PRICING TRANSPARENCY:

Transcription

1 PRICING TRANSPARENCY: IMPORTANCE OF POLICY FRAMEWORKS IN MICROFINANCE Moses Ochieng, DBM June 2013

2 Consumer Protection Principles Transparency fair treatment Recourse 2

3 Situation Analysis Regulatory Guidelines Reviewed regulatory guidelines (CBK, SASRA, CMA, IRA, RBA) Regulatory lacuna non-dtm but interspersed in various legislations hire-purchase, leasing etc Consumer Perceptions Based on consumer research (consumer protection diagnostic study report, 2010) 3

4 Transparency - Regulatory Guidelines Sector Regulations Adequacy Banking DTMs SACCOs Mobile Payments Capital Markets CBK prudential and risk management guidelines (2012) Microfinance (Deposit-Taking Microfinance Institutions) Regulations, 2008 SACCO Societies (Deposit-taking SACCO Business) Regulations 2010 Kenya Information and Communications (Consumer Protection Regulations) 2010; E- money Guidelines (2012) CMA Act (Cap 4.8.5A; section 13 (2)(c)) Insurance IRA Guidelines 2012 (Section 10, ) Unregulated providers (credit only MFIs, payroll lenders, hire-purchase etc) No Regulatory Guidelines High Medium Low 4

5 Transparency - Consumer Perceptions Sector Concerns Magnitude Banking/DTMs/SACCOs Insurance Mobile Payments Long term savings (Capital Markets, Pensions, Retirement annuities) Unregulated providers (credit only MFIs, payroll lenders, hirepurchase etc) Clarity of bank charges, interest rate and penalties Difficulty understanding loan documents and terms Hidden charges Salespeople do not clearly explain products Product details not explained in writing Charges not clearly explained Those who received pensions complained they received less than what they expected Loss of investments through stock brokerage firms ASCA, ROSCA and moneylender - fees and charges explained prior to service and surprising number signed loan contract agreements Low Medium High 5

6 Fair Treatment - Regulatory Guidelines Sector Regulations Adequacy Banking DTMs CBK Prudential and Risk Management guidelines (2012) Microfinance (Deposit-Taking Microfinance Institutions) Regulations, 2008 SACCOs SACCO Regulations (Article 31, 32, 38) Mobile Payments Kenya Information and Communications (Consumer Protection Regulations) 2010; E- money Guidelines (2012) Capital Markets Conduct of Business Regulations (2011) Insurance IRA Guidelines (2012), Section 10.3 Unregulated providers (credit only MFIs, payroll lenders, hire-purchase etc) No Regulatory Guidelines High Medium Low 6

7 Fair Treatment - Consumer Perceptions Sector Concerns Magnitude Banking/DTMs/SACCOs Insurance Mobile Payments Long term savings (Capital Markets, Pensions, Retirement annuities) Unregulated providers (credit only MFIs, payroll lenders, hire-purchase etc) Pressured to sign loan agreements Repossession and auctioning off of goods Pressured to sign documents right away Making claims far from easy No notable concerns Consumers pressured to make an investment Mixed experiences- seizing and auctioning of collateral is common but consumers accepts it as normal practice Low Medium High 7

8 Recourse - Regulatory Guidelines Sector Regulations Adequacy Banking DTMs CBK Prudential and Risk Management guidelines (2012) Microfinance (Deposit-Taking Microfinance Institutions) Regulations, 2008 SACCOs SACCO Societies Regulations (2010)- Cooperative Tribunal Mobile Payments Kenya Information and Communications (Consumer Protection Regulations) 2010; E- money Guidelines (2012) Capital Markets Capital Markets Act (Cap 485A, Article 13, 16) Insurance Insurance Act establishes the Insurance Commissioner- equivalent to a magistrate; AKI voluntary code Unregulated providers (credit only MFIs, payroll lenders, hirepurchase etc) Judicial or sectoral association where one exist High Medium Low 8

9 Recourse - Consumer Perceptions Sector Concerns Magnitude Banking/DTMs/SACC Os Insurance Uncertain about available recourse options Available recourse systems not easy to use nor timely Generally issues resolved after contacting institution Users unsure how and where to complain Mobile Payments Long Term Savings (Capital Markets, Pensions, Retirement annuities) Unregulated providers (credit only MFIs, payroll lenders, hire-purchase etc) Users clear about what to do when problems arose Many consumers unaware of recourse mechanism Those who lost money in pyramid schemes were unaware of existence of any recourse mechanism Low Medium High 9

10 Summary- Recourse Banking/DTMs/SACCOs Mobile Payment Regulations Consumer Perceptions Becoming a concern with advent of M-Shwari Insurance Capital Markets, Pensions, Retirement annuities Unregulated providers High Medium Low 10

11 Example of how Consumer rights are protected against non-transparent communication (1) CBK PG/22 of 2012 Fairness An institution shall not: o include an unconscionable term in an agreement o Disguise, diminish, obscure or conceal a material fact or warning, use of font size-minimum 12 point An institution shall be deemed to have lent recklessly if it took no steps to assess the proposed consumer s general understanding and appreciation of the risks and total cost of proposed credit agreement and his/her rights and obligations under the agreement 11

12 Example of how Consumer rights are protected against non-transparent communication (2) Prior to a consumer choosing a product/service, an institution shall: o Explain in plain language the key features of the range of products/services so as to enable the consumer to arrive at an informed decision, including any charges and fees which would be incurred; o Request the consumer to provide all information needed to verify eligibility for a product/service Where a consumer has chosen a product/service o Provide the consumer with a key facts document for the product/service o Give the consumer a copy of the terms and conditions for the consumer s agreement or consent; and o Inform consumer of applicable charges, fees or additional interest the consumer will bear 12

13 Example of how Consumer rights are protected against non-transparent communication (3) An institution should educate their consumers on their products/services through mechanisms such as: o posting FAQ in their websites o Operating an effective call centre o Public awareness campaigns and brochures Cooling-off period o A consumer may, within five working days after signing a contract, revoke or terminate the contract by signed written notice Notice of changes to terms and conditions o At least 30 days in advance before implementing any changes to the terms and conditions, fees or charges o At least 30 days in advance of any planned changes in interest rates 13

14 Example of how Consumer rights are protected against non-transparent communication (4) Transparency- general requirements Information given to a consumer is fair, clear and transparent Ensure information is easily comprehensible so that a consumer can make informed choice Ensure information is written in plain English and Swahili and in a legible font size minimum 12 Where consumer is unable to understand English or Swahili, provide an oral explanation in a language the consumer understands Consumer signs as evidence that an oral explanation has been given Key facts document Contracts and other documentation relating to financial products/services are summarised in a key facts document written in plain language Provide to every consumer, as part of the advice given, a copy of key facts document 14

15 Example of how Consumer rights are protected against non-transparent communication (5) Fees and charges Provide a consumer with a schedule of all fees and charges Display prominently its standard fees and charges at all its branches, promotional materials and any other communication channels Inform a consumer of the basis of charges for services rendered which are not subject to standard fees and charges Inform a consumer of any additional charges or expenses such as search fees Display of fees and charges In a prominent place, in their places of business The display of fees and charges to be in a conspicuous place and legible Marketing and promotion All advertising and promotional materials to be fair, clear and not misleading Information is written in plain language and legible 15

16 Regulatory option: New Statutory Efforts Description - Financial Sector Consumer Protection Agency (FCPA)- A new financial services cross-market Agency that regulates conduct and provides dispute resolution services across financial products and providers (regulator and complaints handler) including unregulated market intermediaries (Credit-only MFIs, unregulated SACCOs, payroll lenders etc) - Public Private Partnership Pros -addresses limitations of selfregulation and sectoral regulation -No split between multiple regulators -One-stop shop for all issues and collaboration with sector regulators Cons -Time, cost and other implementation challenges - Regulation and dispute resolution purposes would mean less flexible and less driven by industry cooperation 16