards, it safe- to disclosure, business conduct, and dispute resolution guards the interest of consumers and clients, as well as with deliberate but nevertheless informal guidance of promoting service range and quality and fair competiti- the CBoK. According to the Consumer Protection Di- on. A recent study shows only 67 countries, out of 142, agnostic Kenya report the CBoK and M-PESA have reported having consumer protection regulations with addressed consumer protection in ways worthy of re- specific reference to financial services.102 From the four cognition. Africa countries selected for study, only Tanzania has in place consumer protection regulation that is general – However, Kenya has no laws or regulations governing that is, economy wide. The country diagnostics also re- this sector. From a prudential standpoint, the CBoK veal the lack or limitation of regulation and supervision has no legal authority over M-PESA and others. The of semi-formal and informal financial service providers, protection M-PESA offers to customers’ funds has been giving space to various and sometimes questionable established by mutual agreement between the CBoK business conduct practices. and providers. Acting on a broad mandate over payments systems, the CBoK’s National Payments Systems The experience of some developing and more developed Department (NPSD) oversees the activities of nonbank countries (e.g. South Africa and Canada) indicate that mobile financial service providers. However, it can- in the field of market conduct regulation it may be desi- not issue consumer protection regulations, nor does it rable for the consumer protection rules to cover institu- have the authority to inspect providers. According to the Consumer Protection Diagnostic Kenya report, the 101 A recent study shows that 75 percent of M-PESA clients say they NPSD oversight has been based largely on moral suasi- store funds in their M-PESA wallets, 21 percent says M-PESA is now on and mutual cooperation. their most important savings instrument, while 90 percent says it is one of the three most important saving instruments. According to the same study, the most popular suggestion for what clients would like This informal but attentive process succeeded in permit- to add to M-PESA’s mobile financial services is their ability to earn interest. See also The performance and impact of M-PESA: Preliminary evidence from a household survey, PowerPoint presentation by Caroline 100 See also Protecting Branchless Banking Consumers: Policy objectives Pulver, at the Mobile Money Summit, June 2009. and Regulatory Options, by Denise Dias and Katharine McKee, CGAP 102 Financial Access 2010, The State of Financial Inclusion Through Focus Note 64, September 2010. the Crisis, CGAP and The World Bank, 2010.

30 3 Interesting Emerging Practices and Closing Thoughts tions and providers that are not prudentially regulated 3.2 Self-regulation by a financial authority. However, this step may not be feasible in the short run for most African countries, The experience of AMFIU in Uganda due to the absence of consumer protection regulations to begin with, weak capacity and scarce resources that limit the effectiveness of regulatory enforcement even AMFIU’s experience in consumer protection and fi- within the current limited coverage. nancial capability dates back to 2004, when a survey conducted by Financial Sector Deepening in Uganda Rather than trying to formally regulate additional pro- (FSDU) raised concerns regarding consumer trust, viders, policymakers and regulators should at first make obligations and rights.103 AMFIU has implemented a efforts to improve enforcement of rules in the market Consumer Education and Transparency Programme, they cover currently, by working on capacity building, developed a Consumer Code of Practice for its mem- adopting pragmatic supervision techniques and seeking bers, and published a Consumer Financial Education support to acquire necessary resources. As enforcement Handbook.104 The Consumer Code of Practice states improves, efforts should be made to extend coverage to how institutions should deal with consumers and offer other providers as feasible and necessary. Extending co- customer care, in addition to setting out sound business verage to semi-formal and informal providers is likely practice standards, including (1) disclosure of informa- to produce poor results if the initiative is not carefully tion, terms and conditions, (2) proper assessment of designed and supported by constant market monito- repayment capacity, (3) data protection and confidenti- ring and a sustained dialogue with the industry based ality, and (4) adequate internal and external complaint on clear objectives and goals. The supervisor may face procedures. AMFIU can impose punitive measures in situations where providers continue to adopt deceptive case of members’ non-compliance, ranging from dialo- and abusive practices, which will require finding other gue, denial of rewards, blacklisting, deregistration and workable strategies. The debate about coverage also public »naming-and-shaming«. Noteworthy, AMFIU touches upon cross-sector regulation. The Country Di- developed the Code through review of existing codes agnostic Report Kenya report notes that cross-market in other countries and internal and external consulta- consumer protection regulation with a new oversight tions. The Code was implemented through dissemina- authority could help fill gaps in financial consumer tion of booklets and posters to the public and financial protection coverage achieved through existing financial institutions, publicity through radio and television, and sector regulation. As with extending regulatory coverage the organization of workshops. Some of the implemen- to informal and semi-formal providers, an overarching tation challenges included lack of capacity of AMFIU regulation and oversight authority may not be appro- members and the difficulty in drawing a line between priate or feasible in all markets. Adopting this structure customer care and complaints handling. has its advantages and disadvantages and requires careful analysis. The Consumer Financial Education Handbook aims at increasing consumers’ knowledge and awareness.105 It The emergence and growth of nonbank mobile finan- lays out consumers’ rights and responsibilities, guides cial services calls for a proportionate approach that al- consumers on how to understand financial contracts, lows for openness and innovation, which may involve services and providers, conduct business planning, use light-touch regulation as the Kenya case demonstrates. However, to ensure good business practices as markets 103 A project of DFID in conjunction with the AMFIU, see also evolve and competition increases, it is necessary to es- http://www.fsdu.or.ug. tablish a coherent and encompassing regulatory and su- 104 See also Consumer Protection/Conduct of Business Re- gulation: AMFIU’s experiences, presentation by David T. Ba- pervisory framework that sets minimum business con- guma and Zainab Asiimwe (AMFIU), 8 September 2009. duct standards and prudential safeguards, and provides See also http://www.amfiu.org.ug. 105 See also http://www.amfiu.org.ug/images/docs/zainab/consumer- for a level playing field. handbookenglish.pdf.

31 3 Interesting Emerging Practices and Closing Thoughts

of complaint handling channels. It also disseminates a of official oversight by the financial supervisor, and if consumer code of practice. It is written in simple lan- membership to the association is compulsory as not to guage and has pictorial illustrations to help semi-literate leave relevant providers uncovered. Again, many Afri- and illiterate consumers understand concepts such as can countries may be unable to impose official oversight transparency, rights and responsibilities. over industry codes of conduct, as the supervisor is likely to lack legal authority or capacity to do so. AMFIU experience reveals a number of lessons including: the importance of involving various stakeholders 3.3 Financial capability and education when developing codes of conduct; the need for communication strategies covering different channels when The work of the Financial Education implementing codes and handbooks; the value of standardized and consistent information for the public; the Partnership in Kenya need for rewards and punitive mechanisms to ensure that members implement the code of conduct, and the A 2008 study in Kenya, commissioned by Financial need to build capacity of underdeveloped MFIs. Sector Deepening Kenya (FSDK), envisions a National Strategy for Financial Education, recommending the Self-regulation for consumer protec- establishment of a coordinating body to support a nation in Africa: closing thoughts tional financial education programme. The role of such a body is to cultivate a common vision, raise funding, Although the role of industry associations in improving market financial education to public and private stake- market discipline is not explored in depth in the dia- holders, and advocate for policies that advance consu- gnostic studies, the development of national, regional mer rights and responsibilities. It could also conduct or international associations and networks of financial research, collect and manage financial educational re- service providers could positively impact consumer pro- sources, and organize national financial education cam- tection and financial literacy in many African countries. paigns.106 The result was the Financial Education Part- First, if they were adequately resourced and organized, nership (FEPP), formed by organizations from both the they could develop, spread, and implement client pro- private and public sector to work towards a National tection principles in their codes of conduct and enforce Strategy for Financial Education.107 Current members such codes within their memberships. In this manner include government ministries, financial sector regu- they could better monitor and act on emerging consu- lators, financial institutions, industry association and mer protection issues. Second, they could disseminate unions, financial consultancy firms, development part- and promote successful practices identified amongst ners, media, research firms, NGOs, and community members. Furthermore, they could function as an in- based organizations. termediary for governments, investors, development partners and other stakeholders that want to contribute to, monitor, or study consumer protection and financial literacy measures.

However, the country diagnostic studies suggest that many industry associations and networks have limited resources, capacity and funding, and lack powers to enforce compliance with codes of conduct. The diagnostic study in Ghana strongly recommends support 106 See also http://www.fsdkenya.org/pdf_documents/08.08.FSD_Fi- for capacity building in existing industry associations. nancial_Education_Kenya.pdf. In addition, self-regulation and industry codes may pre- 107 See also http://www.fepkenya.org. Membership of the Finan- cial Education Partnership for Kenya is open, free, and volunta- sent better results if compliance is subject to some sort ry.

32 3 Interesting Emerging Practices and Closing Thoughts

PUBLIC/PRIVATE PARTNERSHIP

Who? Who? • Regulators in financial services • Industry players (banks, SACCOs, industry (CBK, IRA, CMA, KBA, etc.) Financial Education MFIs, insurance firms, stockbrokers Partnership (FEP) • Government ministries (MoE, MoIC, through their associations) MoCDM, MoY&G, etc.) • Champion FE initiative; • Civic institutions (NGOs, churches, • Public learning institutions • Maintain singular focus; etc.) (schools, universities) • Maintain neutrality & credibility; Roles and Responsibilities • Parastatals (PostBank) • Quality control on content; • Facilitate access by leveraging • Market FE to stakeholders; Roles and Responsibilities client base • Policy advocacy; • Develop policy (content, consumer • Donate staff time to participate protection, etc.) • Identify and co-ordinate working groups; in FE activities, serve as guest speakers, etc. • Enforce policy • Facilitate research and monitoring and evaluation activities • Incorpoate FE into service delivery • Facilitate entry e.g. to schools • Host FE programs • Disseminate information • Finance education campaigns • Assess impact

Financial Education Partnership

The FEPP formulated three objectives for financial edu- nistry of Finance and Economic Planning (MoFEP)108 cation in Kenya: i) promote informed and better use of fi- but it was formulated by a working group of the Na- nancial services, both in terms of the range of services and tional Forum supported by international experts and institutions; ii) improve financial management through wide consultation. The group conducted research, in- the transfer of knowledge, skills, and attitudes, enabling terviews and stakeholder meetings to shape the strategy, individuals to adopt good practices for earning, spending, including the implementation timeline. Throughout the saving, borrowing and investing; iii) enhance consumer development and implementation process the working protection (provided that consumer protection is high on group aimed to be (1) participatory, by involving tar- the regulatory agenda). FEPP uses four channels to reach get groups and stakeholders, (2) subsidiary, by involving different target segments or address specific aspects of the stakeholders at the district and local level, and (3) inte- financial education: the education system, mass media, grative, by concentrating on institutional development the financial sector, and the legislative agenda. and consumer protection at the same time. Political mo- mentum and national commitment were crucial for the The national strategy for financial success of the strategy. literacy and consumer education in Ghana The strategy aims at promoting awareness and understanding of microfinance, educating consumers on In 2009, Ghana’s National Forum on Microfinance ap- access to finance and their rights and responsibilities, proved a National Strategy for Financial Literacy and Consumer Education for the Microfinance Sector. The 108 See also Ghana’s National Strategy for Financial Literacy and Con- Strategy is hosted by the Microfinance Unit of the Mi- sumer Protection in the Microfinance Sector, presentation by Nicholas Gybaah (Ministry of Finance and Economic Planning), September 2009.

33 3 Interesting Emerging Practices and Closing Thoughts

FINANCIAL INCLUSION

Financial Literacy Capacity Development

Relationship of Trust Consumers MFIs

Consumer High School Code of Technical Protection Education Conduct Assistance

Educational Mass Road Educational Training Material Media Shows Material

National Strategy for Financial Literacy and Consumer Education in the Microfinance Sector

developing partnerships between a broad range of sta- personal finance among youth and young adults (aged keholders, supporting the development and sharing between 15-24) in Ghana, followed by word of mouth of good practices in responsible finance, and change from friends and family, bankers and financial advisors. consumers’ behaviour. It targets financial consumers, Almost all radio stations broadcast programmes pro- microfinance service providers, multipliers, and opini- moting financial literacy and television has been used on leaders. as well. For example, the national broadcaster aired The annual Financial Literacy Week and the Financial the programme Investment Digest. Yet, the research Literacy Road Shows are important elements of the na- concludes that in Ghana radio and television are being tional strategy. They offer numerous workshops, along underutilized for disseminating financial information. with informative broadcasts on national radio and tele- Despite the limited number of people with access and vision, as well as a National Senior High School Quiz computer skills, the Internet also has become a useful on financial literacy, and a public forum on banking channel. In addition, Ghanaian newspapers have de- and finance. To make this happen the MoFEP coope- voted columns and articles to financial capability.109 rates with the TIPCEE project (funded by USAID), SPEED Ghana (funded by GIZ and DANIDA), indus- Financial capability and education in try associations, and private stakeholders. Road shows Africa: closing thoughts have also been carried out in 9 regions of Ghana, app- lying a variety of techniques including puppets shows, The country diagnostic studies demonstrate the music, posters, mass media, and interaction. According wide range of initiatives and stakeholders involved to the MoFEP, road shows have caused MFIs to change in financial literacy and education programmes. In and improve products and customer services, resulted some countries, including Kenya and Tanzania, the in an increase in number of clients and level of savings, organisation leading financial capability efforts is improved knowledge on cash management, increased client’ confidence, and improved the relationship between clients and microfinance service providers.

109 Development Research Brief Young African’s Access to Finan- Mass media have proven to be a useful tool for financi- cial Information and Services: Lessons from Surveys in Kenya and al education. Research shows that radio and television Ghana, by AudienceScaped, 2010. AudienceScaped is funded by the Bill & Melinda Gates Foundation, see also http://www.audiencescapes. are the most common sources of information about org.

34 3 Interesting Emerging Practices and Closing Thoughts supported by a group of stakeholders and partners.110 Edutainment often attracts large, regular audiences Improving capability and literacy requires a multi- and appeals to those who might not be reached by channel, multi-stakeholder and multi-sector ap- more formal campaigns. The work of Mediae in East proach. A national strategy may help to set priorities Africa is an interesting example of the use of edutain- and avoid gaps or duplication of efforts, and attract ment.113 The international work of Aflatoun also pro- a broad range of stakeholders and partners. These are vides some insights on financial education programs more likely to get involved if they feel some level of and methodologies.114 ownership over the program. Already, a number of African countries have or are in the process of deve- 3.4 Cross-border Learning loping national strategies of this type. A significant period of learning and experimentation is needed to Responsible finance is a hot topic in both developed help identify the best roles for the public and pri- and developing markets. For example, the Principles vate sectors and assess the effectiveness of different for Innovative Financial Inclusion identified by the initiatives. It is important to pay attention to possible Access through Innovation Sub-Group of the G20 conflicts of interest when providers engage in con- Financial Inclusion Experts Group confirm the im- sumer education, as such objectives may get mixed portance of the three mutually reinforcing pillars for with product promotion and advertisement. Other responsible finance. Regardless of which pillar of stakeholders and partners may also have their own responsible finance is in the spotlight, it would be competing priorities; hence, they should be urged to beneficial for African states to take advantage of the take an appropriate approach to financial capability. economic and monetary integration of their markets and the increasing cooperation between them To reach different consumer segments and to handle to pursue cross-border learning and information the range of financial issues, a combination of broad sharing. Existing cooperation mechanisms such as media campaigns, disclosure norms, education and the African Union and New Partnership for Africa’s training, advisory services, and personal counselling Development (NEPAD) provide opportunities for is advisable. The use of mass social media could pro- implementing such exchange, which could be faci- ve to be a useful tool although its effectiveness has litated by governments, central banks, and financial not been broadly assessed. Mass media may also institutions that are active or have relationships in prove useful in putting pressure on the industry and multiple countries. Responsible finance in low-access governments to adopt better practices or necessary environments could be prioritized on the agenda of measures. Another potential contribution of mass regional conferences, seminars, and workshops. media is through »edu-tainment«111, defined as pur- posely designed media messages to both entertain Illustratively, Ghana is a member of the Economic and educate to increase knowledge, encourage cer- Community of West African States (ECOWAS), and tain attitudes, or change behaviours.112 in 2000 formed the West African Monetary Zone

113 See also Soap works! Educate and Entertain and you Meet Audience’s Needs, presentation by David Campbell (Mediae), 8. Sep- 110 See also Improving People’s Financial Capability – Working in tember 2009. For example, Makutano Junction (Kenyan TV soap) Partnerships, by Shaun Mundy, in Conference Publication Financial has encouraged audiences to join school committees, produce their Capability and Consumer Protection – A way Forward in Financial own community media, engage with political processes, and tolerate Inclusion in Africa, by GIZ and CGAP, 2010. people of varying sexual orientation. See also http://www.mediae.org 111 See also Using Mass Communication for Social Change, by Da- and http://www.makutanojunction.org.uk. vid Campbell of Mediae, in Conference Publication Financial Capa- 114 Aflatoun is a global network dedicated to providing high quality bility and Consumer Protection – A way Forward in Financial Inclu- school and financial education to children and youngsters in develo- sion in Africa, by GIZ and CGAP, 2010. ping countries, with a mission of empowering them to become agents 112 In A Theoretical Agenda for Entertainment-Education, by A. Sin- of change for a more equitable world. By the end of 2009, Aflatoun ghal & E. Rogers, 2002; Social Marketing: Using Edutainment to was operational in 55 countries, including the ones selected in this Change Behaviours and Attitudes, presentation by Dilsey Davis (Café report. See Innovative Financial Inclusion, by Access through Innova- Con Leche Media), 8 September 2009. tion Sub-Group of the G20 Financial Inclusion Experts Group, 2010.

35 3 Interesting Emerging Practices and Closing Thoughts

(WAMZ) together with Gambia, Guinea, Nigeria, and Sierra Leone. In support of WAMZ, the West African Monetary Institute (WAMI) was established in 2001, hosted by Ghana.115 Furthermore, Ghana is a member of the African Union, and actively promotes the NEPAD. Kenya is a member of the East African Community (EAC) together with Burundi, Rwanda, Tanzania, and Uganda. The EAC aims at widening and deepening cooperation between the member countries in political, economic and social fields. Ultimately the countries aim at creating a Political Federation of the East African States.116 Tanzania hosts the EAC headquarters, and is deeply committed and actively involved in the greater integration of the member countries. Kenya, Tanzania and Uganda are members of the African Union, and members of NEPAD.117 Such regional integration initiatives could provide a framework for consistent development of responsible finance approaches informed by emerging good practice.

115 See also http://www.wami-imao.org/. 116 See also http://www.eac.int/. 117 See also http://www.nepadkenya.org/index.htm.

36 Appendix: Financial Sector Regulatory Framework

Appendix: Financial Sector Regulatory Framework118

Ghana Kenya Tanzania Uganda

Banking Laws/Regulations Banking Laws/Regulations Banking Laws/Regulations Banking Laws/Regulations

Banking Act No. 673 of Banking Act Act No. 5 on Banking and Financial Institutions Act 2004 (amended through 2010) Financial Institutions No. 2 (amended through 2007) Central Bank of Kenya Act (enacted in 2006) (enacted in 2004) Bank of Ghana Act No. (amended through 2009) Act No. 4 on the Bank of BoU Act (Ch. 51) 612 Finance Act Tanzania (enacted in 2000) (enacted in 2002) (enacted in 2010) (enacted in 2006) Micro Finance Deposit-Ta- Non-Bank Financial Microfinance Act (enacted Act No. 12 on Companies king Institutions Act No. 5 Institutions Act No. 774 in 2006) (enacted in 2002) (enacted in 2003) (enacted in 2008) SACCO Societies Act Act No. 20 on Cooperative Co-operative Societies Act Credit Reporting Act No. (enacted in 2008) Societies (enacted in 1991) 726 (enacted in 2003) Non-Governmental Orga- (enacted in 2007) Cooperative Societies Act of 1997 Government Notice No. 118 nizations Registration Act Business Rules for (amended through 2004) on Banking and Financial (Ch. 113) Deposit-Taking Non-Bank Institutions Regulations (enacted in 1989) Non-Governmental Organi- Financial Institutions (enacted in 1997) Companies Act (enacted in 2000) zations Coordination Act (enacted in 1990) Government Notice No. 373 (enacted in 1961) Business Rules for Non- on Banking and Financial Financial Institutions Deposit-Taking Non-Bank Microfinance (Categori- Institutions (Capital Ade- zation of Deposit Taking (Licensing) Regulations Financial Institutions quacy) Regulations No. 41 (enacted in 2000) Microfinance Institutions) (enacted in 2008) Regulations (enacted in 2005) Guidelines for Rural (enacted in 2008) Government Notice No. 80 Financial Institutions (Ca- Banking License (enacted on Regulation on Micro- pital Adequacy) Regulati- in 2005) Microfinance (Depo- finance Companies and sit Taking Microfinance ons No. 42 Requirements for Non- Microcredit Activities (enacted in 2005) Institutions) Regulations (enacted in 2005) Bank Financial Institutions (enacted in 2008) Financial Institutions Licenses Regulations on Savings (Credit Reference Burea- (enacted in 2004) Banking (Credit Reference and Credit Cooperative Bureau) Regulations us) Regulations No. 59 Societies (enacted in 2005) (enacted in 2008) (enacted in 2004) SACCO Societies (Deposit- Micro Finance Deposit-Ta- Government Notice No. 81 king Institutions (MDI) Re- Taking SACCO Business) on Regulation on Financi- Regulations (enacted in gulations No. 61 (enacted al Cooperative Societies in 2004) 2010) (enacted in 2005) Co-operatives Societies Government Notice No. 79 Regulations on Regulation on Internal (enacted in 1992) Control and Internal Audit (enacted in 2005) Non-Governmental Or- ganizations Registration Guidelines for Evaluati- Regulations on of Non-Governmental (enacted in 1990) Organizations engaged in Microcredit Activities (enacted in 2004)

118 Taken from the Financial Inclusion Regulation Center. See also http://www.cgap.org/p/site/c/regulation_center/ 37 Appendix: Financial Sector Regulatory Framework

Ghana Kenya Tanzania Uganda

Branchless Banking Branchless Banking Branchless Banking Branchless Banking Laws/Regulations Laws/Regulations Laws/Regulations Laws/Regulations

Anti-Money Laundering Proceeds of Crime and Anti-Money Laundering Act No. 749 Anti-Money Laundering Guidelines (enacted in 2008) Act No. 9 (enacted in 2002) Guidelines for Branchless (enacted in 2009) Banking Guideline on Agent (enacted in 2008) Banking (CBK/PG/15) (enacted in 2010)

Consumer Protection Consumer Protection Consumer Protection Consumer Protection Laws/Regulations Laws/Regulations Laws/Regulations Laws/Regulations

Borrowers and Lenders Banking Act and Banking Act No. 8 on Fair Compe- Micro Finance Deposit- Act No. 773 (Increase of Rate of Ban- tition Taking Institutions Act No. (enacted in 2008) king and Other Charges) (enacted in 2003) 5 (consumer protection- Credit Reporting Act No. Regulations of 2006 (con- Act No. 4 on the Bank related) 726 (consumer protection- sumer protection-related) of Tanzania (consumer (enacted in 2003) related) (amended through 2010) protection-related) Financial Institutions Act (enacted in 2007) Restrictive Trade Prac- (enacted in 2006) No. 2 (consumer protec- Banking Act No. 673 of tices, Monopolies and Act No. 5 on Banking tion-related) 2004 (consumer protec- Price Control Act and Financial Institutions (enacted in 2004) tion-related) (enacted in 1989) (consumer protection- (amended through 2007) Microfinance (Deposit related) Taking Microfinance Insti- (enacted in 2006) tutions) Regulations (con- Government Notice No. 80 sumer protection-related) on Regulation on Micro- (enacted in 2008) finance Companies and Trade Description Act Microcredit Activities (con- (enacted in 1979) sumer protection-related) (enacted in 2005) Government Notice No. 271 on Tanzania Communica- tions (Consumer Protec- tion) Regulations (enacted in 2005) Guidelines on Introduction and Operation of Auditable Card Based Electronic Mo- ney Schemes in Tanzania (enacted in 2000)

Ghana Kenya Uganda Tanzania

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Dag-Hammarskjöld-Weg 1-5 65760 Eschborn Germany T +49 61 96 79-0 F +49 61 96 79 11 15 E [email protected] I www.giz.de