COMMON CODE OF CONDUCT (CoC) FOR MICROFINANCE INSTITUTIONS IN GHANA. Version 1

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Eileen Fletcher
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1 COMMON CODE OF CONDUCT (CoC) FOR MICROFINANCE INSTITUTIONS IN GHANA Version 1 DECEMBER 2014

2 PART I PREAMBLE A: BACKGROUND The Ghana Microfinance Institutions Network (GHAMFIN) was registered in 1998 as a company limited by guarantee. It is a network of Apex Associations and their member institutions engaged in the provision of microfinance services. GHAMFIN has associate and honorary members who provide support services to the industry. It comprises a diverse range of Microfinance sector actors including, Apex Associations such as the ARB/ARB Apex Bank Ltd, Association of Financial NGOs (ASSFIN) and Ghana Cooperative Credit Unions Association (CUA). Others include Ghana Cooperative Susu (savings) Collectors (GCSCA), Ghana Association of Savings and Loans Companies (GHASALC), Ghana Association of Microfinance Companies (GAMC) and Money Lenders Association of Ghana (MLAG). The other actors are Business Development and Technical Service Providers. It is widely recognized as the umbrella association for the Ghana Microfinance industry and has been the key advocate on client protection and social performance in the microfinance arena. This Common Code of Conduct (CoC) for Ghana Microfinance Industry has been driven by the state of consumer protection practices and concerns thereon. Studies on consumer protection practices in Ghana have revealed gaps in the implementation of consumer protection principles. Examples of gaps necessitating this code of conduct are highlighted hereunder: i. Absence of a comprehensive law on consumer protection for microfinance clients. ii. No industry-wide code of conduct that incorporates global standards for consumer protection. iii. Lack of dedicated resources and efforts to translate the endorsement of the Smart Campaign Client Protection Principles into good practices, including absence of client complaint redress mechanisms. iv. Over indebtedness is an area of increasing risk. v. Absence of industry wide arrangement to gather, analyze consumer protection data and report on MFIs financial and social performance. B. OBJECTIVES OF COMMON CODE OF CONDUCT The Common Code of Conduct is introduced to enable microfinance practitioners and their associations to follow fair practices and consumer protection principles in line with expectations of Bank of Ghana (BoG), Government of Ghana and other stakeholders. Key objectives of the CoC are as follows: Page 2

3 i. To develop a set of ethical and fair practices guidelines for GHAMFIN members and MFIs. ii. To encourage greater client protection practices through transparent product information, pricing, responsible sales, adequate grievance recourse mechanisms, fair practices and client education. iii. To protect and enhance the reputation of the microfinance sector by encouraging ethical practices. iv. To improve cooperation and coordination among industry players by supporting the development of information sharing and participation in common forums. v. To build human resources in the microfinance sector amenable for client protection practices. C: KEY DEFINITIONS 1. GHAMFIN Ghana Microfinance Institution Network (GHAMFIN), is the network formed by seven associations of different Microfinance Institutions, it is an association of associations. The names of the seven associations, which formed GHAMFIN, are listed below with their member-mfi-base as of January 2015: i. Association of Rural and Community Banks (139 members). ii. iii. iv. The Ghana Association of Savings and Loans Companies (GHASALC) (24 members). The Ghana Association of Microfinance Companies (GAMC) (628 members). The Ghana Cooperative Credit Union Association (CUA) (538 members). v. Association of Financial NGOs (ASSFIN) (44 members). vi. The Ghana Cooperative Susu Collectors Association (GCSCA) (472 members). vii. Association of Money Lenders (450 members). 2. GHAMFIN Members GHAMFIN members are the seven associations listed in GHAMFIN definition (1) above. The definition would also include any new association that is admitted into GHAMFIN membership in future. 3. MFIs MFIs are microfinance institutions (MFIs) that are licensed to provide microfinance services and are members of GHAMFIN members. The MFIs are directly providing financial services to individual clients. 4. Clients Clients are individual beneficiaries of microfinance services of MFIs. They are mostly left unreached by mainstream banks. They include both savers in and borrowers from MFIs who also avail themselves to a host of other services rendered by MFIs. 5. Common Code of Conduct (Common CoC) Page 3

4 The Code of Conduct (CoC) advocated by GHAMFIN through this document, is binding on the GHAMFIN members directly and their MFIs indirectly. This is called Common Code as this code lays down basic principles to be followed by microfinance practitioners to protect the clients and serves as a base document for GHAMFIN members to issue specific codes to their respective MFIs. D: APPLICABILITY OF COMMON CODE OF CONDUCT This document serves as the Code of Conduct for the microfinance industry in Ghana. This code is applicable to GHAMFIN members directly and their (member) MFIs indirectly. GHAMFIN members shall ensure that the principles of this code are put into practice by their member MFIs. GHAMFIN members work with different types of MFIs who operate different business models and offer different products and services. This common code may therefore be too general to address specific client protection issues pertaining to their respective MFI subsectors. Hence GHAMFIN members, with active involvement of GHAMFIN, shall expand this code by issuing a detailed code applicable and to be complied with by their respective member MFIs. Such expanded code, however, shall not be contradictory to this Code. GHAMFIN members shall also be required to submit to GHAMFIN, statements of code compliance by their MFIs periodically through qualitative and quantitative data. Notwithstanding the provisions provided in this code, all GHAMFIN members and their MFIs are obliged to follow all regulatory norms and law of the land laid down by the regulators and the government in both letter and spirit. The Code of Conduct prescribes additional requirements to enhance ethical microfinance practices. E: NON-COMPLIANCE GHAMFIN members are urged to follow the Common CoC in letter and spirit and to enable their MFIs to comply with the code to ensure client protection in the microfinance sector. Any issues of non-compliance by GHAMFIN members will be dealt with as per the norms laid-down under GHAMFIN Byelaw. Page 4

5 PART II COMMON CODE OF CONDUCT 1. INTERGRITY & ETHICAL BEHAVIOR 1.1 GHAMFIN members and MFIs must design appropriate policies and operating guidelines to treat clients and employees with fairness and dignity. 1.2 GHAMFIN members and MFIs must conduct their business by means of fair competition and not seek competitive advantages through illegal or unethical practices. 1.3 GHAMFIN members and MFIs must ensure that all advertising and promotional materials are fair and reasonable, do not contain misleading information and comply with all relevant legislation, codes and rules. 2. TRANSPARENCY 2.1 MFIs must disclose all terms and conditions to clients / potential clients for all services offered. Disclosure must be made prior to signing any contract for the purchase of any product /service. 2.2 MFIs display/communicate the terms and conditions of products clearly in a language understandable by the clients. 2.3 When the client cannot read the terms of the products, MFIs must explain orally the terms and conditions to the client in the presence of the client s witness who can read and write. Transparency for Credit Products: 2.4 MFIs must disclose the following (to loan clients): Rate of interest on loans expressed in Annual Percentage Rate (APR) Information on variation, if any, on the interest rate during the loan service period Loan Repayment Schedule with break-up details principal, interest and other fees Loan period Processing fee Security or any other deposit Other direct or indirect charges / fees Applicable fees in the event of voluntary foreclosure of loan by client and advance repayment. Page 5

6 2.4.9 Terms of compulsory foreclosure of loan in the event of default Default interest rate (penalty charges) Loan recovery procedure in the event of default by the borrower Fees recovered for insurance coverage and risks covered. Transparency for Deposit Products: 2.5 MFI must disclose the following with respect to savings products Interest rate per annum and frequency of interest calculation (i.e. daily/ weekly/monthly/quarterly/half yearly/annually Maturity amount Fees and charges, if any Recourse available to depositors in the event of default by the MFI in returning the deposit back on time. 2.6 MFIs must give signed receipt / acknowledgement for all remittance / repayment made by clients. 2.7 Fee on non-credit products/services will be collected only with prior declaration to and consent by clients. 2.8 MFIs must ensure that once the terms of a transaction has been concluded with a client, it must not be cancelled, varied or amended without mutual agreement between them and the clients CLIENT PROTECTION 3.1 MFIs and their agents deployed by them for whatever service shall ensure that they show mutual trust and respect in their dealings with clients. 3.2 MFIs and their agents shall not behave in a manner that is prejudiced, discriminatory or harassing. They must institute policies against harassment to address issues of abusive, harassing or offensive conduct towards clients. 3.3 MFIs must provide services to clients irrespective of gender, tribe, physical disability, political affiliation or religion. 3.4 MFIs must conduct proper due diligence as per their internal credit policy to assess the need and repayment capacity of clients before making a loan and must only make loan amount commensurate with the clients ability to repay. 1 This clause to be included only when the problem is widespread in Ghana (to be checked with stakeholders and decided) Page 6

7 3.5 MFIs that employ debt collection agencies to collect overdue amounts should have detailed guidelines for these agencies. Guidelines should include clauses pertaining to the following: Confidentiality of client information Acceptable debt collection tactics that may not be construed as harassment by client Proper identification to ensure that customer is adequately informed of the nature of the relationship between the collection agency and MFIs. 3.6 MFIs should remain accountable to clients for any complaints arising out of debt collection by third party agencies and should not disclaim responsibility for misconduct on the part of the debt collection agencies. 3.7 MFIs must ensure that all client information is treated as confidential and adequately protected from unauthorized disclosure or misuse. 3.8 Compulsory bundling of products (making essential product, as perceived by clients, available for clients only under the condition that the other non-essential product is also bought by clients along with the essential product) to other products and services shall be avoided. Clients shall have a free choice to decide whether to buy such non-essential products from MFIs or any other provider in the market. 4. GOVERNANCE 4.1 GHAMFIN members and MFIs must incorporate a formal governance system that is transparent and professional, and adopt best practices of corporate governance, ensuring fairness, integrity and transparency in board decisions. 4.2 The Board of GHAMFIN members and MFIs shall actively involve themselves in all policy formulations and other important decisions. The board shall supervise the performance of the executive management, and monitor financial and client protection performance on a regular basis. 4.3 GHAMFIN members and MFIs shall document policy decisions of the board and institute operational guidelines, training and monitoring system for putting policies into practice. 4.4 At least one-third of MFI board members shall be independent. GHAMFIN members and MFIs shall ensure that members of Board of Director are persons with good and sound reputation and with good understanding of the microfinance sector. Page 7

8 4.5 GHAMFIN members and MFIs shall institute capacity development programmes for all board members to make them gain working capacity for the tasks required of directors. 4.6 The board shall ensure that the executive management submits summary of report on compliance to Common Code of Conduct, specifically indicating any deviations and reasons thereof, at the end of every financial year. 4.7 GHAMFIN members and MFIs shall have robust monitoring, internal management and training system for financial sustainability and risk management in order to offer continued uninterrupted services to clients in an ethical and professional manner. 4.8 GHAMFIN members and MFIs are encouraged to have experienced corporate communication and public relations team/mechanism to communicate with political, regulatory and government establishments on social mission and responsible finance practices of the MFIs and the microfinance sector. 4.9 GHAMFIN members and MFIs must ensure regular checks on client awareness and understanding of the key terms and conditions of the products/services offered/availed (as part of internal audit systems or through some other regular monitoring system). 5. CLIENT EDUCATION AND FINANCIAL LITERACY 5.1 GHAMFIN members and MFIs shall have a dedicated process to raise customers awareness on the product options available in the market and rights and responsibilities with respect to financial transactions. 5.2 New clients must be informed of the member institutions policies and procedures to help them understand their rights and responsibilities. 6. DATA SHARING 6.1 GHAMFIN members and MFIs shall agree to participate in regional and national forums organized by GHAMFIN and GHAMFIN members respectively to share quantitative and qualitative information like number of service providers in a given geographical area, socio-economic conditions and credit behavior of the clients, etc. 6.2 Whenever a GHAMFIN member / MFI comes across Incidents of High (Loans) Default (IHD) among their clients / other MFIs, they shall inform fellow MFIs, GHAMFIN members and GHAMFIN, as the case may be, so as to caution other members to be Page 8

9 wary of further lending to clients in the affected geographical area / clients affected by such incidents. 6.3 GHAMFIN members and MFIs shall institute MIS system to share accurately, transparently and consistently the operational, financial and other key data and reports with regulatory, statutory bodies and other relevant institutions such as Bank of Ghana, Banks, GHAMFIN and GHAMFIN members among others. 6.4 Data to be shared with GHAMFIN will be at aggregate level and be treated with high confidentiality. 7. FEEDBACK /GRIEVANCE REDRESS MECHANISM 7.1 GHAMFIN members and MFIs must provide their MFIs and clients respectively access to an independent feedback mechanism through which they can resolve disputes with the members or their agents as a means for improving on service delivery. 7.2 GHAMFIN Members shall set up toll free numbers and their member MFIs shall operate omplaint register / complaint box and other techniques to enable the clients to report their grievance both at the offices from where they avail the service and at Head Office as well as at offices of GHAMFIN members and GHAMFIN. The toll free numbers would be maintained at Association (GHAMFIN member level) 7.3 MFIs shall communicate with their customers through all promotional materials, product documents, passbooks, contract documents shared with clients, etc., the existence of, access (as item 7.2 above) to the grievance redressal mechanism. 7.4 MFIs and GHAMFIN members shall ensure that the staff is well trained to handle client complaints at field, branch and head office levels as applicable. 7.5 MFIs must provide customers who are not satisfied with the outcome of the suggested resolution to their complaint, the alternative, third-party solutions that could resolve to clients satisfaction. 8. FAIR PRACTICES TOWARDS EMPLOYEES 8.1 GHAMFIN members and MFIs must make employment decisions based on business requirements and merit, and in compliance with applicable employment law, including labour law. Page 9

10 8.2 GHAMFIN members and MFIs must maintain a safe workplace for their employees. Appropriate logistics should be provided for undertaking collections on the field. 8.3 GHAMFIN members and MFIs must ensure that all employees are paid at least the national minimum wage and that they fulfill their obligations as employers to the Ghana Revenue Authority (GRA) and the Social Security and National Insurance Trust (SSNIT). 8.4 GHAMFIN members and MFIs should ensure a transparent remuneration system that is conducive to implementing client protection best practices such as avoiding over indebtedness. For instance, staff incentives should not be exclusively linked to loan origination and volume of transaction, but also to portfolio quality / Client satisfaction. 8.5 GHAMFIN members and MFIs should desist from poaching staff from other members/fellow MFIs. The recruitment shall follow proper selection process, including advertisement and interview, seeking reference check, relieving order, no objection certificate, etc. -END- Page 10

CODE OF CONDUCT FOR MICROFINANCE INSTITUTIONS IN INDIA

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