Professional Documents
Culture Documents
PARTNERSHIP
(GHANA)
Working Paper: #7
consumer education is self‐preservation
UNSAFE IN ANY CURRENCY
ARE FINANCIAL SERVICES PROVIDERS RIPPING OFF POOR
CONSUMERS?
Access to financial services is now considered a basic consumer righti
but the evils of banking and insurance and the vulnerability of poor
consumers have grown beyond borders and continents. In Ghana,
where over 80 percent of Ghanaians are financially illiterate, and this
amazingly includes highly‐educated folks, the financial services sector
has been swarmed by predatory lending practices from those
businesses pretending to be commercial, to the micro‐finance and ‐
insurance service specialists, to the non‐commercial quasi‐NGO
(QUANGOs) social missionaries, to the grey area of new innovative
mobile phone banking twistsii. Consumer naivety in financial services
This Working Paper was prepared by Jean Lukaz MIH
THE CONSUMER
PARTNERSHIP
Unsafe in Any Currency: Are Financial Services Providers ripping off Poor (GHANA)
Consumers? consumer education is self‐preservation
has even become a common financial joke in Ghana where consumers are said to always confuse
‘shares’ with ‘shirts’. The Financial Services sector in Ghana and in Africa seem to be loosely regulated
by governments and businesses are just paying lip service to voluntary codes outlined by forums such
as the Partnership for Making Finance Work for Africa (MFW4A)iii and the UN Blue Book on Building
Inclusive Financial Sectors for Developmentiv that have inherent measures to curtail proliferating
cross‐border shylocks.
On March 15, World Consumer Rights Day (WCRD) 2010v, The Consumer Partnership in collaboration with the
Ghana Standards Board (GSB) jointly organized a seminar on the Consumers International global theme ‘Our
Money, Our Rights’, where a number of financial consumer protection initiatives by SPEED Ghana and the Ghana
Microfinance Institute Network (GHAMFIN) targeted at the illiterate and poor consumers were also discussed. This
had been an important step in targeting the non‐English speaking population as financial literacy educational road
shows and drama were conducted in local languages.
The best consumer protection is self‐protection and consumers require consumer education to protect
themselves in the market place. There is the need for consumer education on financial services to focus on
financial capability, responsible finance, consumer protection, and the conduct of business regulation in Ghana.
However, most consumer education efforts by government agencies are ineffective because they are in English
only and targeted at the literate population who read one or two major newspapers. This leaves about half the
population uninformed and uneducated. Consumer Protection Advocacy must thus border on the need for access
to stable, secure and fair financial services, which is important for consumers everywhere, not least in the context
of the global financial crisis. Government policy makers have a duty to increase consumer information ( ‘truth in
lending’ for example), invest in financial literacy initiatives (i.e., consumer education), insist that the retail financial
industry take steps to protect consumers (self‐regulatory codes of conduct, for example) and encourage the
development of an independent regulatory oversight body responsible for monitoring, reviewing and taking
complaints. In order to protect consumers, the Government must ensure that consumers have regular reliable
information on what services financial institutions offer at which price and what the risk involved is, so that
consumers can make well‐informed choices.
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THE MORAL LEAP BY BANK OF GHANA
Page
http://www.theconsumerpartnership.wordpress.com; http://www.ghanaconsumerwatch.wordpress.com;
http://www.ghanaconsumerwatch.blogspot.com
THE CONSUMER
PARTNERSHIP
Unsafe in Any Currency: Are Financial Services Providers ripping off Poor (GHANA)
Consumers? consumer education is self‐preservation
In a move to protecting Ghanaian consumers in Financial Services, the Bank of Ghana (BoG)vi has established a new
Investigation and Consumer Reporting Office (ICRO) within the Banking Supervision Department (BSD) as the
financial industry watchdog office of the Bank of Ghana (BoG), with responsibility for protecting consumers of
financial products and services and educating them on their rights and responsibilities. While this effort is
laudable, the government must be moving more towards state sponsorship of regulation instead of state provision
since this prevents duplication of mandates as is the case of this new ICRO within the Bank of Ghana that is
working with the same mission, laws and regulatory authority in all matters relating to banking and non‐banking
financial business, that is
• Bank of Ghana Act 2002, Act 612
• Banking Act, 2004 (Act 673)
• Financial Institutions (Non‐Bank) Law 1993, PNDC Law 328
• Companies Code Act 179, 1963
• Bank of Ghana Notices /Directives / Circulars / Regulations
Ghana must emulate the example of the US in moving for a new regulatory authority specifically dedicated to the
protection of consumers of financial services in the form of the new Consumer Financial Protection Agency
(CFPA) that was eventually based on the recognition of the vulnerability of consumers to financial services that are
‘Unsafe at any Rate’ as concluded by Elizabeth Warren in her treatise in a 2007 article in Democracy Journalvii:
‘It is impossible to buy a toaster that has a one‐in‐five chance of bursting into flames
and burning down your house. But it is possible to refinance an existing home with a
mortgage that has the same one‐in‐five chance of putting the family out on the
street... Similarly, it’s impossible to change the price on a toaster once it has been
purchased. But long after the papers have been signed, it is possible to triple the price
of the credit used to finance the purchase of that appliance ... The difference between
the two markets is regulation’.
The ineffectiveness of the regulatory role of the Bank of Ghana (BoG) in the financial services sector has been
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exposed since 2004 when it directed all commercial banks in the country, to abolish and in some instances reduce,
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what it described as unfair bank charges and fees being charged by the various commercial banks operating in the
http://www.theconsumerpartnership.wordpress.com; http://www.ghanaconsumerwatch.wordpress.com;
http://www.ghanaconsumerwatch.blogspot.com
THE CONSUMER
PARTNERSHIP
Unsafe in Any Currency: Are Financial Services Providers ripping off Poor (GHANA)
Consumers? consumer education is self‐preservation
country. The directive, which employed moral suasion as a regulatory tool, only provided a carte blanche for the
commercial banks to further exploit poor Ghanaian consumers through extremely high and unfair interest rates.
The banking population of Ghana is about 20% and many Ghanaian households do not save with the banks
because of the low interest on savings resulting in a gap that has gained Ghana the status of the country with the
highest lending rate in sub‐Saharan Africa.viii
With Ghana's interest rate currently ranging between 23.5% and 41.6% compared with an average estimated rate
of 14% for sub‐Saharan African countries and 3.34% for Asia's emerging economies, the present business
environment promotes a let the borrower beware [‘caveat emptor’] approach to banking and financial services,
which the UN Bluebook on Building Inclusive Financial Sectors for Development (2006) considers as a minimalist
option that is purely ‘anti‐consumer’. This attitude exploits uninformed and uneducated financial consumers and
leaves very little responsibility to the lenders. There is the need for an enforced shift from letting borrowers
beware to letting the lenders beware, a ‘caveat venditor’ approach as a first step.
THE WORLD ON THE MOVE
Since the beginning of 2010, it seems that most of the global agencies such as Consumers International (CI), World
Bankix and the International Organization for Standardization (ISO) Consumer Policy Committee (COPOLCO)x have
gained a new consciousness on the exposure of African and third world consumers in general to the vicissitudes of
the financial sector. CI used financial services as the theme of WCRD 2010 to raise awareness of the issue that cuts
across borders not only in Africa but also in Europe and the US as the crises has shown. The World Bank Group is
developing a Global Program on Consumer Protection and Financial Literacy to address these questions and help
consumers help themselves, using a successful program piloted in Europe and Central Asia, the Global Program will
be available to developing countries worldwide. And ISO‐COPOLCO has initiated a process to gather information on
consumer protection issues related to the provision of financial services, and the growth of new technologies and
business models that have evolved in response to consumers' needs in financial services such as ethical practices in
the provision of financial information and disclosure, best practices regarding the provision of financial services,
appropriate design of information for targeted consumer financial products, questionable business practices (e.g.
aggressive marketing practices, unfair contract terms) and liability issues, as well as mechanisms of enforcement
and redress.
The global consumer, it appears, is not fully protected and is unsafe in any currency given the present practices in
the financial services sector.
4 Page
http://www.theconsumerpartnership.wordpress.com; http://www.ghanaconsumerwatch.wordpress.com;
http://www.ghanaconsumerwatch.blogspot.com
THE CONSUMER
PARTNERSHIP
Unsafe in Any Currency: Are Financial Services Providers ripping off Poor (GHANA)
Consumers? consumer education is self‐preservation
Endnotes
i
The Consumer Partnership Working Paper: #1, What is Consumer Protection?, 2010
ii
Louise Greenwood, Africa’s mobile revolution, BBC Africa business report, August 23 2009;
G Ivatury & I Mas The early experience with branchless banking CGAP Focus note No 46, April 2008
iii
Making Finance Work for Africa Partnership (MFW4A) ‐ African Development Bank For more information, visit
http://www.afdb.org/en/topics‐sectors/initiatives‐partnerships/
iv
UN Blue Book Building Inclusive Financial Sectors for Development, UN 2006
v
1‐Our money, Our rights: A guide to member action on World Consumer Rights Day, 15 March 2010, Published by
Consumers International; 2‐Our money, Our rights: How the global consumer movement is fighting for fair financial
services, Published by Consumers International in December 2009, For more information, visit
www.consumersinternational.org; 3‐Our money, our rights: The evolution of financial services in Africa, Published
by Consumers International
vi
Bank of Ghana http://www.bog.gov.gh/ ‐, Generated: 7 March, 2010, 21:49
vii
Warren, Elizabeth, Unsafe at Any Rate [If it's good enough for microwaves, it's good enough for mortgages. Why
we need a Financial Product Safety Commission.], in Democracy: A Journal of Ideas Issue #5, Summer 2007
viii
Mensah, Irene Janice & Mensah, Gifty, Ghana's Interest Rate Highest In Africa, Public Agenda: (March 15th,
2010), For more information, visit http://ghanaweb.com/public_agenda/article.php?ID=14599
COPOLCO 2010 workshop, Restoring consumer confidence in global financial services
ix
The World Bank Global Program on Consumer Protection and Financial Literacy,
x
COPOLCO 2010 workshop, Restoring consumer confidence in global financial services
Photos Credit: Images on pages 1, 2 and 4 culled from Consumers International (CI) material.
© 2010 The Consumer Partnership, Ghana. All rights reserved
The Consumer Partnership‐Ghana [The‐COP]
PMB KD28
Kanda‐Accra
Ghana
Tel: +233 207 198 999; +233 275 315 135; +233 244 736 924; +233 277 736 924
Email: jytlukaz@gmail.com; theconsumerpartnership@gmail.com; etreku@gmail.com
The Consumer Partnership (THE‐COP) is a non‐profit Consumer Protection Promotional Organization with the
aim of promoting Consumer Education, Consumer Participation in the Standardization Process in Ghana and
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encouraging Consumer Comparative Shopping.
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http://www.ghanaconsumerwatch.blogspot.com