COMMON CODE OF CONDUCT (CoC) FOR MICROFINANCE …

1 COMMON CODE OF CONDUCT (CoC) FOR MICROFINANCE INSTITUTIONS IN GHANA Version 1 DECEMBER 2014 Page 2 Final Draft CoC 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).

2 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.

3 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 3 Final Draft CoC 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.

4 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. The Ghana Association of Savings and Loans Companies (GHASALC) (24 members). iii. The Ghana Association of MICROFINANCE Companies (GAMC) (628 members). iv. The Ghana Cooperative Credit Union Association (CUA) (538 members). v. Association of Financial NGOs (ASSFIN) (44 members).

5 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 4 Final Draft CoC The Code of CONDUCT (CoC) advocated by GHAMFIN through this document, is binding on the GHAMFIN members directly and their MFIs indirectly.

6 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 sub-sectors. 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.

7 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 5 Final Draft CoC PART II COMMON CODE OF CONDUCT 1.

8 INTERGRITY & ETHICAL BEHAVIOR GHAMFIN members and MFIs must design appropriate policies and operating guidelines to treat clients and employees with fairness and dignity. GHAMFIN members and MFIs must CONDUCT their business by means of fair competition and not seek competitive advantages through illegal or unethical practices. 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 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. MFIs display/communicate the terms and conditions of products clearly in a language understandable by the clients .

9 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: 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 6 Final Draft CoC 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.

10 Fees recovered for insurance coverage and risks covered. Transparency for Deposit Products: MFI must disclose the following with respect to savings products Interest rate per annum and frequency of interest calculation ( 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. MFIs must give signed receipt / acknowledgement for all remittance / repayment made by clients . Fee on non-credit products/services will be collected only with prior declaration to and consent by clients . 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 clients1 . 3. client protection MFIs and their agents deployed by them for whatever service shall ensure that they show mutual trust and respect in their dealings with clients .)