Kenya Financial Consumer Protection Diagnostic Nairobi 18 March 2010

1. Kenya Financial Consumer Protection Diagnostic Nairobi 18 March 2010

2. Overview Research Findings - Desk research, key informant interviews, FGD’s Policy Options (Quick Wins) - Embedding consumer protection (CP) in sector acts - Transparency and disclosure - Recourse mechanisms

3. Financial Consumer Protection DiagnosticMandate & Purpose Mandate Support to FEPP Task Force Working Group Purpose Diagnostic of existing financial consumer protection framework Gap analysis Identification of options for improvement

4. Financial Consumer Protection DiagnosticFocus & Process Focus Whole financial sector Average Kenyan Mass market Process IV Submission to MoF III FEPP feedback, stakeholder consultations I In-country diagnostic II International benchmarking and nationwide consumer survey

5. In-country Diagnostic Activities Review of relevant laws and regulations, industry codes and standards Qualitative and quantitative data gathering Key stakeholders interviews Regulatory agencies, service providers, industry associations, consumer representatives, others

6. Conceptual Framework Consumers receive quality services that are characterized by transparency, fair treatment and effective recourse mechanism. Pillars Regulation and supervision Industry standards and codes of conduct Consumer awareness

7. Research Findings Desk research and key informant interviews • Transparency: regulations for disclosure of pricing and terms required across the board • Recourse mechanisms require checks and balances and consumer awareness • Prudential regulation is CP foundation in some sectors • No readily available solution for unregulated services • Principal-agent regulation is timely

8. Main Issues in Banking / DTM

9. Main Issues in SACCOs

10. Main Issues in Mobile Money Services

11. Main Issues in Insurance Desk research, key informant interviews and FGDs • Regulation: Insurance Act offers extensive CP provisions; Commissioner has wide powers to enforce CP and decide on small cases; more effective enforcement needed • Intermediaries need regulations, minimum standards • Consumers have poor image of industry based on slow claims processing, agents malpractices, insurer insolvencies • Transparency: contracts, terms, pricing unclear (Small Print) • Recourse: consumer can complain to IRA, alternatives

12. Main Issues in Capital Markets Desk research and key informant interviews • Regulation: Capital Markets Act offers extensive CP provisions, CMA mandate for orderly, fair, efficient, safe markets; protects investors from failed brokers; has wide powers to enforce CP and prosecute offenders • Extensive regulations exists, need effective enforcement • Complaints: Malpractices by brokers, failure to execute orders, trading on client accounts, IPO refunds • Transparency: extensive disclosures in contracts • Recourse: extensive complaints handling, alternatives

13. Main Issues in Capital Markets Unregulated investment schemes (pyramids) • In all FGDs there was at least one person having lost money in pyramid schemes; Consumers challenged in ability to identify pyramid schemes; Most people ashamed to admit loss of money to pyramids • Suggestion for CMA to license investment schemes seeking to raise money from the public for investments; requirement to seek a license • Special CMA unit to work closely with CBK to ensure capacity to monitor and investigate, oversee alternative investments

14. Main Issues in Retirement Benefits Desk research and key informant interviews • Regulation: Retirement benefits sector has robust law and effective regulator (RBA); issued extensive regulations; complex pension products rely on Trustees and intermediaries – Admin, Managers, Custodians, Fund Mgrs • RBA has explicit objective to protect members; has wide powers to regulate intermediaries; and compensation fund • Transparency: member statements, benefits calculations, members need more say in schemes, better disclosures • Recourse: complaints handling by RBA, need alternatives

15. Focus Group Discussions Sample: 14 FGD in 8 towns (112 men & women) Focus: Across range of instruments Findings: • Non-explained charges for accounts opened • Terms and conditions, means of handling defaults not explained • Legality of recovery processes unclear to consumers • Insurance products have poor image among consumers • M-Pesa is considered safe, fast, private and terms and charges are very clear

16. Focus Group Discussions Some quotes from the discussions: “The banks are doing very little to inform the public about charges, they only talk about advantages, just like BATA, who tell me a certain shoe is KSh 399, I would prefer if it was Ksh.600 with all the charges involved in that.” “There are times, you might check your balance, only to realize that they have made some deductions, when you inquire about it, they tell you to come back the following week, they might return the money, and sometimes they say, they have no idea what happened with the missing money.”

17. Cross-sector Initiatives • Competition Bill of 2009 (pending) • … establishes Competition Authority and Tribunal • offer recourse, promote awareness, support consumer bodies • Consumer Protection Bill (under development) • … establishes Consumer Protection Authority • administers the act to protect consumers

18. Option Selection Factors that guided option selections: • Not ‘all or nothing’ approach • Nature and extent of most critical problems • Benefits or consequences of not acting – for consumers, providers, and the market • The cost to provides of new rules and how the rule might affect affordability and availability • Supervisory capacity and political will to implement and enforce new rules

19. Quick Wins 1. Embed CP in various sector acts 2. Transparency and disclosure • Mandatory disclosure of total cost of credit • Repayment schedule for loan customers • Plain language agreements (explained to customers) 3. Recourse Mechanism • Information of consumers on recourse channels in all agreements & service points • Telephone, email, SMS contacts for complaints • Log of complaints, reviewed by regulator

20. Discussion Groups • Five discussion groups: • CBK/Banks/SACCO’s/MFI’s • CMA/ Investment Groups • IRA/Insurance providers • RBA/Pension Schemes • Policy Advocacy Groups • Discussion Points: • What are the practical ways to embed CP into the sector regulators acts • What are the minimum standards for: • Transparency and Disclosure • Recourse mechanism

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