Client Protection in Ghana

Executive Summary

Ghana’s banking system and economy is growing. Currently there is awareness on the part of the microfinance networks and non-governmental associations to promote the subject of consumer protection. However, some legal or regulatory involvement will be necessary in the future to create a strong foundation for consumer protection in financial services. There is also a need for a more centralized body to oversee the various sectors of the microfinance industry, since current regulation is scattered across many different institutions. The status of consumer protection in Ghana is currently weak, because there has not been enough action by the government to tackle the main issues.

There is no general consumer protection law, and there are no clear consumer protection regulations for financial services. Banks’ interests and client interests are not adequately defined and differentiated in the existing laws.
Informal collectors and creditors have the advantage of being close to the population they serve and offering fast service, but there are concerns about their behavior with respect to consumer protection because many of them are not part of any industry association.
GHAMFIN and SPEED, two microfinance facilitators, have launched a campaign to teach financial literacy as well as to educate the customers on their rights and responsibilities.

Introduction

Though located on a continent where 40% of the population lives on less than one dollar per day, Ghana is one of Africa’s most peaceful and economically thriving countries. Ghana has seen significant social progress in recent years, enjoying among the highest life expectancies and lowest HIV rates in all of Sub-Saharan Africa. In addition to this social progress, the last decade has also brought significant expansion of the economy and national markets. According to the World Bank, “Ghana’s economic performance continues strong, with 2008 being the fourth consecutive year that the country records real GDP growth rates at or above 6 percent.” Nevertheless, Ghana’s economy is still dependent on international support and agriculture.

Ghana is one of the easiest countries in Africa in which to do business. According to an annual report distributed by the World Bank Organization entitled Doing Business 2009, out of the 46 Sub-Saharan countries in the study, Ghana was ranked the 5th easiest to terms of the enabling environment for business. As a whole, the market environment in Ghana is very hospitable for business, but the complex process of starting a formal sector business in the country does establish barriers that could have potential consequences for consumers.

In Ghana, much like the rest of the world, 2007 saw the most remarkable growth in many banks’ network of branches. After the Bank of Ghana introduced new legislation making it easier for banks to engage in retail banking, competition has increased. The increase in competition has been accompanied by growth in the financial markets as well as innovation and technological advances.

However, the status of consumer protection in Ghana is not strong. The country’s regulatory authorities have yet to come up with a basic consumer protection law, and it is not clear yet if that law would incorporate financial services. There are currently good intentions on the part of the microfinance networks and non-governmental associations to promote the subject. However, some legal or regulatory involvement will be necessary in the future to create a strong foundation for consumer protection in financial services.

Legal Framework

The Bank of Ghana (BOG) has the overall supervisory and regulatory authority regarding all of the country’s financial institutions. It was created by the Bank of Ghana Act of 2002 and has the mandate to ensure that:

depositors’ funds are safe;
the solvency, good quality assets, adequate liquidity and profitability of banks are maintained;
adherence to statutory and regulatory requirements is enforced;
there is fair competition among banks; and
an efficient payment system is maintained.

By law, all banks and non-bank financial institutions must be licensed by the BOG. Once they are licensed, the BOG ensures that they follow banking rules and regulations, including the 2004 Banking Act (Act 673); the 1993 Financial Institutions (Non-Bank) Law (PNDC Law 328); the 1963 Companies Code (Act 179); and various BOG notices, directives, circulars, and regulations. The Bank of Ghana supervises and regulates the financial system, including considering and proposing reforms to the banking industry to facilitate the creation of wealth, economic growth, and development within Ghana. The Banking Act of 2004 is the primary regulatory tool enforced by the Bank of Ghana.

The Banking Act is a fairly organic law, but interestingly for Consumer Protection it has a clause that prevents directors, officers, or any other employee of a bank from disclosing information relating to the affairs of a customer with that bank. Exceptions to this clause include instances where the disclosure of the information is required by law, by a court of competent jurisdiction, or by the Bank of Ghana or when disclosure is authorized by the customer or is in the interests of that bank. This is very interesting because it does not draw a clear line between the interests of consumers and the interests of banks.

The Investigation and Consumer Reporting Office (ICRO) is the office within the Bank of Ghana that has the responsibility of protecting financial consumers and educating them on their rights and responsibilities. The ICRO serves not only to protect the consumer, but also to promote confidence, discipline, and harmony within the banking industry. The ICRO regulates both banks and non-bank financial institutions.

This office promotes nine recommendations that clients should take into account to protect themselves from abusive behavior by banks and other financial institutions:

1. Check that the financial institution you are dealing with is licensed by the Bank of Ghana.

2. Read all information given to you, especially the conditions (small print).

3. Ask questions about anything you do not understand.

4. Check carefully any information you obtain about the benefits of a product/services e.g. interest rate.

5. Make sure you understand the nature of the risks involved.

6. Make sure you understand the charges involved.

7. If a deal sounds too good/attractive to be true, double check from other sources before signing up.

8. Contact the ICRO help line when in doubt.

9. Shop around at other banks.

The ICRO also has a section dedicated to the rights and responsibilities of clients and banks, where it emphasizes communication and transparency.

According to Dr. Charles Ackah, a Research Fellow at the Institute of Statistical, Social and Economic Research, “Ghana currently lacks a comprehensive consumer protection law.” Without a comprehensive consumer protection [law] currently in place, Ghana will struggle with abuses in the market that arise from unhealthy competition, poor communication and subpar education. A National Competition Law is in the works to ensure ‘lower prices, higher quality goods and services with variety of choices’.” The talks about this draft law have been ongoing since 2007, however, there is no such law in place at this time.

Nevertheless, there are a series of institutions mandated to oversee sector-specific consumer protection policies. They include:

Non-Bank Financial Institutions

The Rural Banks were initiated in 1976 as a response to the limited penetration into rural areas and to better mobilize savings from local communities. Rural Banks were licensed under the old Banking Act of 1970 with special rules created by the Bank of Ghana permitting small unit banks to be established with a minimum capital of only US$43,000, provided that the capital was raised from the local community that the bank was to serve.

In 1995, the name Community Bank was adopted for any new rural banks that were commissioned. These Community Banks were subjected to higher entry standards. Only 6 out of the 130 Rural Community Banks (RBCs) are presently called Community Banks. The Bank of Ghana found the task of supervising these banks to be costly in terms of personnel, due to the fact that they are spread throughout the country.

Historically, credit unions have been viewed more as social, cooperative groups than as financial entities. They are licensed under the Co-operative Societies Decree of 1968 and only partially supervised by the Co-operative Council. Some element of regulation is implicit in the requirement that a credit union must first be established as a thrift Study Group and undergo tutelage under the Ghana Cooperative Credit Unions Association before being considered to be in good standing, one of the criteria in order to be officially registered with the Department of Cooperatives.

A new Credit Union Act (CUA) has been drafted that would explicitly recognize the dual roles of the Department of Cooperatives, as the registering authority, and BOG, as the financial regulatory authority. The law would spell out the supervisory functions that would be delegated to CUA, which would then report to the Credit Union Supervisory Board, a new Board proposed in the Act. The draft law is currently under review at BOG, which has been empowered by the Bank of Ghana Act of 2002 to delegate supervision by authorizing “any person to exercise the power of the Bank to regulate and supervise non-bank financial institutions.” This authority rests with the BOG, however it is unsettling what are the criteria to choose the members of the Credit Union Regulatory Authority. The Law could be more specific in that sense.

Under the World Bank’s Financial Sector Adjustment Project, the Government sought to diversify and modernize the financial sector by introducing the Financial Institutions (Non-Banking) Law of 1993, which established nine categories of financial institutions: discount companies, finance houses, acceptance houses, building societies, credit unions, mortgage finance companies, venture capital funding companies, leasing and hire purchase companies, and S&Ls. The Bank of Ghana set up a new Non-Bank Financial Institutions Department to process the licensing and supervision of these institutions. The NBFI Law brought under regulation a category of semi-formal financial institutions known as "susu" companies. Under the NBFI law, such companies were required to become licensed Savings & Loans Companies.

Susu collectors are people who collect savings from their customers, generally on a daily basis, to put towards a savings plan. Susu collectors return the accumulated savings, minus compensation, to their customers at the end of the period. The amount collected can be very low, implying that the Susu collectors serve a population that may not be eligible to open formal savings accounts. As the Bank of Ghana does not regulate Susu collectors, a portion operate under the regulations of the Ghana Cooperative Susu Collectors Association. According to the International Fund for Agricultural Development there are advantages and disadvantages to the Susu system. Note that most of the disadvantages have to do with Client Protection.

These informal financial services have certain advantages, such as:

good knowledge of the local economy;
good outreach to clients (doorstep service);
intimate knowledge of their clientele and their businesses;
low transaction costs;
very little or no bureaucracy and paperwork;
flexibility to adjust to changed circumstances, as in emergencies; and
quick turn-around time.

There are also recognized disadvantages, such as:

Susu system losses as a result of inflation, late collection or the lack of interest on savings;
often high interest rates among moneylenders;
overdependence on trust, which can be abused;
no linking of credit and savings;
low volumes of credit or savings;
limited financial products;
no legal recourse to deal with defaulters or, for savers, fraud;
with ROSCAs (rotating savings and credit association/club), each member has to await his or her turn to receive a loan.

Networks

Ghana has a new Consumer Protection Agency, a non-governmental body, that will serve as a mediator for consumer concerns and an advocate for social issues as well as strengthening and supporting the development of industry standards and mechanism for addressing abuses of consumer rights. This Agency does not have a website yet.

Ghana MicroFinance Institutions Network (GHAMFIN)

GHAMFIN is an informal network of institutions and individuals that operate within Ghana's microfinance industry. The network evolved from a research program sponsored by the World Bank, which was designed to strengthen microfinance institutions and to contribute to a mechanism for supporting sustainable grass root institutions that provide financial services to the poor.
It represents the vast majority of institutions in Ghana that provide microfinance services. These institutions include Financial NGOs, Susu collectors, rural banks, credit union associations, apex bodies, business development service providers, and savings and loans institutions. Its mission is to coordinate, support, and develop the Ghanaian microfinance industry.
GHAMFIN's objectives are: to establish performance indicators for self-regulation of microfinance, develop a base of microfinance information, educate members on best practices, provide access to training for members to improve capabilities, enhance integration between the formal and informal sectors, and collaborate with the government, donors, and other networks seeking research and development funds to solve common problems facing the microfinance industry.

The organization does not currently have a code of ethics. The Network, however, is active in consumer protection. A the end of 2007, GHAMFIN, in partnership with SPEED Ghana, launched a consumer education and protection campaign specifically targeting the clients of microfinance. The campaign sought to teach financial literacy as well as the customers' rights and responsibilities.

SPEED will launch a consumer education and protection program through radio programs, distribution of posters, and flyers. Through the training of professional financial counselors, micro, small and medium enterprises and other clients become aware of their own financial behavior and the shortcomings of their financial literacy skills. Finally SPEED supports the writing and acceptance of a Code of Conduct for MFIs when dealing with small depositors and borrowers.

Ghana Cooperative Susu Collectors Association (GCSCA)

GCSCA was established in 1994 as an umbrella organization for all regional Susu collectors societies in Ghana. There are approximately 4,000 Susu collectors in Ghana, a large portion of which belong to the GCSCA. It seeks to regulate the operations of Susu collectors, minimize fraud, encourage and mobilize savings, protect the customers' mobilized funds, provide credit to the poor, and deepen the intermediation between banks. GCSCA imposes a number of regulatory barriers to entry to the association as well as providing services to its members, with the purpose of improving public confidence in doing business with those members.

Conclusion

The legal framework for consumer protection in Ghana is weak. In spite of efforts by non-governmental organizations and independent associations to improve it, regulation is scant. It is positive that the central bank has a consumer reporting office that is designed to work for the interests of clients. However, no law has been forthcoming that goes beyond transparency in order to safeguard clients. There is also a need for a more centralized apex body to oversee all of the sectors of the microfinance industry, as regulation, while present, is currently scattered across many different institutions.

The initiative by SPEED Ghana and GHAMFIN is an interesting one, which should be followed closely in order to monitor their results. A good start for this initiative might be the development of a code of conduct or ethics that focuses on client protection and education.

Despite the weak financial situation of the government, the low level of economic development, and the need for more regulation, the outlook for Ghana is good, because of a stable political environment, improving external liquidity, and manageable levels of net public external debt and debt service payments.

We appreciate the contributions of the students of Notre Dame’s Student International Business Council (SIBC) who assisted with the research and writing of this country profile. These profiles are not exhaustive and have not been reviewed by country experts. If you notice a gap or error in any of the profiles, we would very much appreciate your comments about how they can be improved. In this way we can work together to expand our understanding of the variety of client protection strategies and initiatives that are being pursued in different parts of the world.

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