Rwanda Diagnostic Review of Consumer Protection and Financial Literacy Volume I: Key Findings and Recommendations November 2013 CURRENCY AND EQUIVALENT UNITS (As of November 2013) Currency Unit = Rwandan Franc (RWF) US$ 1 = 673.96 RWF GOVERNMENT FISCAL YEAR January 1 – December 31 ACRONYMS AND ABBREVIATIONS ADR Alternative Dispute Resolution AMIR Association of Microfinance Institutions in Rwanda APR Annual Percentage Rate ASSAR Rwanda Insurers Association ATM Automated Teller Machine BNR National Bank of Rwanda CCP Competition and Consumer Protection CPFL Consumer Protection and Financial Literacy CRB Credit Reference Bureau (CRB) EIR Effective Interest Rate FSDP II Financial Sector Development Strategy for Rwanda FinCap Financial Capability Survey MFI Microfinance Institution MINECOFIN Ministry of Finance and Economic Planning POS Point of Sale RBA Rwanda Bankers Association RCA Rwanda Cooperative Agency SACCO Savings and Credit Cooperative Organization VSLAs village savings and loans associations Disclaimer This Diagnostic Review is a product of the staff of the International Bank for Reconstruction and Development/the World Bank. The findings, interpretations and conclusions expressed herein do not necessarily reflect the views of the executive directors of the World Bank or the governments they represent. ACKNOWLEDGEMENTS A World Bank team visited Kigali, Rwanda, during July 10 –19, 2013, to conduct a Diagnostic Review on Consumer Protection and Financial Literacy (CPFL). The diagnostic consisted of banking and microfinance modules and a desk review on insurance. The review was undertaken in response to a request for World Bank (WB) technical assistance in the field of financial consumer protection made by the National Bank of Rwanda (BNR) in November 2012. The team was led by Leyla Castillo (Financial Sector Specialist, FFIMS), and included Rosamund Grady (Sr. Financial Sector Specialist, FFIMS), David Grace (Consultant, Microfinance Expert), and Karen Den-Toll (Consultant, Insurance and Pensions Expert). Gunhild Berg (Financial Sector Specialist, AFTFE) provided valuable inputs and guidance to the team. Sebnem Sener (Project Officer, FFIDR) and Adetola Adenuga (Financial Analyst, FFIMS) provided inputs and support during the preparation of the present report. The mission held meetings with representatives of relevant stakeholders, including the National Bank of Rwanda (BNR), Ministry of Finance and Economic Development (MINECOFIN), Ministry of Trade and Industry (MINICOM), Office of the Ombudsman, Rwanda Cooperative Agency (RCA), other government entities and public agencies, market players, industry associations, consumer associations and professional bodies. The team has benefited from the overall guidance of Carolyn Turk (Country Manager) and Douglas Pearce (Practice Manager, FFIDR). Peer review comments were received from Angela Prigozhina (Country Sector Coordinator, ECSPF), Craig Thorburn (Lead Insurance Specialist, FCMNB) and Yoko Doi (Sr. Financial Sector Specialist, AFTFE). The team would like to express its appreciation to the Rwandan authorities for their cooperation and collaboration during the preparation of the review. The project team would also like to thank all those who so generously contributed to the final report. The review was prepared as part of the SECO funded Consumer Protection and Financial Literacy program of the World Bank and received complementary funding from the World Bank Africa Region Vice Presidency. The review of the banking and microfinance sectors was based on information and data collected during the mission from publicly available data. The review of the insurance sector was conducted through a desk review using data provided by BNR through data requests and questionnaires, and the analysis is therefore constrained by it. Contents Preface ...........................................................................................................................................................................5 Executive Summary .......................................................................................................................................................6 Rwanda: Consumer Protection and Financial Literacy Diagnostic Review ....................................................................9 General Framework for Financial Consumer Protection in Rwanda............................................................................. 13 A. Institutional Arrangements.................................................................................................................................... 13 B. Legal and Regulatory Framework ........................................................................................................................ 15 C. Transparency and Consumer Disclosure ............................................................................................................. 17 D. Business Practices ............................................................................................................................................... 20 E. Dispute Resolution Mechanisms .......................................................................................................................... 24 F. Consumer Awareness and Financial Education ................................................................................................... 27 Annex I. List of Recommendations............................................................................................................................... 28 Annex II. Financial Sector Development (FSDP II) - Action Plan ................................................................................. 30 Tables Table 1: Summary of Key Recommendations ................................................................................................................8 Table 2: Outreach by Type of Credit Institution, End-June 2012 .................................................................................. 10 Table 3: Access to Formal Financial Services: Selected African Countries ................................................................. 11 Boxes Box 1: Models of Institutional Set up for Consumer Protection Regulation and Supervision ........................................ 14 Box 2: Models of Financial Ombudsman Structures .................................................................................................... 26 Preface The CPFL Review is part of the World Bank Program The review is based on compliance with the principles on Consumer Protection and Financial Literacy, which set forth in Good Practices for Financial Consumer 1 seeks to identify key measures for strengthening Protection , developed by the World Bank using financial consumer protection to help build consumer international benchmarks, such as the principles trust in the financial sector and expand the confidence released by the Basel Committee, IOSCO and IAIS of households to wisely use financial services. and OECD recommendations for financial education and awareness on pensions, insurance and credit CPFL Reviews against Good Practices have been products. Good Practices incorporates provisions of conducted by the World Bank in both middle- and low- directives, laws, regulations and codes of business income countries. These include Armenia, Azerbaijan, practices from the EU, United States, Australia, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Canada, France, Ireland, Malaysia, Mexico, New Republic, Kazakhstan, Kosovo, Latvia, Lithuania, Zealand, Peru and South Africa. Malawi, Mongolia, Mozambique, Nicaragua, Pakistan, Peru, Romania, the Russian Federation, South Africa, The CPFL Review includes a detailed assessment of Slovakia, Tajikistan, Tanzania, Ukraine and Zambia. each relevant financial segment consistent with Good Practices (Volume II), and a report summarizing the The main objective of the review is to assess the key findings for the assessment and prioritized legal, regulatory and institutional frameworks for recommendations (Volume I). financial consumer protection in a country, with reference to international practices. The review addresses the following issues: (1) legal, regulatory and institutional frameworks, (2) transparency and disclosure of information, (3) retail business practices of financial institutions, (4) complaints and dispute resolution mechanisms, and (5) consumer awareness and education regarding the use of financial services along with consumers' rights and responsibilities, providing prioritized recommendations in these areas. 1 http://responsiblefinance.worldbank.org/~/media/GIAWB/FL/ Documents/Misc/Good-practices-for-financial-consumer- protection.pdf Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 5 Executive Summary The World Bank has developed the Good for financial consumer protection in Rwanda in the Practices for Consumer Protection and Financial banking, microfinance, and insurance sectors is Literacy as an assessment tool for country diag- fragmented because of a lack of clearly defined roles nostic reviews. The CPFL Review is part of the and responsibilities among institutions and unclear World Bank Program on Consumer Protection and enforcement capacity. Although there has been an Financial Literacy, which seeks to identify key impressive array of financial sector laws passed by measures for strengthening financial consumer the Parliament of Rwanda over the last five years, the protection to help build consumer trust in the financial laws relevant to consumer protection in the financial sector and expand the confidence of households and sector are very limited and in some cases businesses to wisely use financial services. CPFL overlapping. BNR’s consumer protection respon- Reviews against Good Practices have been sibilities overlap with those of the Ministry of Trade conducted by the World Bank in more than 20 and Industry under the Competition and Consumer countries worldwide including middle- and low-income Protection Law 2012 (CCP Law) and the new 2 countries . Competition and Consumer Protection Regulatory Body. The existence of a sound financial consumer pro- tection framework is fundamental to increasing Banks and microfinance institutions engage in access to and usage of financial services in practices that are detrimental to consumers and Rwanda and the quality of those financial affect their confidence in and usage of the formal services, along with supporting further financial financial sector. Some of the issues observed sector deepening. Financial consumer protection is include, (i) a lack of transparency in consumer a necessary precursor to building trust in the formal contracts, (ii) anti-competitive fee-charging practices financial sector and thus in encouraging financial for different types of financial services that may limit inclusion. Further, consumer protection helps ensure financial inclusion, (iii) charging flat interest rates as that expanded access benefits consumers and the opposed to declining balance interest rates by some economy as a whole. This is because while increased microfinance institutions, which is both unfair and access can result in significant economic and societal likely to mislead consumers when nominal rates are benefits, it can be neutral or even harmful if advertised and (iv) the lack of a functioning internal or consumers are not able to (i) exercise their rights as external dispute resolution system. consumers, (ii) select the financial products that suit them best and (iii) be protected from mis-selling, fraud RECOMMENDATIONS and other market abuses. Preliminary findings and recommendations PRELIMINARY FINDINGS presented in this report cover six areas, namely, (i) institutional arrangements, (ii) the legal and regulatory The legislative and regulatory framework for frameworks, (iii) transparency and disclosure, (iv) financial consumer protection is at a very early business practices, (v) complaints-handling and stage of development. There are strong consumer dispute-resolution mechanisms and (vi) consumer protection provisions in the sector regulation such as awareness and financial education. the electronic money transfer and electronic transmission, credit information and the Market In terms of institutional arrangements, consi- Conduct Regulation for the insurance industry. deration should be given to clarify BNR’s primary Pension sector laws lag behind other areas, with a responsibility for supervision of laws and regu- draft pensions law before Parliament at the time of lations applicable to consumer protection in the writing. However, the overall institutional framework financial sector. This may require providing that the Competition and Consumer Protection Law 2012 2 See Annex I for more information. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 6 3 does not apply to financial services , thereby limiting and benefits of insurance products (this is its powers with regards to financial institutions and particularly important for micro insurance); 2) financial services, and to clarify the banking legis- implementing appropriate initiatives to ensure lation to expand and delineate the powers of the BNR. that consumers understand the insurance product they are acquiring, such as a Key Fea-  Banking Sector: The main recommendations for tures Statement that explains the key features of the banking sector include: 1) the introduction of the policies or a verbal disclosure in the case of comprehensive disclosure requirements, man- consumers with lower levels of literacy; and 3) dating that information be provided to retail bank conduct research to identify the role of various customers about the products and services they participants in the insurance market (including need, especially the disclosure of effective MFIs, banks, and SACCOs) and ensure all such interest rates and total credit rates, and 2) a participants are subject to appropriate rules and review of fees charged by banks to assess oversight. The design of effective methods for whether they are anti-competitive or inconsistent financial education can be informed by the new with the financial inclusion objectives of the evidence and insights on financial education government. These recommendations are produced recently by the World Bank. These designed to build trust in and increase the usage recommendations are designed to encourage an of the formal financial sector and to encourage environment in which the insurance industry can financial inclusion, while at encouraging flourish because consumers understand the competition in the banking industry. nature of insurance and the potential benefits, and participants in the insurance sector are  Microfinance Sector: The main recommen- appropriately regulated. dations for the microfinance sector include the following: 1) requiring up-front disclosure of all  Pensions Sector. Rwanda’s pension law was terms and conditions, nominal rates, fees and only in draft form at the time of review. For this commissions together with disclosure of the reason, it is recommended that while the law is effective interest rates reflecting all interest implemented, the BNR staff receive appropriate charges and fees and total credit cost; 2) clarify training in pension’s supervision, particularly the institutional arrangements and related concerning consumer protection matters. It is regulatory regime concerning the supervision of likely that the development of the pensions sector consumer protection issues for MFIs/SACCOs; will lead to an increase in activity in the life and 3) to educate MFIs/SACCOs, BNR/RCA and insurance sector, in particular for annuity and consumers on the fundamentals of consumer long-term investment products. protection and related rights and responsibilities. Cross-cutting recommendations to improve the Industry associations also have a role to play in overall CPFL framework in Rwanda include: promoting codes of conduct, increasing consu- mer awareness and complementing ongoing a) Financial Ombudsman: Clarify the powers of the efforts on the financial education of consumers. office of the ombudsman concerning financial Together these changes will facilitate compliance services and make binding decisions in relation to with and supervision of consumer protection disputes and claims between financial institutions requirements and create better-informed consu- and customers. mers, financial institutions and regulators who b) Code of Conduct: Promote and support industry understand the importance of consumer trust for codes of conduct with treatment of disclosure, sustained financial access. complaints, product appropriateness and other  Insurance Sector. The main recommendations business areas strengthened, enforced and widely for the insurance sector include the following: 1) disseminated. conducting an education campaign for potential c) Financial Education: Encourage all stakeholders policy holders to educate them on the features to complement ongoing financial education and literacy efforts to increase consumer awareness about their rights and responsibilities. 3 This revision is with the caveat that the law will cover financial services in the area of competition but not consumer protection. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 7 Table 1 below lists the main recommendations and priority actions to enhance the current framework for financial consumer protection in Rwanda. The comprehensive list of recommendations is presented in Annex I of the present volume. The complete assessment is presented in two documents: the first document (Volume I) presents a summary of the key findings and recommendations, and the second document (Volume II) is presented in the form of a background technical note that assesses each sector against the Good Practices for Financial Consumer Protection principles developed by the World Bank. Table 1: Summary of Key Recommendations Area Recommendation Responsibility Term*  Clarify the roles of BNR, ombudsman, the forthcoming Competition and Consumer Protection Regulatory Body and RCA (for SACCOs) as these roles relate to consumer protection rule-making, enforcement and dispute resolution in the financial sector. Institutional  BNR should be given primary responsibility for supervision of BNR ST Arrangements laws and regulations applicable to consumer protection in the financial sector.  BNR staff should receive training on consumer protection issues. A separate unit within BNR may be considered whose primary responsibility would be supervising consumer protection laws.  Consider implementing a cohesive financial consumer protection framework that applies to banks, MFIs, SACCOs, BNR MT insurance companies, securities, pension schemes and the Legal and brokers and agents of such institutions. 4 Regulatory Framework  Consider conducting further analytical work to assess the need to implement a personal insolvency law to provide for the MOJ MT degree of recourse and assets that can be claimed upon seizure of collateral.  Require all fees, charges, penalties, rates and commissions to BNR ST Transparency be disclosed in a manner understood by the average and Disclosure consumer. of Information  Require disclosure of an effective interest rate for comparison BNR ST purposes and on the basis of declining balances.  Promote competition in the banking space by enabling BNR/ RDB consumers in banks, MFIs and SACCOs to close deposit accounts and pre-pay or move loans with minimal time and MT Business cost burden. BNR Practices  Require that mortgagors be given warnings about the consequences of default (including the possibility of losing their ST homes) and otherwise ensure there is sufficient due process in the repossession of collateral. BNR  Consolidate dispute resolution for the financial sector in a well- Dispute trained, appropriately staffed and sufficiently empowered unit Resolution OMB MT of the national ombudsman. This includes making its findings Mechanisms binding and ensuring that RCA and BNR relinquish these roles.  Continue with financial awareness campaigns related to the Financial use of financial products and basic financial concepts that are BNR LT Education understandable for the average consumer. *ST: Short Term; MT: Medium Term; LT: Long Term 4 Within this document, this is referred to as a framework that could take the form of a law or regulation depending on BNR’s assessments. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 8 Rwanda: Consumer Protection and Financial Literacy Diagnostic Review INTRODUCTION CPFL. The CPFL Review is a detailed assessment based on compliance with a set of principles The existence of a sound financial consumer delineated in Good Practices for Financial Consumer 5 protection framework is fundamental for expanding Protection covering key five areas: (1) legal, access to financial services and supporting further regulatory and institutional frameworks; (2) financial-sector deepening in Rwanda. Ensuring the transparency and disclosure of information; (3) retail existence of sound business practices, disclosure business practices of financial institutions; (4) regimes and redress mechanisms to address the complaints and dispute resolution mechanisms; and imbalance of power between financial institutions and (5) consumer awareness and education. The Good their customers constitutes the fundamental pillars of Practices principles were developed by the World a consumer protection regime and expands access to Bank using international benchmarks, including the financial services. While increased access to finance principles released by the Basel Committee, IOSCO can result in significant economic and societal and IAIS, along with the OECD recommendations for benefits, it can be neutral or even harmful if financial education and awareness on pensions, consumers are unable to do the following: (i) exercise insurance and credit products. As such, the CPFL their rights as consumers; (ii) select the financial review provides countries with a detailed diagnostic products that suit them best and (iii) be protected from and recommendations for each of the listed Good mis-selling, fraud and other market abuses in violation Practices in different areas. of financial service providers’ statutory and regulatory obligations toward them. As a result, the use of CONTEXT financial services (for example savings and new technologies such as mobile banking) by new and The financial sector in Rwanda is at an early stage existing customers is often held back and consumers of development. Despite significant existing are less able to benefit fully from financial services, challenges, the institutional elements of an emerging while the risk of harmful impacts for consumers and and formal financial sector are in place. Bank and financial institutions, such as consumer over- non-bank deposit-taking institutions, credit providers, indebtedness and mis-selling scandals increases. insurance companies and a nascent industry of investment funds and capital markets firms are A sound consumer protection regime is com- providing and expanding the range of products and plemented with sound prudential regulation and services available in the market. A number of informal supervision. Prudential requirements are intended to channels still co-exist filling an important gap in the ensure that the financial promises made by financial provision of financial services (savings and credit) for institutions are met, while proper oversight by the lower-income segment, and in particular in the financial authorities ensures adherence to such rural areas. standards. In this sense, actions to strengthen the regulatory framework and practice of supervision The financial sector is bank-dominated in terms of contribute directly to protecting the interests of total assets, mobilizing savings and lending with consumers. microfinance institutions (MFIs), including savings and credit cooperative organizations (SACCOs), playing The main objective of the CPFL Review in Rwanda is an important outreach role. Similar to other East to assess the legal, regulatory and institutional African countries, the insurance sector is still at an frameworks for financial consumer protection with reference to the World Bank’s Good Practices for 5 http://responsiblefinance.worldbank.org/~/media/GIAWB/FL/ Documents/Misc/Good-practices-for-financial-consumer- protection.pdf Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 9 early stage of development. Private pension schemes ding contractual savings. MFIs and SACCOs have have begun to develop in anticipation of the been fundamental in bringing formal financial services introduction of the legal framework, with the pending to segments that were not previously served by the enactment of the new pension law expected to banking sector. provide greater certainty and a foundation for expan- Table 2: Outreach by Type of Credit Institution, End-June 2012 Service Number of deposit Number of points accounts borrowers Banks 301 1,283,466 357,971 - Of which, Banque Populaire du Rwanda 118 842,831 143,374 - Microfinance banks 47 98,574 84,436 Microfinance institutions 683 1,775,533 176,987 - SACCOs 608 1,468,063 156,972 -- Of which, Umurenge SACCOs 513 1,211,726 43,433 - Other MFIs 75 307,470 20,015 Source: BNR. Note: Numbers of accounts and borrowers include an element of double counting as individuals and companies may have multiple accounts. The Rwandan government has made remarkable uptake of products offered by both banks and non- progress toward achieving its commitment bank formal providers such as Umurenge SACCOS regarding financial inclusion. As stated in Vision and insurance companies. The percentage of the 2020, the government’s target is that 80 percent of adult population with SACCO products increased from the nation’s adult population has access to formal 0 in 2008 to 22.3 in 2012, with 22 percent of adults in financial services by 2017 and 90 percent by 2020. Rwanda having district-level SACCOs—referred to as According to Finscope 2012, formal financial inclusion Umurenge SACCO— products. The insurance uptake doubled from 21 percent in 2008 to 42 percent in increased from 3 percent in 2008 to 7 percent in 2012. In addition, 72 percent of Rwandan adults are 2012. financially included (through formal and informal channels), 23 percent banked and 19 percent are Penetration of banking services remains on a non-bank formally served and 30 percent informally relatively low level, while innovative payment served. In 2012, 70.9 percent of the adult population mechanisms are being introduced by banks and saved, compared to 54 percent in 2008. Similarly, in telecom companies. The use of formal financial 2012 the percentage of adults who borrowed was mechanisms to save money and obtain loans is 58.5 compared to 27 in 2008. There are 171 accounts relatively low when compared to the percentage of the at commercial banks per 1000 adults and 5.5 bank total population saving or obtaining loans in the past branches per 100,000 adults. Furthermore, a year (Table 3). While these figures have similar trends significant proportion of Rwandan population still uses in comparator countries, there is potential for further informal mechanisms to manage their money. improvement. There are two new foreign commercial Informal inclusion increased from 39 percent in 2008 banks, 110 new bank service locations. Mobile to 58 percent in 2012. banking and mobile money transfer (MTN) services have become widely available, and there is a new Despite significant progress, access to finance agency network for banks and MMT service remains one of the most binding constraints to providers. The number of accounts at commercial business growth, poverty reduction and economic banks per 1000 adults is 171, and the number of bank development. To date, 1.3 million Rwandan adults branches per 100,000 adults is 5.5. In terms of are still excluded and further increases beyond this number of non-cash transactions, credit transfers and level become increasingly challenging. The increase payment cards are the top two payment instruments; in financial inclusion rates has been attributed to the and in terms of value, checks and credit transfers. dramatic rise in the proportion of adults formally However, the annual per-capita usage of electronic served during the measured period and includes the payment transactions is very low— estimated to be Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 10 around 0.5. Usage of these payment mechanisms are services and register new customers (account growing at a faster rate than traditional electronic openings). Government payments are predominantly payment mechanisms and contribute to more than 5 made using cash and checks, with payments to percent of the overall electronic payment transactions government-like tax payments being made predo- in the country. Agents provide cash-in/cash-out minantly in cash. Table 3: Access to Formal Financial Services: Selected African Countries Saved at a Loan from Account at Saved any financial Loan in the financial formal financial money in the institution in the past year institution in the institution past year past year (% age 15+) past year (% age 15+) (% age 15+) (% age 15+) (% age 15+) South Africa 53.6 31.5 22.1 44.1 8.9 Kenya 42.3 42.3 23.3 67.4 9.7 Mozambique 39.9 42.6 17.5 41.3 5.9 Rwanda 32.8 30.5 17.8 38.5 8.4 Botswana 30.3 28.8 16.5 51.0 5.6 Nigeria 29.7 64.4 23.6 48.3 2.1 Zambia 21.4 32.2 11.8 48.0 6.1 Uganda 20.5 44.4 16.3 52.8 8.9 Tanzania 17.3 40.1 11.9 51.7 6.6 Malawi 16.5 33.0 8.2 51.3 9.2 Sub-Saharan Africa 24.0 40.2 14.2 46.8 4.8 Low income 23.7 29.9 11.5 44.1 11.4 Source: Global Findex, 2011 7 Insurance penetration is very low and the market MFIs and SACCOs make up an important part of is at an early stage of development, Despite having the financial system serving 1.8 million or 26 doubled from 2006–2011, insurance penetration in percent of the economically active population. As Rwanda was just 2.3% in 2011 and is low even of June 2013, there were 12 limited company MFIs, compared to some of its regional peers in East 63 employer or community based SACCOs and 416 6 Africa . Under Vision 2020, the government of Umurenge SACCOs. In addition, there are three Rwanda’s goal is to increase insurance penetration to commercial microfinance banks registered under the 7%. The reasons for a low insurance penetration Banking Act and one cooperative bank that was seem varied, including the fact that 45 percent of the previously the Army SACCO, which together serve population still lives in poverty. Other reasons also approximately 154,000 individuals. By comparison, include what some cite to be a shortage of skilled the largest non-bank limited company MFI has financial sector staff members, low levels of 117,000 clients and RWF 3.6 billion in assets. awareness of insurance in the community and low Informal savings and finance channels play an levels of marketing by insurers. The existence of 8 important role in serving financial needs of the percent VAT on insurance premiums has also been cited as a key constraint for the sector’s growth, a charge that does not apply elsewhere in the East African community. 7 For regulatory and licensing purposes, all SACCOs are technically classified as type 2 or type 3 MFIs. Throughout this document, we refer to both of them separately because of their different business practices and the additional 6 By comparison, Kenya’s insurance penetration is 2.76 regulatory and legal framework that SACCOs under the RCA percent, the highest in the region. and Cooperative Act. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 11 Rwandan population. The informal sector is made up A relatively low level of financial literacy in of 760,000 users of village savings and loans Rwanda constrains the demand for and use of associations (VSLAs), tontines, friends and families, financial services by a broader part of the local businesses providing lines of credit and a very population. Fifty-eight percent of adults indicated that small but unmeasured shadow banking system. they are scared that banks will seize their property if 8 they borrowed from them and about 60 percent The informal sector is made up of 760,000 users expressed the need for more information on how to of VSLAs, tontines, friends and families, local keep money safe, how credit works and how to spend business providing lines of credit and a small but money wisely. unmeasured shadow banking system. Shadow banking is a criminal offense under Article 642 of the The government has recently developed a Penal Code punishable by two to five years in jail. As comprehensive financial education strategy as a such, loan sharking is limited and undetectable even critical factor to support the national agenda of in many rural areas. financial inclusion—that is, increasing Rwandans’ access and informed use of financial services. The most dynamic part of the MFI sector Results from a Financial Capability Survey (FinCap) continues to be the Umurenge SACCOs, which conducted in 2012 suggest that there are some were started in 2009 and now serve 72 percent important capability challenges for Rwandans in terms (1.3 million) of the clients in the combined MFI, of numeracy, cash flow management, future planning existing SACCO and Umurenge SACCO industry. and the use of financial services. According to survey In the last 24 months, these 416 SACCOs have results, less than half of Rwandans gave correct grown their assets 134 percent to RWF 46 billion. As answers to all four numeracy questions that test lending among them has grown so have income and addition, subtraction, multiplication and division. The non-performing loans. Non-performing loans now results also suggest that there is a disconnect stand at 7.3 percent (below the overall NPLs for all between Rwandans’ knowledge or awareness of MFIs at 10 percent). Most important for these cash-management practices and their behavior. institutions and their 1.3 million members and their Finally, the financial services data suggest that RWF 31.6 billion in deposits, 304 of the SACCOs are Rwandans use a mix of informal and formal financial now financially viable without government subsidies. services to manage their money. There is a The remaining 112 are scheduled to stop receiving prevalence of loans from family and friends and the subsidies at the end of 2013. Importantly, as a group use of store credit, which can have both positive and the Umurenge SACCOs has 26.3 percent capital to negative consequences for the borrowers. The non-risk weighted assets. implementation of the financial education strategy is embedded in the broader government agenda to improve financial inclusion. 8 Compared to 14 percent for informal financial institutions and 35 per cent for MFIs. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 12 General Framework for Financial Consumer Protection in Rwanda A. Institutional Arrangements The overall institutional framework for financial responsible for the registration, training and promotion consumer protection in Rwanda in the banking, of SACCOs. While still a proposal, it is likely that the microfinance and insurance sectors is fragmented national ombudsman will develop a new unit to handle because of a lack of clearly defined roles and financial sector cases, including financial consumer responsibilities among different institutions and protection issues for banks, MFIs, insurance and unclear enforcement capacity. The National Bank pensions. of Rwanda’s (BNR) consumer protection respon - sibilities overlap with those of the Ministry of Trade The relatively new insurance sector is supervised and Industry under the Competition and Consumer by BNR with only 12 staff members but with active Protection Law 2012 (CCP Law) and the new steps being taken to build both capacity and Competition and Consumer Protection Regulatory resources. Supervision occurs through the Non-Bank Body. BNR regulates and supervises all financial Financial Institutions’ (NBFI) Division of BNR, which is 9 responsible for supervision of all insurance and institutions, including MFIs and SACCOs . However, BNR does not specifically allocate resources to pension financial institutions and other types of non- supervision of the limited consumer protection laws bank financial institutions. BNR has only been that apply. There is accordingly no separation of supervising since 2007 when supervision res- supervision of prudential and consumer protection ponsibilities were transferred from the Insurance laws and it is not clear that the BNR has specialized Commission. Supervision is paid for through a levy on expertise on consumer protection matters. regulated entities (currently 12 percent of gross written premiums, although until recently it was a flat The CCP Law contains consumer protection fee). provisions that apply to all types of “services” which would include financial services. Relevant KEY RECOMMENDATIONS provisions in the CCP Law include those relating to information to be given to consumers, advertising and Consideration should be given to providing that prejudicial provisions that do not have any “tangible the Competition and Consumer Protection Law 10 fairness.” The Rwanda Cooperative Agency (RCA), 2012 does not apply to financial services, so as to a division of the Ministry of Trade and Industry, is make it clear that BNR has primary responsibility for supervision of laws and regulations applicable to consumer protection in the financial sector. The objective would be to have an authoritative financial services consumer protection regulator for all 9 The Rwanda Cooperative Agency (RCA) claims to have a financial sectors. This would achieve consistency of role in resolving disputes between SACCOs and their interpretation, minimize the risk of gaps in regulatory members. However, nothing in the 2008 law Establishing coverage and avoid any real or perceived conflict of Rwanda Cooperative Agency and Determining its Responsibilities, Organization and Function nor does the interest for the supervisor. Another option would be to 2007 law Providing for the Establishment, Organization and establish a market conduct regulator for the financial Functioning of Cooperative Organization in Rwanda provide sector but this may not be practicable. Likewise, the this power or duty to RCA. Despite it not being within the roles of BNR, ombudsman, the forthcoming Com- mandate of the Rwanda Cooperative Agency, they are handling 5 to 7 member complaints per month. The most petition and Consumer Protection Regulatory Body frequent complaint (while not necessarily consumer and RCA (for SACCOs) should be clarified as it protection related) is that SACCOs are not giving loans. relates to consumer protection rule-making, BNR also receives complaints but it does not track the type of complaints. enforcement and dispute resolution in the financial 10 Articles 33, 34 and 39. sector. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 13 Regulation and supervision of financial consumer protection laws need to be properly resourced and separated from the prudential function to avoid conflicts between supervising financial institutions and their customers. A practicable way to achieve this would be to have a new unit responsible for consumer protection with a separate reporting line directly to the vice governor. Another option would be to have a completely separate financial services market conduct regulator, but that is not likely to be practical in the present context. With the new pension law expected to be passed shortly, it is recommended that BNR consider whether it needs to increase its experience, education and focus on the sector in anticipation of further expansion in the industry. This could include a focus on training staff on private pensions’ issues, in particular investment issues such as investment management, the reporting of investment returns and matters affecting consumer decisions during the pension fund life cycle, including deciding which fund to join, deciding on investment options, and making decisions on retirement products such as annuities. Box 1: Models of Institutional Set up for Consumer Protection Regulation and Supervision Single Agency Approach. One institutional approach is to have prudential and consumer protection supervision allocated within the same supervisory agency. This is the case in Kazakhstan, where the Agency on Regulation and Supervision of Financial Market and Financial Organizations is statutorily responsible for both the stability of the financial sector and maintenance of financial consumer protection. In Malaysia, the Bank Negara Malaysia (central bank) is responsible for both prudential and consumer protection oversight of financial institutions (except securities). The two mandates are overseen by separate departments but in close coordination. Placing consumer protection in the same department as prudential supervision creates potential conflicts with the traditional and long-standing prudential supervisory roles that tend to dominate in allocation of resources and priorities. Prudential supervision, however, can provide useful early warning signals for business conduct supervision. International experience shows that if a supervisory agency adopts consumer protection as part of its mandate, business conduct supervision should be separated from prudential supervision and have adequate specialized staff and resources to perform its specialized responsibilities effectively to avoid conflicts of interest. Specialized Financial Consumer Protection Agency. Some countries have established one or more specialized regulators for financial consumer protection. Australia was the first country to set up a so-called “twin peak” structure where the market conduct regulator is responsible for overseeing the way in which market participants behave, while the other peak —the prudential regulator—is charged with overseeing the financial health, safety and soundness of market participants. This approach was followed by the Netherlands. Recent trends in financial consumer regulation point to the development of such specialized agencies, as seen in the creation of the Financial Consumer Agency of Canada (2001), the establishment of the Consumer Financial Protection Bureau in the United States (2011) and the proposed Financial Conduct Authority of the United Kingdom. Conflicts of interest can thereby be avoided between oversight that focuses on ensuring the stability of the financial system as a whole, and supervision that seeks to ensure that individual consumers of financial services are protected in the market. While this model has the advantage of clearly defined objectives and mandates of the respective agencies the challenge is to provide a new financial consumer protection agency with sufficient authority and credibility within the financial system. General Consumer Protection Body. A third approach is for a single agency with jurisdiction to cover general consumer protection issues to be required to include in its mandate consumer protection of financial products and services as well. This is the case in Brazil, where many basic consumer protection rights are guaranteed in the Consumer Protection Code. The Department for Consumer Protection and Defense (housed at the Ministry of Justice) has oversight over consumer protection in general, including financial consumer protection issues, although the Central Bank of Brazil covers some financial services issues not mentioned in the code. The challenge of the general consumer protection agency approach is to provide sufficient resources to handle financial services issues properly because the technical aspects of financial services require specialized staff with sector-specific knowledge, expertise and experience. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 14 B. Legal and Regulatory Framework BANKING SECTOR  There are no controls over debt collection practices in Rwanda and no requirement for Rwanda has a wide range of financial sector laws debt collectors to be licensed. and related regulations and directives that have implications for consumer protection in the  Consumers do not have to be warned of the banking sector in a number of respects. Relevant consequences of giving mortgages or security laws relate to regulation of the banking sector, com- over movable property. The new laws on petition and consumer protection generally, credit mortgages and movable property allow a bureaus, mortgages and other security over land and defaulting debtor’s secured property to be sold movable property, electronic payments systems and within 60 days of the default notice for mortgages transactions, use of agents to deliver financial services, over land (such as the matrimonial home) or 30 dispute resolution, customer service delivery standards days for a security over movable property (such as and negotiable instruments such as checks. a car or livestock). Although there has been an impressive array of  There is no clear personal bankruptcy law in Rwanda that could be relied on to protect financial sector laws passed by the Parliament of debtors who are in no position to pay their Rwanda over the last five years, the laws relevant debts. Although there is an insolvency law, there to consumer protection in the financial sector are is doubt as to whether it applies to consumers with very limited and in some cases overlapping. personal debts. Examples include the following:  There are no comprehensive data protection  There are no requirements for disclosures in laws in Rwanda, such as exist in many other contracts for bank services. There is no countries. Kenya is an example of a country that requirement that contracts include all applicable is introducing such laws. A failure to have such interest rates, fees, charges and any other terms laws may inhibit Rwanda’s ability to engage in and no requirement that consumers be given a trans-border data flows and is of concern at a time copy of their contract with sufficient time to read it when banking transactions are becoming before they sign it. There is also no requirement increasingly electronic. that consumers be given a summary of the key features of their contracts or periodic statements  There are overlapping provisions in the CCP Law and in the legislation supervised by BNR. There of account. are BNR regulations concerning the disclosure of  There are no controls over fees that might interest rates and fees and charges and the CCP limit competition, financial inclusion or Law also requires information to be given to otherwise be unfair. A consumer’s ability to consumers, which would include bank customers. switch banks is likely to be hampered by the widespread practice of charging a prepayment fee The above mentioned gaps and overlaps are of of 5 percent of the unpaid balance if a customer particular concern for Rwanda given the wants to pay out a contract early. ambitious financial inclusion targets for 2017 and  There is no requirement for a total cost of 2020, as outlined in the Financial Sector Development Strategy (FSDP II), and the rapid development of new credit or effective interest rate to be provided banking services and distribution channels (such as to consumers to easily compare products. agent banking, mobile money transfer services and Such a rate could be a very useful tool to enhance mobile banking). These developments suggest the the comparability of fixed-rate loan products. need for enhanced consumer protection measures  The Office of the Ombudsman does not have and a comprehensive legal and regulatory regime to the clear power to make decisions on ensure trust in the financial sector. customer disputes that bind the financial institution concerned. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 15 MICROFINANCE SECTOR given to consumers, advertising and prejudicial pro- visions, which do not have any “tangible fairness”. The existing legal and regulatory framework for consumer protection in the microfinance sector RECOMMENDATIONS consist of six different laws, regulation, directives and guidelines for MFIs and seven for SACCOs. Consideration should be given to enacting However, none of the existing regulations require the provisions that provide a comprehensive regime for disclosure of fees, penalties or commissions, or to give transparency and fairness in consumer contracts the client a copy of contracts with terms and conditions, and related business practices. This might be done in receive statements or protect the privacy of client’s loan a separate financial services law or in regulations made and savings information—aside from when reporting to under sector-specific existing laws (e.g., the banking the credit bureau. Although arguably the Competition law). Such a law could include provisions dealing with and Consumer Protection Law requires disclosure of contractual disclosures, anti-competitive fees, warnings prices, it relates mostly to products and goods and about the effect of mortgages, unfair terms and services for households. Nonetheless, it was observed disclosures of the total cost of credit interest rates. A that there is some level of disclosure in MFIs/SACCOs. transitional period of at least 12 months should be provided before the new regime comes into effect for The combination of not having a personal institutions to adjust their systems and processes to new insolvency law and Article 21 of the Microfinance requirements. This would also allow proper time to Regulation prohibiting a person who has conduct a public awareness campaign for consumers defaulted on a loan from ever obtaining a loan about the changes. again from any financial institution is punitive and may be limiting business creation. These pro- Consideration should be given to clarifying the visions coupled with a system of full recourse loans, powers of the Office of the Ombudsman in respect harsh penalties for overdrafts and a rapid 60-day, of financial services. In particular, it is proposed that non-judicial process for seizing collateral creates a the ombudsman should have clear powers to make series of incentives that may encourage usage of binding decisions on financial services disputes. informal financial services and limit excessive risk- Over time, consideration may be given to the taking by entrepreneurs and individuals who have few enactment of new legislation regulating debt consumer rights in laws or regulations. collectors, implementing best practices on data protection and providing clear personal bank- INSURANCE SECTOR ruptcy laws. The current insolvency law only applies Rwanda has been very active with the to companies. Advice should be sought on introducing implementation of insurance reforms in the recent a personal insolvency law, and Article 21 of the past and the Market Conduct Regulation contains Microfinance Regulations should be eliminated. The strong consumer protection provisions for the experience of other countries suggests that an insurance industry. In 2007, supervision transferred alternative approach may be more prudent, such as from the National Insurance Commission to the BNR. removing default records in the credit registry after a In 2008, the new insurance law required insurers to certain number of years. separate their short- and long-term businesses into Further, if the above recommendations are accep- different companies and increased capital require- ted, there would be a need for consequential chan- ments tenfold to RWF 1 billion. The Market Conduct ges to the CCP Law and certain BNR legislation. In Regulation contains provisions dealing with the insurers’ and insurance intermediaries’ duties to act particular, the CCP act would need to be amended so with the utmost good faith, integrity, due care and that relevant consumer protection provisions do not apply to financial services. Further, relevant aspects of diligence. There are also requirements for certain the Disclosure of Interest and Fees and Charges information to be given to the insured and for the Regulation 2011 and the Customer Service Delivery insurer to have proper procedures and an effective mechanism to deal with claims and complaints Directive 2012 need to be repealed. Further details of handling. However, the CCP Law also contains these recommendations are included in Parts C and D consumer protection provisions that apply to all types below. of “services,” which would include insurance and other financial services. Relevant provisions in the CCP Law include those relating to information to be Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 16 C. Transparency and Consumer Disclosure There are limited regulatory requirements in terms signing and the features of the related products. of the information that needs to be disclosed to This is of particular concern in a country such as consumers of financial services regarding Rwanda where there are low levels of financial contractual terms and conditions. Due to a literacy, high levels of illiteracy and where banking deficient legal framework, the type and amount of products available to customers are changing rapidly information that financial institutions present to their and becoming increasingly complex through their clients vary by institution. reliance on new technologies. The provision of clear, standardized and Key Recommendations comparable information to consumers can be an effective mechanism to promote competition, There should be a comprehensive contractual bringing down the cost of financial products and disclosure regime applied to financial services services. However there is a lack of transparency on (including banking services). For banking services, pricing of financial products and services. No official this should include, at a minimum, the following: the standard formula exists for comparing credit product amount borrowed, the applicable interest rate and prices, such as an effective interest rate (EIR) or an total interest charges, the applicable default rate of annual percentage rate (APR) and no disclosure interest, details of all fees and charges, information obligations for additional costs such as administrative about whether interest rates are fixed or variable, the fees or insurance costs. This prevents consumers from method of calculating interest charges (flat or on a comparing different credit products available to them. declining basis), any applicable insurance premiums and commissions, details of any security given and a Transparency of Contract Terms requirement to give reasonable notice of changes (say 20 days). This is the minimum information that There are no requirements for disclosures in should be given to customers if they are to be able to contracts for financial services—apart from make an informed decision about the service and to insurance—with one small exception. The only be fully aware of their rights and responsibilities. exception is the very limited and general disclosure requirement in the CCP Law. The relevant provisions Contract documents could also be made compre- relate to disclosure of information concerning the hensible through summaries of key information, characteristics of the product or service and the clear language and format and explanations from contract conditions but are subject to the need for bank staff or insurance intermediaries in 11 information expressed by the customer. Significantly, appropriate cases. This might be achieved through the Disclosure of Interest and Fees and Charges implementing the following specific recommendations: Regulation does not require the relevant information to be included in a contract. Rather the regulation requires  A key facts statement should be provided on the first page of every contract summarizing the key information about interest rates, fees and charges to be terms. displayed in local newspapers, bank premises, on the web and in a publically available brochure. With  Contracts should be both intelligible and legible. respect to insurance, there is opportunity for the  Contract documents should be explained to cus- disclosures to be improved. tomers who would not otherwise understand them.  Customers should be given time to consider Further, the current framework also does not documents before the contract is signed. address in any way the need to ensure customers understand the terms of the contracts they are Notice of Changes to Contracts Banks are required to inform the public and BNR of any changes to interest rates, fees and charges. However, no personal notice is required. This must 11 be done “in fifteen days” and in accordance with Article Article 33. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 17 3 of the Disclosure of Interest and Fees and Charges effects of a default on the relevant loan. The war- Regulation 2011, which requires publication in a local ning could be as simple as a clear statement in large newspaper with wide distribution, on their websites, in a print to the effect that a default means that debtors publicly available brochure and “outstandingly at the could lose their homes within 60 days of the notice of entrance of their premises.” The publication must be default. A similar statement of the effects of giving a made in the three official languages. There is also a guarantee should also be provided. requirement in the Law on Mortgages 2009 relating to notice of changes to variable rates. Article 10 provides Consideration should be given to requiring banks to that notice of any such change must be given to the provide regular statements of account and to make mortgagor. It is not clear under the Law on Mortgages information on account balances available on whether the notice has to be given in advance and request. Information in statements could include, for there are no timing requirements. Further, there seem example, details of opening and closing balances, debits to be frequent breaches of the requirement to display and credits and especially of interest charges and fees the relevant changes in the three official languages at and charges in the statement period. This notice should banks’ business premises. be available electronically or in person and, when that is not practicable, should at least be available to the The new laws on mortgages and movable collateral customer on request. For rural areas, the usage of make provision for secured property to be seized passbooks could be an effective way of meeting this and sold on default within a very short time frame need. Exceptions to the new requirement should be (60 days in the case of a mortgage over land and 30 considered when appropriate. For example, there might days for security given over movable property). be exceptions for fixed rate contracts, for loans that have Further, there is no need for the mortgagee to take any been written off and for facilities where there have not action through the courts. While the business efficacy been any debits or credits in the relevant period. of the new requirements is recognized, there is a residual concern about whether consumers understand MICROFINANCE SECTOR the implications of giving security over property and the consequences of default. This concern exists With the exception of the newly passed generic law notwithstanding that it is understood banks will seek to on competition and consumer protection, there is no assist debtors in financial difficulty by entering into new requirement for non-bank MFIs or SACCOs to repayment arrangements. disclose their rates or fees. Regulation No. 14/2011 on the Publication of Tariff on Interest Rates and Fees The current regulatory framework does not indicates it is only applicable to banks. The Microfinance require banks to give customers regular state- Law, Microfinance Regulation and law Providing for the ments of account or updated account information Establishment, Organization and Functioning of on request. This information would enable customers Cooperative Organization in Rwanda (known as the to check for the accuracy of balances, debits and Cooperative Act) do not require MFIs or SACCOs to credits and facilitate management of their accounts. disclose fees, rates, penalties or changes to their clients This is particularly important for long-term and and members. Article 46 of the Cooperative Act does revolving credit facilities (such as overdrafts and provide for a member’s rights in a cooperative, including credit card contracts) and variable rate contracts. information on the financial condition of the cooperatives, reports on the annual accounts and minutes of the Key Recommendations annual general meeting. However, it is silent about financial consumer protection. There should be a requirement for advance notice to customers regarding changes to applicable The current lack of clarity and transparency in MFIs, interest rates and fees and charges. This notice and to a lesser extent SACCO practices, limits the should be given personally where it is practicable to uptake of their services. Unlike some banks that post do so (e.g., by e-mail or the most appropriate and their fees and charges on websites and in lobbies as relevant channel given the particular conditions of the required, MFIs or SACCOs do not do so. That said, the client) and in the manner set out in the Disclosure of loan contracts that were reviewed in SACCOs were Interest and Fees and Charges Regulation 2011. succinct, included a key information box (albeit small) and have the principal information disclosed in It is recommended that there be included on the Kiriwandan. Furthermore, in the cases in which front page of any mortgage document a clear members are not literate, once the loans are approved warning in a statutorily prescribed format of the and before members sign for the loan, the manager Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 18 meets with multiple members once to read them the to present accurate and complete information should be disclosure terms and conditions. It is unclear if the same absolute, and the consumer should have clear recourses level of disclosure occurs pre-contractually and before in the event that such information does not comply with the loan goes to the credit committee for review. regulations. Key Recommendation Information of the status of an intermediary should be provided in such a way that the consumer fully As with the banking recommendation above, BNR understands what entity the intermediary should require all fees, charges, penalties, rates and represents. This information should be given at the commission to be disclosed in plain language and in start of the relationship with the insured or at least prior a manner understood by the average customer. to any advice or recommendation is provided. This Within the standardized calculation of effective interest recommendation is made because the current requi- rates, MFIs should specify the rates in declining balance rements do not make any provision for the timing or basis. The use of key fact statements should be format of the disclosures that must be made by broadened from Umurenge SACCOs to other insurance intermediaries. However, the Intermediary MFIs/SACCOs and follow a similar, standard format. Licensing Regulations and the Market Conduct Regulations do require that any broker or agent make INSURANCE SECTOR disclosures about their statuses. Intermediaries must also clarify whether they are independent or associated It is recommended that the BNR implement appro- with any insurance companies, and whether they are priate initiatives to ensure that consumers under- authorized to conclude insurance contracts. 13 stand the insurance product they are acquiring, and the basic facts relevant to the coverage. This could Brokers should be required to make upfront include a Key Features Statement that explains the key disclosures of the amount of any commission features of the policies, or verbal disclosure in the case they receive for a product they recommend. This of consumers with lower levels of literacy. The key proposal is made because currently there is not an matters that could receive focus in consumer explicit requirement that insurance brokers disclose understanding include ensuring that the consumer commissions. This is obviously important information understands that they have insurance, they know who necessary to assess any potential conflict of interest. their insurer is (particularly relevant when a consumer purchases insurance from a bank or other non-traditional More specific regulatory guidance is needed to intermediary), what their own obligations are, and how to ensure that consumers are not misled about the access the benefits under the product. potential investment returns for life investment products. For example, this could include a It is recommended that BNR regularly publish an requirement that the insurer take into account the type overview of the financial strength of the insurance of assets and the terms of the contract in making pre- industry, with key information that would include dictions about investment returns and a requirement for market share in key segments, solvency margins a clear statement that past investment performance is and regulatory capital. This would be in addition to no indicator of future performance. the information that is currently published. It is also recommended that the Central Bank conduct an Consideration could be given to whether code or education campaign regarding the importance of an regulatory requirements could be implemented to insurer’s financial strength. heighten the likelihood of appropriate product recommendations, such as the conduct of a “fact All information provided by an insurer should be find” about an insured’s circumstances and needs. A accurate and not misleading and there should be a fact-find, for example, could be in writing and retained for a right of recourse if this obligation is breached. This specified period. Article 8 of the Market Conduct Regu- recommendation is made notwithstanding that there are lation does not contain any specific requirement in this specific provisions in the Market Conduct Regulation regard, although it deals generally with the issue of the in- 12 dealing with misleading advertisements. The obligation formation that must be obtained from the potential insured. 12 13 Article 7. Articles 16 and 7, respectively. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 19 D. Business Practices BANKING SECTOR Key Recommendations Fees and Interest Charges Conduct further analysis of the suitability of current prepayment fees. Further analysis is Rwanda does not at present have any restrictions necessary to determine the implications of fees on on the fees that may be charged by banks for their early repayment of installments and early repayment of the entire outstanding balance on the average loan or other facilities. On the contrary, Article 5 of consumer. However, there should be a consideration the Disclosure of Interest and Fees and Charges to allow for reasonable administrative costs relating to Regulation 2011 provides the following: “The deposit the prepayment and, for fixed rate facilities, a charge and lending rates and the various fees in connection that takes into account differences between the with the activity of banking intermediation may be interest rate payable under the facility and that freely agreed between the parties concerned.” prevailing at the time of the prepayment. Account closure fees could be required to reflect However there are prepayment, account-closure the true cost of the closure. This would mean that and ATM fees and default interest charging these fees would only be able to be charged to the practices that need to be addressed both to extent they reflect the reasonable administrative costs encourage competition and in the interests of of closing the account. Further analysis on the costs financial inclusion and fairness generally. In this of account closure and switching needs to be carried regard it is to be noted that numerous concerns were out to determine the implications of competition and to observed about these matters. Such practices include design remedial actions. the charging of a fee of 5 percent of the outstanding balance on pre-payment of a loan and the charging of Default interest charges should only relate to the a fee of 10,000 RWF for closure of a savings account. amount in default. Typically, these charges would Further, a fee of around 400 RWF is charged for use only be on the amount in default (i.e., not on the entire of another bank’s ATM without the customer being outstanding balance) while the default continues. told of the fee at the time of the transaction. The team was also told of a practice of charging a 2 percent fee ATM fees should be transparent to the customer on any withdrawal in a month after the first when using ATMs. Consideration should be given to withdrawal. Such a high fee is likely to discourage use requiring customers to be given notice of the fees of accounts; it is also difficult to see how a applicable to use a foreign ATM (i.e., an ATM percentage-based fee can be justified on a cost basis. operated by a bank that is not the customer’s bank). Another concern is that the team was informed of a This notice should be given on the ATM at the time of practice of charging default interest on the total the transaction and the customer should have the outstanding balance of the relevant loan, i.e., not just option of not proceeding with the transaction if they do on the amount in default. These practices need not wish to pay the fee. attention to encourage a competitive financial services market in Rwanda. A further consideration is Total Cost of Credit Interest Rate that particularly high-transaction fees may be considered inconsistent with the government’s At present there is no requirement for banks to financial inclusion objectives. For example, high- publish a total cost of credit interest rate. A total deposit, withdrawal and ATM fees on accounts to cost of credit rate would show as a single rate the which G2P payments and conditional cash transfers applicable interest rate and mandatory fees (such as (CCTs) are paid are a particular concern in this a loan application fee) and charges (such as for a regard, especially when the accounts can only be credit- life insurance premium). They are calculated accessed electronically. based on a prescribed formula and for disclosure purposes can be calculated in relation to fixed term credit for specified loan amounts and terms of credit. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 20 Total cost of credit interest rates can be a useful been a widespread campaign by CRB about their means of helping consumers compare products and activities and the protections in the CRB Act. There is encourage competition. This is on the basis that a also a concern about the reasonableness of the fees requirement to disclose a nominal interest rate by charged to individuals if they request a correction to itself or even an effective interest rate that takes into information maintained about them on CRB’s account compounding is not adequate disclosure database, but the information is shown to be correct. because it does not give consumers enough The fee is RWF 50,000 if the customer is a bank information to assess product affordability and customer and RWF 10,000 if the customer is an MFI suitability or to comparison shop. 14 customer. Key Recommendations Key Recommendations CRB should conduct a public awareness It is recommended that consideration should be campaign about CRB’s activities. The design of given to requiring banks to: effective methods for financial education can be informed by the new evidence and insights on  Include the total cost of credit interest rate in financial education produced recently by the World 16 fixed rate loan contracts and in the key facts Bank. statement recommended above.  Disclose the applicable total cost of credit interest Consideration should be given to allowing one free request (subject to correction) of a report per rates in advertisements that refer to an interest year. This would be consistent with the World Bank’s rate on a fixed rate loan. 17 Credit Reporting Principles, 2011.  Provide consumers with a schedule of total cost of credit interest rates based on specified loan Licensing of Debt Collectors amounts and terms.  The total cost of credit rate should be Rwanda does not at present have any laws accompanied by prescribed warnings of its requiring debt collectors to be licensed or any limitations. laws for imposing controls over the activities of debt collectors. Collections Africa is currently the Credit Bureau only debt collector operating in Rwanda and is a subsidiary of CRB. Arguably, debt collectors such as Rwanda has a new law regulating credit bureaus Collections Africa should be supervised, given the and one licensed credit bureau. The Credit sensitivity of the information they handle and the Information Law is comprehensive with the usual, commission incentives they have to take strong expected consumer protections. The only private measures to collect debts. Further considerations in credit bureau currently licensed in Rwanda is the support of this view are that given the rapid expansion Credit Reference Bureau (CRB) Africa. Banks and in the availability of retail banking services in Rwanda licensed MFIs are required to obtain a credit report and the low levels of financial literacy there is a high from CRB when assessing an application for credit. risk of debtors not understanding their rights in Consumers have access and correction rights and relation to the collection of debts and thus a high risk there are detailed provisions relating to customer of debtors being abused. The ability of the only confidentiality and the use of credit bureau reports. collection company to access the CRB database is of Comprehensive guidelines and principles on credit significant concern because it is not apparent this is 15 reporting have been developed by the World Bank. permitted under the Credit Information Law or is a good practice given the confidentiality of credit However, it is not clear that consumers reports. There are detailed restrictions in the Credit understand their rights under the Credit Information Law pertaining to the purposes for which Information Law. There does not seem to have 14 CGAP Designing Disclosure Regimes for Responsible Financial Inclusion, 2012. 15 16 http://siteresources.worldbank.org/FINANCIALSECTOR/Re Additional information can be found in www.finlitedu.org . 17 sources/GeneralPrinciplesforCreditReporting.pdf. Page 50. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 21 credit reports can be used, and it is not clear that the dules are not provided, the interest rates are fixed and 18 practice detailed above is within those provisions. members pay the same amount each month that is disclosed. The fees and commissions at SACCOs Key Recommendations were on average 1% lower than at other MFIs. Annual rates of interest were higher than at most banks, but Debt collectors in Rwanda should be licensed and Umurenge SACCOs are still growing their loan comply with specified business conduct rules. portfolios (only 30% of assets), have less collateral for There should also be strict requirements to keep loans, and many are losing their long-standing RCA; debtor information confidential. NPLs are rising and they need to continue charging rates that allow them to become profitable and afford The practice of accessing CRB’s credit new systems (i.e., credit bureau, IT). When looking at information database merits further review. In effective interest rates on a comparable declining particular, there should be an assessment of whether balance, MFI rates are generally slightly higher than it is permitted under the Credit Information Law. those at SACCOs are. Again, because no regulations exist for MFIs or SACCOs, any activity is permissible. MICROFINANCE SECTOR BNR does look at how rates and fees are being There is currently no required or voluntary code charged and calculated during onsite visits. BNR of conducts in place for MFIs or SACCOs. Within supervisory staff compares MFI/SACCO practices to MFIs and SACCOs there are instances of unclear internal policies during on-site examinations. Neither and mis-represented information but not BNR nor RCA supervisory staff have received widespread consumer abuses The association of consumer protection training nor is such information microfinance institutions (AMIR) oversees the process included in their on- and offsite inspection manuals. of implementing a code of conduct for its members. There have not been trainings for regulators or the Some MFI banks charge fees to close savings MFI/SACCO sectors on consumer protection. There accounts because they “want to discourage are not any MFIs or SACCOs that have performed customers from leaving” and going to other internal consumer protection assessments, have had institutions. In the current environment in which external assessments, or been certified by the monthly maintenance fees for savings accounts exist, SMART campaign or others. One important discouraging account closure encourages continuous observation in MFIs is the use of flat interest rates, as fees for institutions. Most MFIs and SACCOs have opposed to a declining rate of interest, by the three monthly saving account maintenance fees that are largest and most sophisticated MFIs (one of which is lower than at banks despite having higher interaction an MFI bank). Unlike Umurenge SACCOs, which use time per customer than banks. manual systems and arguably could provide a rationale for using flat interest rates, these three large MFIs and SACCOs require credit life insurance for socially oriented MFIs have relatively robust computer loans above a certain threshold. The requirement is systems in place that could calculate interest on a disclosed to consumers, but commissions are not and declining balance. While not required by law or some institutions have a sole source relationship with regulation, there are no MFI or SACCO disclosing an insurance company. The largest MFI has a sister loan commissions and fees, required security savings company that provides insurance but consumer could and costs of required insurance through an effective obtain their own policies separately. interest rate or total cost of credit. Few data protection exists in MFIs and SACCOs . Umurenge SACCOs disclose only monthly Although no extensive survey was conducted, interest rates whereas most in the market use instances of improper sharing of consumer’s data in annual rates. These rates, fees and charges are MFIs or SACCOs were not identified during field disclosed to members in writing in Kiriwandan and interviews. Nonetheless, the current practices with the verbally. Members receive a copy of the written and new credit reference bureau revealed potential for signed loan agreements. While amortization sche- data breaches. Some MFIs and SACCOs share employees’ ID and passwords to access CRB Africa’s systems. This affects traceability and breaches to the system, which could potentially generate identify theft problems and manipulation of confidential data. As 18 Article 14. there is no broad reaching data privacy and protection Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 22 law currently to protect the sharing of consumers’ loan INSURANCE SECTOR or savings information outside of the credit bureau or electronic money transactions. It is recommended that BNR consider working with the insurance industry to develop an Collection practices by MFIs and SACCOs, as insurers’ code of conduct, which would cover evidenced through field interviews, are in line with such essential areas as customer service, international best practices but varied among the disclosures, claims and complaints handling. This different institutionas. The mission was unaware of could be overseen by ASSAR, perhaps reporting to any MFIs or SACCOs using the new collections BNR on insurer compliance. The code would be made agency. The most aggressive practices were among available to customers, such as on the insurer’s commercially oriented MFI banks. The team was website or provided with new policy documentation unable to discern internal social pressure practices and should apply to all participants in the insurance among group lending participants. The National value chain, including MFIs, SACCOs and banks. Recovery Committee set up to recover loans following the failure of nine MFIs/SACCOs in 2006 has not met Ideally there would be an express provision in the since February 2013 because the new minister of law making insurers liable for their agents’ justice has not reconstituted it. Some of the 30 conduct in relation to the insured and especially district-level recovery committees are still operating, in relation to anything agents say in respect of the but their usage is limited to MFIs and SACCOs. The relevant policy (for example, in relation to the recovery committee’s actions are non-binding and returns from investment-oriented life policies). It when they cannot recover through moral suasion of may be implicit under the general law of contract in the local police and vice-executive secretary (which Rwanda that a principal is liable for the authorized chairs each district committee) matters are taken to conduct of its agents, but this needs to be expressly courts. Because of limited IT capabilities and the stated, and it needs to be made clear that liability will nature of lending in rural areas, Umurenge SACCO apply in respect to anything said by agents in relation are not registering collateral with RDB and utilizing to the insurance they are selling, even if what is said the expedited process to recover collateral. has not been authorized by the insurer. This is because agents are usually paid on a commission Key Recommendations basis and accordingly have an incentive to “up -sell” policies. The general Financial Consumer Protection should include MFIs/SACCOs. Further analytical It is recommended that BNR conduct research to work is required to assess the needs in terms of identify the role of various participants in the institutional capacity at both the supervisory level and insurance market (including MFIs, banks, and the MFI level. A standardized methodology is required SACCOs), because the level of understanding of for disclosing effective annual interest rates, the total participants is currently unclear. Once the range cost of credit, terms and conditions, the right to and roles of participants is understood, consideration statements, copies of contract, the terms and should be given to ensuring that all such participants conditions of the loan and the privacy of data. are subject to appropriate rules and oversight based on their contact with and influence on consumers. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 23 E. Dispute Resolution Mechanisms BANKING SECTOR There is, however, currently a law being considered by Parliament that would establish a Internal Complaints-Handling new deputy ombudsman in the Office of the Systems Ombudsman with specific responsibilities for mediating financial services disputes . It is Although all banks met by the mission team have anticipated that the new deputy ombudsman will internal complaint-resolution systems, these supervise around five officers in a new unit within the teams do not appear to meet all the requirements Office of the Ombudsman. At the time of writing, of the Customer Service Directive, and there details of the new law were not available. This appears to be minimal supervision by BNR. For proposal has been initiated by the BNR, which has example, it is not clear that complaints are redressed been conducting training for the officers proposed to within the required 15 days or that management be working in the unit. undertakes the required monitoring, analysis and management review of complaints. More funda- MICROFINANCE SECTOR mentally, the mission teams were frequently told that There is a confusing and unclear system for the more needs to be done to improve customer service resolution of financial consumer complaints and in relation to complaints (and other matters) and that recourse for MFI/SACCO clients. The Rwanda BNR has limited resources available to monitor Cooperative Agency claims to have a role in resolving compliance with the directive, which may mean that disputes between SACCOs and their members. systemic trends in complaints are missed. However, nothing in the 2008 Law “Establishing Rwanda Cooperative Agency (RCA) and Determining External Dispute Resolution Systems its Responsibilities, Organization and Function” or the 2007 Law “Providing for the Establishment, Organi - At present, there is not a single entity with zation and Functioning of Cooperative Organization in responsibility for providing an external dispute Rwanda” provides this power or duty to RCA. Despite resolution system in Rwanda. BNR does not have it not being within the mandate of the Rwanda explicit power to deal with consumer complaints, Cooperative Agency, they are handling 5-7 member although it receives around 10 per quarter (which it complaints per month. The most frequent complaint does not have the resources to deal with). The Office (while not necessarily consumer protection related) is of the Ombudsman has power to fight against that SACCOs are not giving loans. BNR also receives injustices in private administration and to receive and 10 complaints per month on average but there are no resolve related complaints. At present, these powers internal procedures or processes. are rarely exercised in relation to financial services. The Ministry of Trade and Industry very occasionally Few MFIs and few SACCOs have a formal internal deals with consumer complaints concerning financial process for receiving, responding to and 19 services under its administration of the CCP Law. analyzing consumer complaints despite the Consumers may bring cases to the commercial court current directive on customer service delivery. where there is provision for simplified procedures to Only two out of six MFI/SACCOs interviewed had be applied at the preliminary hearing stage. heard of the directive. BNR reports few institutions are providing the required quarterly reports. None of the MFIs or SACCOs visited had a formal written procedure for handling complaints. All of the 19 institutions had an informal internal escalation The BNR Directive on Customer Service Delivery in Financial Institutions 2012 requires that regulated entities procedure for complaints but none of them offered (which include banks) have an external dispute resolution their clients or members additional external avenues system that meets specified international standards (but for lodging a dispute with BNR, RCA or the there is no such scheme in Rwanda). The Credit Information ombudsman. Systems Law contains provisions concerning customer complaints about information contained in a credit bureau’s database19 (Article 29). Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 24 None of the MFIs or SACCOs (nor BNR or RCA) made against the background of the proposal that the visited had a systematic process for tracking, Office of the Ombudsman take on new responsibilities categorizing, analyzing and reporting on disputes. to deal with complaints about financial services. It is The Directive on Customer Service Delivery requires particularly important in this context that banks have this, but the team found little awareness of this comprehensive procedures for considering complaints directive in institutions, and few quarterly reports were internally. Otherwise the Office of the Ombudsman is filed by any financial institutions related to the likely to be inundated. directive according to BNR. This directive is scattered in orientation, covering customer service, consumer It is recommended that the proposed new protection and workplace practices. It has unrealistic arrangements for the Office of the Ombudsman be benchmarks for many of the measures (e.g., reviewed to ensure that the ombudsman has maximum wait times of three minutes in lobbies and appropriate powers and that the scheme is maximum call times of two minutes for dealing with otherwise designed to meet international best customers by phone) and other measures are standards for financial ombudsmen schemes. In micromanaged and burdensome to track and particular it is proposed that: measure (e.g., status of washrooms and whether staff is smiling).  The ombudsman have clear and specific power (as well as the resources) to provide a dispute INSURANCE SECTOR resolution service in relation to financial services and to make decisions that are binding on the Market conduct regulations require the financial institution concerned (but not on the establishment of an internal dispute resolution customer). procedure. In addition to requirements under the directive, under the insurance Market Conduct  The new service should be designed to ensure that it is a clear, affordable and transparent third Regulations, insurers are required to have an internal 21 party dispute resolution system. dispute resolution process that addresses policyholders’ complaints in a timely and fair manner, Consolidate dispute resolution for the financial and the insurer must communicate the processes and sector in a well-trained, appropriately staffed and procedures to policyholders. Other potential sufficiently empowered unit of the national complainants are not mentioned. Brokers must also ombudsman. This includes making its findings comply with certain basic requirements for complaints binding and ensuring that RCA and BNR relinquish handling. Complaints must be accepted by phone or these dispute resolution roles. As indicated above the in writing, must be dealt with at a suitably senior level, Directive on Customer Service Delivery should be and the broker must have a system for recording and withdrawn and replaced. 20 monitoring them. KEY RECOMMENDATIONS It is proposed that regulated financial services providers, including banks, insurers, insurance brokers and private pension providers be required to publish details of their internal complaints procedures. Details about complaints procedures should be made widely available to customers, and institutions would need to maintain and provide to BNR detailed statistics about the number, type and origin of customer complaints and the time taken to respond to them. It is recommended that these be formalized in a law or regulation and the existing 21 Guidance in this regard may be obtained from the World directive be repealed. These recommendations are Bank’s recent publication on Resolving Disputes between Consumers and Financial Businesses: Fundamentals for a Financial Ombudsman: http://www.networkfso.org/Resolving-disputes-between- consumers-and-financial-businesses_Fundamentals-for-a- financial-ombudsman_The-World-Bank_January2012.pdf 20 Article 7 Broker Code of Conduct. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 25 Box 2: Models of Financial Ombudsman Structures To further improve access to justice for citizens, governments often take further steps to provide alternative dispute resolution systems that allow for an out-of court-decision to be taken when parties fail to arrive voluntarily to a settlement on a complaint. Generally, there are three models of financial ombudsman applied as follows: Ombudsmen established by financial services associations Decision by such an ombudsman is not legally binding but his findings are usually respected by financial institutions voluntarily as a part of self-regulation of the market, sometimes with financial companies even publicly declaring to be bound by the ombudsman's decisions. In countries such as Germany, an industry-based ombudsman structure for each part of the financial sector has proven effective. However, in the case of such an ombudsman structure established by a professional association, attention should be paid to the presence of conflicts of interest. Also, consumers may perceive the ombudsman as someone who will always decide in favor of the financial institution and against the consumer. Statutory independent ombudsmen In this approach, the ombudsman has functions and powers set up by national laws and members appointed by government authority. For example, the UK established a scheme by law to function as an independent institution, while Armenia legally requires financial institutions to join a central-bank-approved ombudsman scheme with binding rules for all member institutions. A single statutory ombudsman would make it easy for consumers to identify to which agency they should submit their inquiries or complaints. While this model has the advantage of clearly defined objectives and mandates, the challenge is to provide the new ombudsman with sufficient authority and resources. The ombudsman structure should be established within the regulatory and supervisory agency A third model is the set-up of a financial ombudsman structure within a regulatory and supervisory agency. For example, in the case of Bosnia Herzegovina, a banking system ombudsman has been established as an independent organizational unit within the Banking Agency of the Republic of Srpska. While this model has the advantage of using existing institutional arrangements to build upon, the challenge is to ensure the independence of such an ombudsman structure and avoid conflicts of interest. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 26 F. Consumer Awareness and Financial Education Ongoing initiatives on financial education The specific consumer protection needs of low- demonstrate the government’s commitment to income households who take out micro insurance improve financial literacy and expand access to should be considered as the market develops. In financial services. The National Financial Education particular, regard should be given to their needs for Strategy, BNR’s Financial Awareness Strategy, the education, the nature of risk-based insurance Maya Declaration, presence within FSDP II and products and the establishment of clear rules and quarterly Access Forums in each district for all procedures to file a claim. Insurers might also be financial institutions and local businesses all encouraged to provide a simplified (one page) policy demonstrate the government’s interest and proposal in this market. commitment to financial awareness and access. However, further efforts are needed to educate clients The FSDP II proposal for professional training of regarding their rights and responsibilities as financial technical staff and insurance intermediaries consumers. The fragmented recourse system and should be implemented. Insurance intermediaries weak regulatory environment makes it difficult to (brokers, agents, loss adjusters) and technical staff educate consumers on their rights. employed by the insurers will be required to have a professional qualification such as the Certificate of Socially oriented MFI, SACCOs and their Proficiency in Insurance, which is available with associations have in place programs to educate various specializations. clients on financial services topics. Most of the education is product oriented relating to how to prepare for taking a loan, benefits of savings and understanding the financial system. AMIR has a program specifically oriented for educating youth in schools on basic financial services issues and then linking schools to local VSLAs. Support should be provided to credible and independent research or consumer advocacy groups that can help consumers compare offering and prices. This information should go beyond product and budgeting training to include information on consumers’ rights for recourse, to receive statements on their accounts, receive information on products before committing to them, to be treated with respect and in monitoring or correcting their information in the credit bureau. Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 27 Annex I. List of Recommendations Responsible Recommendation Term Agency Institutional Arrangements  Clarify the roles of BNR, ombudsman, the forthcoming Competition and Consumer Protection Regulatory Body and RCA (for SACCOs) as it relates to consumer- BNR MT protection rule making, enforcement and dispute resolution in the financial sector.  BNR should be given primary responsibility for supervision of laws and regulations BNR ST applicable to consumer protection in the financial sector.  BNR staff should receive training on consumer protection issues. A separate unit within BNR that has primary responsibility for supervising consumer protection laws may be BNR MT considered. Legal and Regulatory Framework  Consider implementing a cohesive Financial Consumer Protection framework that applies to banks, MFIs, SACCOs, insurance companies, securities, and pension BNR MT schemes as well as the brokers or agents of such institutions.  Regulation and supervision of financial consumer protection laws should be properly ST resourced and separated from the prudential function. BNR  Enact provisions that provide a comprehensive regime for transparency and fairness in BNR ST consumer contracts and related business practices  Consider conducting further analytical work to assess the need to implement a personal insolvency law to provide for the degree of recourse and assets that can be claimed MOJ MT upon seizure of collateral.  Clarify the powers of the Office of the Ombudsman in respect to financial services. In particular, it is proposed that the ombudsman should have clear power to make binding BNR MT decisions on financial services disputes.  Consider the revision of the CPP law and the BNR law to clarify their jurisdictions in the MOJ MT financial services sector. Transparency and Disclosure of Information  Require all fees, charges, penalties, rates and commissions to be disclosed in a BNR ST manner understood by the average consumer.  Require disclosure of an effective interest rate for comparison purposes and on the BNR ST basis of declining balances.  Require a key facts statement for all basic consumer finance products. BNR ST  Review of the mortgage law to include a clear warning regarding the effect of a default BNR, MoJ, MT on a relevant loan. Minecofin  Review of the EFT regulations regarding disclosure of information. BNR MT Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 28 Responsible Recommendation Term Agency  Require financial institutions to publish the details of their licenses in their advertising BNR MT and marketing materials. Business Practices  Promote competition in the banking space by enabling consumers in banks, MFIs and SACCOs to close deposit accounts and pre-pay or move loans with minimal time and BNR/ RDB ST cost burden.  Oblige financial institutions, as a banking license condition, to ensure that their staff, third party agents and authorized representatives are adequately trained and have the BNR ST skills, experience and professional qualifications to competently carry out their functions  Require that mortgagors be given warnings about the consequences of default (including the possibility of losing their homes) and otherwise ensure there is sufficient BNR ST due process in the repossession of collateral.  Develop a new data protection law or at least regulations on protection and MoJ, BNR MT confidentiality of financial consumers’ personal data  Enact a law on debt collection operations. MoJ, BNR MT  Require financial institutions to gather sufficient information from a consumer to enable BNR MT the provider to offer a suitable financial product or service to the consumer.  Allow for a cooling-off period in which customers are allowed to revoke their contracts BNR MT without penalty.  Conduct a public awareness campaign about CRBs activities and a revision of charges CRB MT to ensure reasonableness.  Introduce clear prohibition practices on insurance forcing practices, coupled with BNR LT disclosure and rebate provisions.  Industry codes of conduct should be supported with treatment of disclosure, complaints, product appropriateness and other business areas strengthened, enforced and widely AMIR, ASSAR LT disseminated. Dispute Resolution Mechanisms  Consolidate dispute resolution for the financial sector in a well-trained, appropriately staffed and sufficiently empowered unit of the national ombudsman. This includes OMB ST making its findings binding and ensuring that RCA and BNR relinquish these roles.  Consolidate, analyze and publish statics on consumer complaints. OMB, BNR MT Financial Education  Continue with financial awareness campaigns related to the use of financial products BNR ST and basic financial concepts that are understandable for the average consumer.  Encourage financial institutions to put in place programs to educate clients on financial GoR LT services topics.  Invest resources in financial literacy initiatives. GoR LT Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 29 Annex II. Financial Sector Development (FSDP II) - Action Plan Completion Implementing Sub-program Outputs Date Institutions Program 1: Action Plan for Financial Inclusion  National financial education policy and strategy completed  June 2014 National financial  Roadmap in place to achieve Ministry of Finance and education and literacy specific objectives over 5 years.  June 2014 Economic Planning strategy  Institute of Entrepreneurship, National Bank of Rwanda Cooperatives and Microfinance  June 2015 established National Bank of Rwanda  Micro-insurance diagnostic  June 2014 Micro-insurance Access to Finance completed Rwanda  Substantial technical secretariat in  June 2013 place to support technical steering committee, coordinating and implementing technical assistance for SACCOs and MFIs  December  Financially sustainable district 2014 SACCOs established in every district Ministry of Finance and  June 2015 Strengthen the  Standardized hardware, Economic Planning Umurenge SACCO accounting, reporting, IT and MIS National Bank of Rwanda program—phase 1 in use in all SACCOs and their Rwanda Cooperative  June 2013 branches Agency  RCA cooperative policies and procedures issued to SACCOs on  December non-financial issues 2013  Work-out unit established to deal with weak SACCOs and MFIs  December  CGAP management tool in use in 2014 all SACCOs and their branches  National structure and  June 2016 implementation plan developed after Ministry of Finance and Umurenge study overseen by technical Economic Planning SACCOs—phase 2 committee and stakeholder input  June 2017 National Bank of Rwanda  National structure operational, providing services to SACCOs  External audits of all SACCOs, older  June 2014 Strengthen SACCOs and MFIs completed by Supervisory and BNR approved auditors Regulatory National Bank of Rwanda Environment for  SACCOs and MFIs reporting to the  June 2015 SACCOs and MFIs CRB and using CRB reports in credit adjudication Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 30 Completion Implementing Sub-program Outputs Date Institutions Program 2: Developing Institutions, Markets and the Supporting Infrastructure Ministry of Finance and  December  Rwanda specific mortality (life) Economic Planning 2015 tables prepared National Bank of Rwanda  BNR capable of supervising annuity Rwanda Social Security  December Insurance risks Board 2014  Local educational institution Association des Assureurs  December du Rwanda delivering professional courses for 2014 School of Finance and CoP or equivalent Banking  Virtual holding company concept implemented with separate accounts  June 2013 for pensions, medical, and allocation of overhead  Separate investment policies established for pension and medical  June 2013 Ministry of Finance and Pensions—RSSB funds Economic Planning  Actuarial studies for pension and  June 2013 Rwanda Social Security medical plans complete Board  Management regularly receiving  June 2013 analytical MIS reports  Rolling cash management plans in  June 2013 place  June 2013  Liquidity bucket gap analysis completed on regular basis  Pension law provides appropriate Ministry of Finance and legal foundation for private pensions  June 2013 Economic Planning Pensions—Private  Licensing, prudential and Ministry of Finance and supervisory regime for private  June 2013 Economic Planning pensions in place after legislation National Bank of Rwanda enacted  Interoperability among ATMs, POS and MMT systems National Bank of Rwanda  June 2013 Payment System  Operational manual for CSD Rwanda Bankers' completed - RIPPS Association  National Payment System Mobile Network Operators Framework and Strategy updated  BNR securities depository and other  December Capital Market Authority Capital Markets EAC depositories connected 2014 Rwanda Stock Exchange  Investor compensation fund National Bank of Rwanda established  June 2013  Public awareness campaign on investing in securities complete  June 2014 Capital Market Authority  Business information exchange for Rwanda Stock Exchange Stock Exchange venture capital, SMEs and investors  June 2014 Ministry of Trade and established Industry  Five-year plan for RSE financial  June 2014 sustainability completed Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 31 Completion Implementing Sub-program Outputs Date Institutions Bond Market  Ongoing “road show” presentations  June 2014 Ministry of Finance and Development— to promote Rwandan market Economic Planning developing the  Electronic bond delivery and custody investor base  June 2014 National Bank of Rwanda within the EAC Bond Market  Legal underpinnings for Capital Market Authority Development— securitization in place—Trust Law  June 2013 National Bank of Rwanda Private Issuance and provisions for SPVs  Tax regime does not penalize debt  June 2014 restructuring Development Bank of Creditor Rights and  Law permits informal workouts to be Rwanda  June 2014 Insolvency formalized into a restructuring plan Rwanda Revenue and expedited Authority  Composition of creditors’ committees National Land Centre  June 2014 restriction to only creditors Program 3: Investment and Savings to Transform the Economy  BDF guarantee scheme restructured to be regulated as a financial institution  Export guarantee facility available to  June 2014 small borrowers Business Development  Fund  Guarantee facility established for June 2014 Rwanda Development coffee and tea production with Bank extended grace periods  June 2015 SME and Agricultural Ministry of Trade and  Agricultural/SME finance study Finance Industry focusing on the demand side  June 2015 Rwanda Bankers' completed Association  Warehouse Receipts Act and  June 2017 Ministry of Agriculture and regulations enacted Animal Resources  Index-based crop yield insurance  June 2016 tracking system in place  Training programs delivered for bank  June 2015 officers in providing agricultural credit Rwanda Housing Authority  Cell-based real estate value Rwanda Revenue reference system operational.  June 2017 Authority  BRD housing finance strategy Rwanda Development focusing on mid-income housing  June 2013 Board Housing Finance complete Rwanda Bankers'  Training programs delivered for bank  June 2015 Association officers in providing housing Rwanda Development financing  June 2014 Bank  National strategy for affordable Rwanda Social Security housing completed Board Program 4: Protecting Consumers and Maintaining Financial Stability  Financial sector unit established in  June 2013 Ombudsman Consumer protection the Office of the Ombudsman National Bank of Rwanda Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 32 Completion Implementing Sub-program Outputs Date Institutions  LOB amendments reflecting all  June 2013 specific FSDP II actions ready for submission to parliament  New and revised regulations ready  June 2014 for gazetting following enacting of LOB amendments Updating the  Bank prudential standards aligned  June 2014 regulatory with EAC agreed convergence National Bank of Rwanda framework—banking  New and revised bank reports and  June 2015 formats in place  Revised bank chart of accounts  June 2015 reflect IFRS and new reporting formats  National Bank of Rwanda law  December revised to implement FSAP 2014 recommendations Updating the  Appropriately different regulations for regulatory life and non-life insurers in place,  June 2014 National Bank of Rwanda framework— including capital, solvency and insurance investment guidelines  High level coordinating committee  June 2014 established and operating pursuant to TOR and MOUs with participating institutions  Generic contingency plan in place to  June 2015 address financial instability Capital Market Authority  Generic contingency plan in place to  June 2015 National Bank of Rwanda deal with a failing financial institution Ministry of Finance and Contingency planning  Resolution framework in place Economic Planning clarifying that the financial institution  June 2014 Ministry of Trade and laws take precedence over the Industry general insolvency law, and providing full powers to quickly impose resolutions to protect depositors and financial stability  June 2014  New deposit insurance law is fully consistent with provisions of the LOB and LMO  RBS framework and all supervision Building Supervisory manuals and procedures revised for  June 2014 Capacity National Bank of Rwanda consistency and full alignment with laws, regulations and BNR policies Source: MINECOFIN Rwanda – Diagnostic Review of Consumer Protection and Financial Literacy | 33