Friday, December 11, 2009

Tanzania: financial reforms fail on consumer protection

Friday, 27 November 2009 11:51 Written by Administrator
ALTHOUGH Tanzania has taken major efforts to reform the banking and financial institutions sector over the last two decades, the issue of consumer protection has remained virtually untouched by the 'reforms.

'This situation has led to increasing abuse of good business practices by many of the financial institutions and banks, as well as a singular lack of fairness and transparency in dealing with customers."The providers of financial services in Tanzania need to understand that, as long as they continue to gain unfairly from their customers.... they are nonetheless sowing the seeds of their own destruction...," said Daimon Mwakyembe, chairman of the Tanzania Consumer Advocacy Society (TCAS).

Presenting a paper recently on 'The Quality of Financial Services: a Critique From Consumers' Perspective,' Mwakyembe cited as an example of bad practice the banks and financial institutions which “have continued to overcharge consumers in terms of fees, interest rates and commissions – while others reject low income consumers out of hand as 'unbankable.'”The occasion was a forum organized by the Government Controller & Auditor-General (CAG) in the nation's commercial capital, Dar es Salaam.

TCAS is a private, voluntary nongovernmental, non-partisan and nonprofit making organization that was registered as a company limited by guarantee in July 2007 under the Companies Act of 2002 (Chapter 212 of the Laws of Tanzania). The Society’s mission is to provide an advocacy platform that would make consumers' voices heard, raise consumers' awareness of their rights, build consumers' ability to claim their rights, as well as make markets accountable and more responsive to consumers' needs and interests.

Observers say most of the banks and financial institutions operating in Tanzania siphon billions of shillings off their customers as a matter of course. This is partly becauseof the latter's ignorance of their rights and dues, and partly because the reforms and extant legislation are silent on the matter.

Mwakyembe – who is a former director-general of the Tanzania Bureau of Standards (TBS) – said despite the reforms, fairness and transparency in the treatment of customers is not always ensured... And lack of capability on the part of customers is still being exploited negatively.As a result, there is no mechanisms on how to curb abusive business practices by financial institutions at the national and international levels, and which adversely affect consumers.

Mwakyembe suggested that the (central) Bank of Tanzania and other relevant authorities need to urgently review the extant financial regulatory policies and legislation. The main objective this time should be to ensure that they – among things – reflect a wide view of consumer protection on ensuring proper business conduct.

It is noted that the Bank of Tanzania, which has the mandate to supervise the banking and financial industry as a whole, has no straightforward consumer protection guidelines.He said this situation will not favour the survival of financial institutions in the long run."Good quality service is a product of right consumer protection and is, thus, the new paradigm that is defining – and, indeed, influencing – the entire economic sector and economic relations," he said.

The International Monetary Fund's review of regulatory systems in 2004 did (among other things) advise on “stipulation and clear identification of common regulatory themes for consumer rights promotion and protection,” Mwakyembe noted.

"Despite efforts in addressing the competitiveness of the financial sector, consumer abuse and rights violation are on the rise, and are directly affecting the economic welfare of many consumers," he stressed.

Noting that ''the main part of poor services in Tanzania's financial market is contributed to mainly by lack of consumers' awareness on their rights when making choices'', Mwakyembe stressed that "inadequate consumer awareness on their rights and obligations is the main stumbling block for realization of good services..."Yet, if there is one area that the financial sector could use to address its economic malaise and ensure its sustainable future, it is through the provision of financial education to consumers.

This would be in line with the implementation of the United Nations Consumer Protection Guidelines of 1999 which encourage Governments and institutions to work out clear, fair, guidelines that protect the interest of consumers.A research conducted in 2007 by the Finscope Group showed that, in order to strengthen financial institutions in any country (including Tanzania), there is a need to promote financial capability to consumers.

This includes empowering people to be capable of managing their financial assets and liabilities, to understand their rights and responsibilities vis-a-vis financial institutions.Mwakyembe: "in my view, financial education to consumers should focus on building financial discipline, managing their incomes, boosting their saving behaviour and the promotion of risk mitigation," he concluded.

In another development, auditor-general of Sweden, Eva Lindstrom, commended the National Audit Office of Tanzania for taking the initiative to organise the forum which, she said, was relevant and timely. In these times of financial crisis, Lindstrom said, “Supreme Audit Institutions in many countries are challenged to properly address the audit of financial supervisory agencies that are aiming at consumer protection and mitigating the risks that large sums of taxpayers' money will have to be used for the rescue of the financial system.”

Noting that the events of the past year have highlighted the significance of financial supervision, she said that financial markets and their institutions must operate in a highly competitive environment – and there will always be efforts made to circumvent the regulations. A strong, independently-organized financial supervisory authority is, therefore, of the highest importance for the stability of the economy and taxpayers.”

The global financial crisis also pointed to the importance of supervision of not only separate financial institutions, but also of the entire financial system. Moreover, the Swede said, new regulations on financial markets will need to be introduced in the years to come, globally. Supervision of cross-border banks will have to be improved – which will most certainly mean more cooperation between financial supervisory agencies in different countries.

Lindstrom observed that central banks failed to foresee the effects of the deterioration of markets that led to liquidity problems. To that effect, monetary policies need to take into account financial stability... And it is within the mandate of central bank to monitor and handle monetary conditions.“The Supreme Audit Institutions have an important role to play in monitoring the operations of the financial supervisory agencies.

Those agencies make up a vital part of the financial infrastructure, and when that infrastructure fails, the costs of that failure are most often transferred to the taxpayers,” she elaborated. Thus we, as auditors, must make sure that we have the knowledge and competence required to audit these agencies. According to her, auditing will create confidence in the system, an asset which is vital in promoting effective financial markets and stable economic growth.


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