Fe guide tanzania by Consumers International

Table of Contents Abbreviations................................................................ ................................................................................................ .................................................................4 Acknowledgments ................................................................ ................................................................................................ .........................................................5 Vocabulary used in the guide ................................................................................................................................ ................................ ........................................6 1.0

Introduction ................................................................................................................................ ................................ ......................................................8

1.1

The Purpose of the Guide: ................................................................................................ ................................ ................................................................ 8

1.2

The origin of the work that lead to the development of the guide .................................................................. ................................ 8

1.3

Some core findings on the level of consumers’ Knowledge and skills .............................................................. ................................ 9

1.3.1

The study findings indicated that ................................................................................................ .....................................................9

2.0

Module One: Understand Concepts of FE - Budgeting and Saving ................................................................ ................................ 10

2.1

Core weaknesses identified during consumers’ baseline study................................................................ study ...................................... 10

2.1.1

On Budgeting ................................................................................................................................ ................................ ...................................................10

2.1.2

On saving ................................................................ ................................................................................................ .........................................................10

2.2

Module Objective/s................................................................................................................................ ................................ ......................................... 10

2.3

What difference does budgeting make? ................................................................................................ ......................................... 11

2.3.1

First irst step:explain the following to consumers ................................................................ ................................................................11

2.4

Summary on the saving lessons ................................................................................................ ...................................................... 13

2.4.1

Rules of thumb for saving ................................................................................................ ................................ ............................................................... 13

2.4.2

Why saving? We are saving for? ................................................................................................ ..................................................... 14

2.4.3

Possible Saving difficulties and advice ................................................................................................ ............................................14

2.5

Summary on Budgeting tips and tools ................................................................................................ ............................................ 15

3.0

Module Two: Understanding credit information sharing ................................................................ ...............................................16

3.1

Core weaknesses identified duirng consumers’ baseline study................................................................ study ...................................... 16

3.2

3.3

What information will be shared ................................................................................................ .................................................... 16

3.3.1

Identification data ................................................................................................................................ ................................ ...........................................16

3.3.2

Credit data ................................................................ ................................................................................................ .......................................................16

3.3.3

Payment history ................................................................................................................................ ................................ ..............................................16

3.3.4

How this information will be collected and shared ................................................................ .........................................................16

3.4

Impacts of credit information sharing to individual consumers ................................................................ ..................................... 17

3.4.1 Positive Information................................................................................................................................ ................................ .........................................17 3.4.2 Negative Information ................................................................................................................................ ................................ .......................................18 3.4.3 The role of the Credit Reference Bureau (CRB) ................................................................ ................................................................18 3.5

Understand consumers’ rights under credit information system ................................................................ ................................... 18

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3.6

Ayoub’s Story on saving, budgeting and credit information sharing .............................................................. ................................ 19

3.6.1

Exercise 1 ................................................................ ................................................................................................ .........................................................21

3.6.2

Exercise 2 ................................................................ ................................................................................................ .........................................................22

4.0

Module Three: Rights and responsibilities of consumers for Financial Services ............................................ ................................ 23

4.1

Core weaknesses identified during consumers’ baseline study................................................................ study ...................................... 23

4.2

4.3

The rights of consumer for financial services ................................................................................................ .................................. 23

4.4

The Responsibilities of the Financial Services Consumer? ................................................................ .............................................. 25

4.5.1

Financial consumer has the following responsibilities: ................................................................ ..................................................25

5.0

Module Four: Credit contract before and after signing ................................................................ .................................................27

5.1

Core weaknesses identified duirng consumers’ baseline study................................................................ study ...................................... 27

5.2

5.3

What is a contract ................................................................................................................................ ................................ ........................................... 27

5.5

Sample questions to ask a loan officer ………………………………………………………………………………………………….…..31 ………………………………………………………………………………………………

5.6

Action points for the consumer ……………………………………………………………………………… ………………………………...32 ………………………………

5.7

Further resources for the consumer ………………………………………………………………………………………………………….. …………………………………………………………………………………………………………..33

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Abbreviations APR

: Annual Percentage Rate

ATM

: Automated Teller Machine

A/C

: Account

BOT

: Central Bank of Tanzania

CAC

: Consumer Advisory Centre

: Consumers International

CPL

: Consumer Protection Legislation

CRB

: Credit Reference Bureau

CRA

: Credit Reference Agency

D&B

: Dun& Bradstreet Credit Bureau

: Financial Education

FGD

: Focus Group Discussion

F2FI

: Conduct face to face interview

: Financial services

IEC

: Information Education and Communication materials

IFC

: International ernational Finance Corporation

MFIs

: Micro cro Finance Institutions

: Republic of South Africa

SACCOS

: Saving and Credit Corparative Society

SECO

: Switzerlland State Secretariat for Economic Affairs

TCAS

: Tanzania Consumer advocacy Society

TAWATA

:Tamko Tamko la Wanawake Tanzania (Womenâ&#x20AC;&#x2122;s Voice in Tanzania)

TAMFI

: Tanzania Association of Micro Finance Institutions

TZS

: Tanzanian Shilling

Tshs

: Tanzania Shillings

: United Nations

VICOBA

: Village Community Bank

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Acknowledgments We are grateful for the hard work and contributions of numerous professionals who have contributed to the development of this Guide for training financial literacy counselors on credit information sharing and responsible borrowing.. Tanzania Consumer Advocacy Society and Consumers International would like to thank all who kindly contributed their valuable information, materials, and time. We thank the institutions such as Bank of Tanzania, Akiba Commercial bank, Access Bank, Twiga Barncop Bank, Bank of Africa, DSM Commercial Bank Ltd, Ukonga Community Saccos, KCB Tanzania Ltd, Shekilango Sokoni Saccos, SEDEO S Saccos, Opportunity Tanzania Ltd,, Wamana Saccos, Sunshine Youth Association, TAWATA, Nia Moja VICOBA Tuanze Saccos and Active Generationfor which allowed their experts and members to fully participate in the process of developing the guide. We would also like to thank experts such as Mr. Dan Kasirye, the country representative IFC-Tanzania, IFC Mr A. Ukhotya, the Bank of Tanzania Director of Banking Supervision; S Mr. M. Abetole Country representative of Dun & Bradstreet (T) Limited; Mr. Evans Sapong D&B the country representative Dun & Bradstreet in Ghana; Ghana Mr. M. Vidar V., the country representative of Creditinfo (T) limited; limited Flavian Zeija, Executive Director of Justice for Consumers – Uganda and Head of Business Law Faculty at Makerere University (Kampala); (Kampala) Ms Winnie Terry, the Executive Secretary of TAMFI and of equal importance Emmanuel Elimringi, credit program manager-BoT. manager All have contributed significantly through stakeholder interviews, and provided inputs during the stakeholders meeting held on December 14, 2012 at World Bank conference hall. We also extend our gratitude to experts such as Consumers International’s Senior Policy Advisor Mrs. Jami Solli who was the lead expert on this project, supported by Mrs. Xaverine Makumagenge CI Africa project coordinator based in South Africa, as well as Mrs. Onica Makwakwa, head of CI Africa. TCAS’s team included myself (Mr. Bernard E. Kihiyo), Agripina Ernest, David Mwakyusa and Mr Ally Goronya who are financial counselors and an integral part of the hardhard working pool of volunteers of TCAS. The IFC team included M/s Moyo Violet Ndonde of IFC; Shalini Sankaranarayanan, Global Product Leader and Mr. Alban Pruthi, also of IFC’s Washington DC based Global Credit Reporting Program, IFC. IFC We thank them for their tireless support to the project, timely inputs and insight in the development of this guide. Further, we acknowledge the contributions contribution of Ms. Lauren Herman and the University of California at Berkeley which allowed us to utilize their intellectual property, specifically from the My MicroFinance Guide (Kenya): definitions and loan officer questions segment. Lastly, but also of significant importance, importance we thank the Government of Switzerland witzerland (SECO) for their financial support that led to supporting the International Finance Corporation (IFC) to undertake this project through Consumers International (CI) and Tanzania consumer Advocacy Society (TCAS). (TCAS)

Bernard Elia Kihiyo Executive Director Tanzania Consumer Advocacy Society and CI counter part to the IFC project

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Vocabulary used in the guide Annual Percentage Rate: the portion of the borrowed funds which is paid by the borrower to the lender in addition to the sum borrowed, and calculated on an annual basis as a percentage, and to be repaid during the loan period. Arrears: a sum of money or a portion of the loan which has not been repaid in a timely manner or according to the terms of the loan agreement in effect. Bank: a company that is licensed to provide financial services, services including accepting deposits from the public and which is regulated by a Central Bank. Chattel: movable property such as household goods, vehicles and trade tools which can be used as collateral to secure a loan. Credit Reference Bureau: a company typically licensed by the central bank and privately held and operated that provides credit information on individual borrowers and micro, small, and medium enterprises to a wide range of credit providers. Generally, the Bureau collects information ina standardized format from a variety va of credit providers, including banks, credit card companies, and other non-bank non bank financial institutions. Also, a bureau collects and distributes a wide range of publicly available information such as court judgments, bankruptcy notices, and telephone directory information, and/or facilitate access to third-party third party databases such as collateral registries. Additionally,information is also gathered from contributors of nontraditional data such as retail lenders and billing data from gas, water, electricity, cable, telephone, internet, and other services, which enables a credit bureau to compile better and more comprehensive credit reports. Credit Report: a detailed summary of information on credit enquiries and payment behavior of consumers or businesses as reported by credit providers. The credit report may incorporate publicly available information, nonnon traditional data and information processed by the system (For more details please see the Credit Reference Bureau description as well) he ability of a borrower to repay current and prospective financial obligations on a timely manner. Credit worthiness: the It is used as an assessment of a borrowerâ&#x20AC;&#x2122;s past credit behavior to assist a potential lender to decide whether or not to extend new credit. Default : a default occurs when a consumer or business has failed to repay a loan obligation and there is no prospect of the borrower meeting the obligations. Delinquent loan: a loan which is late in being repaid, but which is not yet considered to be a default. Deposit taking institution: a financial institution which has a license to accept deposits from the public and which therefore must follow very specific reporting and other guidelines by the regulator. regulator In n Tanzania, Tanzania the regulator is the Bank of Tanzania. Grace period: an amount of time in which the borrower is not required to make loan repayments with permission from the lender; normally at the beginning of a loan agreement just following disbursement. Guarantor: an individual who promises to repay the loan should the originally borrower fail to do so. Interest rate: A percentage of a loan amount paid as a fee for the use of the funds; there are many different ways to calculate interest, thus the consumer should ask how the applicable rate is calculated. Interest can also be paid to a consumer who deposits money in the bank.

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A flat interest rate and interest nterest on a declining balance: A flat interest rate is that which is normally charged in Tanzania by microlenders and is calculated based on the principle or the whole sum due, rather than on a balance that reduces continually as the borrower makes his/her payments. Thus, if the interest rate is flat, then the consumer is paying much more interest than on the declining or reducing balance Loan agreement: a binding contract between the lender and the borrower to extend credit on specific terms. Pyramid or Ponzi scheme: a fraudulent activity whereby perpetrators offer high rates of interest to persons who invest or deposit their money with the organization. organization. Usually, the initial depositors or investors are repaid with money from those who come later; thus the scam is referred to as a pyramid. There are numerous pyramid scandals in the financial services sector and one sure way to identify them:if the interest rate offered sounds too good to be true: it is! Savings: money that is deposited in a licensed deposit taking institution by the consumer on which interest or other benefits are accrued by himor her. m Security/Collateral: property of the borrower which is used to qualify for a loan. In cases of default, a lender may follow a legally established procedure to seize and sell the borrowerâ&#x20AC;&#x2122;s collateral to compensate for the cost of the unpaid loan amount, legal fees and other related fees and penalties.

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1.0

Introduction

1.1

The Purpose of the Guide:

This guide is to be used as an educational ducational guide for financial counselors already working with Tanzanian consumers to inform them about the changing state of the financial services market in Tanzania. The guide provides practical examples and exercises which reinforce responsible borrowing, savings and budgeting messages for the consumer. Tanzania has experienced a significant increase in micro financing and consumer lending in recent years. In addition with the introduction of credit information sharing there is a need to alert consumers as to how this development will impact their access to financial services in Tanzania. In n addition to the central objective of inspiring the consumer to reflect more on his or her financial situation considering longer term financial planning, planning the guide intends to instill new practical knowledge regarding responsible borrowing behavior in light of the changing financial services market: namely, that financial financial institutions will now be sharing credit information on consumers from a variety of sources. A secondary objective of the Guide is to instill in the financial consumers consumer the confidence that they do have rights. However, to have rights in a country where the legal framework for consumer protection is still very weak and a work in progress consumers must take a much more pro active and assertive approach to financial services. services For example, consumers should: •

Do comparison shopping regarding financial financ services available in the market;

•

Question the service provider until the consumer truly understands the offer, and only agrees to the terms when he/she can comply with them, and

•

Most importantly, the consumer must demand a high quality financial service,, refusing to purchase if it does not suit the consumer’s needs.

The task at hand is difficult because the average Tanzanian consumer has little experiential knowledge of the formal financial services sector, though there have been efforts by TCAS to bridge the knowledge gap by providing guidance through financial education counselors to assist the consumers to build skills and knowledge on financial services and management of households’ budgets and savings. savings Therefore this guide is one of the initiatives of TCAS and one tool that the counselor can use to navigate the FS sector. It is designed to inspire consumers to concentrate on personal savings strategies and longterm financial plans which encompass household budgeting. 1.2

The origins of the guide

Through the support provided by IFC to CI and TCAS, the partners worked to determine the actual state of financial services knowledge on credit information sharing in Tanzania; Tanzania; experience with financial services; financial behaviour and consumer knowledge of basic financial concepts. An assessment was done of existing literature on the state of financial literacy in Tanzania and by conducting a survey su of consumers, followed by six focus group discussions (FGDs) to clarify consumer positions. The project also involved interviews with different categories of stakeholders including BoT, banks, MFIs, SACCOS, VICOBA, CRAs, umbrella organizations such as TAMFI (the national microfinance association) and consumers. The questionnaires were developed to understand the level of knowledge on credit reporting, saving and budgeting. The results provided valuable insight into the design of this guide.

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Consumer outreach and awareness raising materials such as posters and calendars were developed to inform on credit information sharing and related financial literacy issues found lacking in the consumer questionnaires/survey. Further, this financial education guide was developed and project findings shared with Stakeholders in a workshop on credit dit information sharing held at the local World Bank offices ces in Tanzania on Dec. 14, 2012. The Guide uide and the counselor’s role is to encourage the consumer to try as best as they can to plan their household budgets, and to think more in the medium and longer long term about financial services in order to anticipate lifecycle events which impact financial services needs, all the while maintaining a good credit history.

1.3

Some core findings on the he level of consumers’ knowledge and skills

The consumers’ survey involved consumers who were already credit active, or who had been in the last year: there were 53 consumer/respondents in total. Ten respondents were from banks, 12 respondents from SACCOS’ and VICOBA’s, two respondents from the credit bureaux, bureaux one respondent from the central Bank of Tanzania and one respondent from TAMFI.

1.3.1

The study findings indicated that

Majority of consumers 79% do not create a household budget, further specifying during focus group discussions that they don’t see the purpose, because their low incomes makes budgeting prohibitive and 85% of respondents indicated that their household expenses are frequently more than their earnings. earnings The survey also revealed that the average consumer has little or no knowledge of credit information sharing, nor are they aware that it will begin in Tanzania. Almost 90% of consumers surveyed ed believed that the following statement is false, when in reality it is the purpose of a credit bureau: ‘a credit bureau is a useful ul resource for financial institutions to consult prior to making decisions on whether to grant a loan or not.’ And, in response to the question (true or false) ‘A credit bureau will be opening in Tanzania soon,’ soon 79% of consumers surveyed believed this statement to be false. Additionally, pursuant to the survey, credit active consumers demonstrated demonstrate low levels of ‘consumer confidence’ in terms of understanding credit agreements or asking loan officers clarifying questions prior to signing loan l agreements. For example: •

Credit active consumers demonstrated low knowledge of rights and/or a failure to insist on redress within financial services institutions when a problem arose. o 72% of those surveyed felt they didn’t have enough time to read the loan agreement prior to signing (yet they did sign the agreement). agreement) o 68% felt the loan officer did not explain the terms of the agreement sufficiently. sufficiently o 53% stated that the loan n experience was a negative one. o Only 25% of respendents (equivalent to 13) actually lodged a complaint with the financial services provider, and of those who filed complaints 77% stated the complaint was not resolved to their the satisfaction.

While there are a few FE programs to advise consumers prior to becoming credit active and to encourage them to insist on their rights regarding the provider, provider this is a fundamental ingredient in FS consumer protection that still needs to be addressed.

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2.0

Module One: Consumer Budgeting Budget and Saving

2.1

Core weaknesses identified during consumers’ baseline study

2.1.1

On Budgeting

• • •

79% of the respondents don’tt see the importance of budgeting as they claim to have low income. income 85% of respondents indicated that their household expenses are frequently more than their earnings. earnings 64% of the respondets spondets indicated that they do d not create a household budget as money is never sufficient to cover their expenses.

2.1.2

On Saving

•

It was revealed that the household monthly average income of respondents is TZS 483,000 (equivalent to 300 USD) however o 49% of respondents indicated that if they lost their source of income, the household couldn’t could last for one week without borrowing. o An additional 30% of the respondents indicated that their household’s income could only cover living expenses for a single month.

This is an indication that 79% of the households are struggling to save, or their savings are minimal.

The survey revealed that there might be spending habits which illustrate spending choices choice on items which the consumers could possibly live without, hout, or which, with some advanced planning could be re allocated to savings, a more essential item, or even an income generating or cost-saving cost investment.

2.2

Module Objective/s

Budgeting and saving are two essential components com of FE. The guide’s ide’s objective is to help create a solid knowledge base, as well as exercises that will enable a FE counselor to train consumers on how to budget udget, to save, to engage in longer term financial planning, to better understand the loan agreement and related consumer consumer obligations and rights, and finally to understand the impact of credit information sharing on one’s financial life cycle.

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2.3

What difference does budgeting ing make when one’s income is insufficient to make ends meet? meet

2.3.1

First step: to explain to the consumer why budgeting is a tool useful for all income levels

Regardless of how much, or how little one is earning, it is necessary to have accurate information regarding income flows to the household, as well as on the expenditures for a certain period of time; time such as a month (though two months is better if income varies significantly, for example, if the consumer is a petty trader in the market or a farmer). farmer) The consumer’s budget will illustrate a road map, so to speak, of one’s spending and earning habits. And, with regard to spending, there are always opportunities to alter spending patterns or behavior so as to have more money available for other, more important items, or to create savings. Spending is about choices and prioritizing expenses. 1

Consumers should understand what are the basics needs and what are the wants and try to strike strik a balance on what you must have to survive. For example, a cell phone could be categorized as a ‘need’ if one has to be in contact with clients at all times. However, it may be a ‘want’ for a youth who simply ‘needs’ to chat with friends on a regular basis. Ideally, one should keep a notebook in which every day the consumer can record the information described regarding how much is earnt, as well as how much is spent, on what and where. It is important to record expenditures and earnings faithfully every day, because the ability to recall details accurately diminishes as time passes. The consumer should give themself the role of detective looking for clues as to where he or she can save money and achieve bigger financial goals. If the consumer is a petty trader or their income varies seasonally, they should try to keep track of their thei spending and earning habits for 2 separate periods: • •

During the low income season During the high income season

Budgeting is helpful to plan for the needs of the entire household, and the financial health of a family can be as important as its physical health,, because it affects relationships. Please Note: Spending pending behavior and earning potential will be different during these two seasons, and the consumer should be aware of how much spending patterns vary as being self aware is the first step in planning a safe financial future. The consumer must avoid void the trap that pushes them to increase spending, just because your earnings increase. Alert!!! there are always unforeseen problems which require a savings cushion in future.

11 2

You can life without the i.e. food, shelter,utilities, medication, clothing and the like These are goods and services sought to improve the quality of life, like music system, TV, cars, games, disgner cloths and the like

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Knowing where your money comes from and tracking where it goes: The second step is for the counselor to guide the consumer through the process of identifying all sources of income and expenses with leading questions contained in the chart below: below What are your sources of income? income

What are your daily expenses? expenses

From a salaried job: From agricultural work: From petty trading: From regular gifts: Remittances received: Pension payments: Support from family member: Wagering: Other:

Food & cooking oil: Medicine: School fees: House rent Loan payments or other such obligations Transportation: Petrol (if you have own vehicle): Insurance: Entertainment (purchases like DVDs, playing cards c if it involves wagering, dining out) Tobacco/Alcohol: Tea/Coffee/Canned Sodas: Newspaper or journal purchase: Cell phone airtime: Other_______________________________ _______________________________

Counselors Please Note: • You are required to maintain your clients’ privacy; keep their data and information confidential; confidential reassure the client that you will abide by this obligation. obligation • Guide and listen carefully to the consumer’s answers. answers Discuss the questions below with consumer which will provide you with an indication of his/her williness to adopt new financial behaviors: 1) Can you change your spending habits so as to have more money available in your budget? 2) Are there some items on which you spend money that you would be willing to give up either permanently, permanently or for a limited time such as one month? If so, how much extra money would that make available in your budget? 3) Are there some expenses which you are not willing to eliminate, but perhaps you could reduce? 4) Are there some expenses which you could try to o reduce by finding a less expensive provider, provider or by buying in bulk to reduce the price? 5) Are there some expenses which you have that are seasonal, such that you if you try to buy these items a bit earlier or later than during the high season, then you will get a better price? 6) Is there a product which would improve your efficiency, save time or make your life easier? If so, could you set aside some savings to purchase that product? 7) Is there an agricultural product you could grow, or livestock you could invest in which would increase your earnings? 8) Do you have enough savings set aside in the event of an illness which would prohibit you from working? 9) Do you have a savings plan in place now for retirement? When are you planning to retire?

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2.4

Summary on the Saving Lessons essons

2.4.1

Rules of thumb for saving

While basic principles of money management do apply to everyone, decisions to save or consume depend very much on your personal level of income, access to loans, and access to appropriate savings products. Nevertheless, there are a number of rules of thumb that you can use to guide decisions about savings and consumption: 1) Save as much as you can as soon as you can. The more you save, the better off you’ll be. 2) Save as you earn by setting aside 10% of your income even if you don’t have a specific purchase or investment for which you are saving. 3) Pay yourself first! Put the 10% of your earnings aside first, before you do anything else. If you can’t afford 10% right away, start with less, but save something. 4) Pay off your debts: Some people recommend paying down your debt before you start to save; others recommend saving even while paying down debt because it is important to begin the habit of saving. 5) Calculate how your money will grow over time if you save regularly in an interest bearing account. 6) Try not to carry cash — this will help you avoid temptation to spend it! 7) Spend carefully. If you purchase big items, consider how much money you could make if you resell, resell adopt sustainable consumption life styles including the 3R’s of reduce, reuse and recycle.

8) Look for opportunities to save money by bulk purchases using cost benefit analysis approach. 9) Keep 3 to 6 months of living expenses in an emergency fund at all times. It can be used in case of job loss, unexpected illness, or to meet other emergency needs. An emergency fund will help to reduce your financial anxieties. 10) Keep emergency funds in a separate account. Open 2 savings accounts: • • •

The first account should be for emergencies that is easy to access and doesn’t have any penalties for withdrawal, and The second account is for goal-related related savings and that is harder to access (and therefore less l tempting to withdraw the money). Keeping some savings “out of reach” is important.

Two major Rules for Saving • •

Spend less than you earn! Save something every day or week!

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2.4.2

Discussion of why we save

Discuss the chart below with the consumer and ask about his/her recent life cycle events, and what happens when we do not plan for them by saving.

Unexpected Future Events Sickness Funerals Emergencies Theft Natural disasters

Expected Future Events Weddings Education Childbirth Old age Holidays/Festivals Low-income income season

Optional Expenditures Vacation Home improvement Luxury items Gifts

Building Assets House/home improvement Bicycle Motorcycle Car Business Crop/agriculture

2.4.3 Challenges to Savings and Strategies for Coping Explain to consumers the possible difficulties and discuss a coping strategy. Difficulties

Advice

I barely have enough money to feed my family and pay for other basic necessities.

•

When I save, my husband always asks to use the money I have saved.

My income is irregular. I must use all the available earnings to pay off debts.

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• •

Start setting aside something, even if it is only a very small amount, t, every day or every week. The amount will grow. Look hard for ways to cut unnecessary spending. Keep money in a secure location, preferably out of the house so it is not accessible. Open a bank account. Do not advertise to relatives that you are saving, saving or have access to savings. Save different amounts each time you earn some income. Make a schedule to o pay off the most expensive debts first.

2.5

Summary of Budgeting tips and tools

Use the following chart to check consumer’s retention of the previous content. Ask the question and see if the consumer can list 2-3 3 of the stated answers. Why Is a Budget Useful? A budget: Allows you to assign your income to different types of expenses Helps you make decisions about spending and saving Encourages cautious and disciplined spending Allows you to take control of your financial situation Helps you organize rganize and manage money more effectively Helps you plan for your future and meet your financial goals Ways to Improve Budgeting List all income sources List all expenses Plan ahead to prevent spending more than your income Save surpluses to meet future expenses when income is low Steps to Create a Budget • Review your financial goals which will be the key to your own financial stability • Estimate amount of income by source • List all expenses and amount needed for each one • Make sure your expenses are not more than your income • Decide how much you will save • Review and adjust as needed How to Stay Within Your Budget • Remind yourself often what you planned to spend • Put in the budget something for unexpected spending needs • Keep savings out of reach so you do not n spend them • Keep track of what you spend • Make sure you do not spend more than is budgeted • If you spend more for one item, spend less for something else • Make a list of ways to cut planned expenses • Get the family to participate in developing and sticking with the budget • When investing money in business, consider what to do if the investment fails Ways to Cut Spending • Consume less of non-essential essential items (beverages, snacks, luxuries) • Spend less on parties and festivals • Reduce expenses on life events such as marriages and funerals • Save enough to buy necessities in larger amounts at lower costs • Plan ahead to buy necessities when the prices are lower • Avoid buying what you cannot afford on credit, instead create a savings plan until you can afford to purchase the item.

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3.0

Module Two: Understanding Understand credit information sharing

3.1

Core weaknesses identified duirng consumers’ baseline study: study

• • •

Consumers had little knowledge on credit information system i.e. what type of information is going to be shared Consumers don’t know their rights or obligations with regard to credit information sharing Consuners do not understand d the benefits be of credit information sharing

3.2 •

Module Objective/s: Ensuring that consumers understand how credit information sharing works and its impact on an individual’s individual financial life.

3.3

What information will be shared: shared

Credit information is the outcome of processing three t broad categories of data: • Identifying data • Credit data • Payment history 3.3.1

Identification data

Information that gives correct identification of the consumer/borrower’s including personal identifications among others the name,, surnames, date of birth, birth physical and postal addresses of the borrower. 3.3.2

Credit data

Credit data is collected to describe the borrower’s creditworthiness creditworth or indebtedness includes ncludes amount of loan, type of loan/s, maturity of loan/s,, guarantees and collateral value, default information and payments in arrears as well as consumer’s onsumer’s debt and payment histories. histories 3.3.3

Payment history

Information such as utilities payments for electricity, water, gas and telephones will be shared by financial institutions, as well as the government (regarding whether citizens pay their taxes). taxes) Hence,, if this information is positive, you will have a good credit rating likely to qualify for a loan with a more attractive interest rate. 3.3.4

How will this information be collected and shared

The consumer’s information related to identity, address and financial data will be collected by the institutions from which the consumer borrowers or from which it receives services, which are considered considered ‘creditors’ of consumers. The he consumer’s information will be submitted sub to a credit registry at the Central entral Bank of Tanzania which will store consumers’ information and historical repayment trends, specifically whether the consumer pays his or her debts in a timely manner. This stored information can be requested by other financial institutions when the consumer approaches them asking to receive credit. The report will show consumer’s creditworthiness which reflects whether the consumer has a good record of having made past payments to creditors in a timely manner. manner

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3.3.5

Tip to consider when refused a credit

Only the lender and not the CRB is the responsible party which can tell the consumer why they have been refused a loan. Therefore, the lender should give the consumer a clear explanation as to why they refused to provide the consumer with credit, and they should tell the consumer if their decision was based on the following: • • • • • •

Information on a credit report; Other information the consumer gave them during credit application; Other information they hold on the consumer as a customer of other services; The consumer’s wage or income i.e. the size of the loan as compared to their ability to repay; re Other information about the consumer’s shopping behaviors from retailers, supermarkets, supermarket other service providers such as mobile phone and utility companies; companies Their own internal policies and risk management procedures on providing credit.

3.4

Impacts of credit information sharing to individual consumers

Inform consumers of the importance of a good credit report and why a bad report is to be avoided. avoided 3.4.1 • •

Positive Information

A good ood credit record assists the consumer to receive credit from other lenders in the future. A good credit report can also be used by the consumer to negotiate for better better lending terms, like a lower interest rate or larger loan.

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3.4.2

Negative Information

Iff the consumer has not made regular or timely payments on his or her debt obligations, then this information will also be available to potential future lenders. And, having a negative payment history could impact the consumer’s ability to obtain credit in the future, or it could negatively impact the lending terms offered with regard to new credit. For instance, a potential lender to a consumer who has made late payments might request increased security, such as asking for a loan guarantor; an interest in physical assets belonging to the consumer as collateral; and/or the creditor could offer a higher interest rate due to the perceived, increased risk of lending to a consumer who in the past has not regularly repaid his or her loans, or has paid them late.

3.4.3

The role of the Credit Reference eference Bureau (CRB)

The CRB provides information to lenders that is critical to evaluating the creditworthiness of the applicant. This information enables banks/MFIs make effective lending decisions, increases their ability to proactively measure portfolio risk and radically improves their debt collection efforts. •

• • • • • •

3.5 • •

•

Banks and other financial service providers would profit from reduced credit processing costs and improved portfolio quality if they engage the credit bureau in their operations. CRB also promotes social accountability amongst among borrowers and enhances good credit culture. Protect consumers against financial mismanagement by basing their access to credit, and payable risk premium on their respective risk profile. Improve transparency in financial transactions as they promote confidence and greater access acce to services and banking products. Increases credit extension because of better risk profiles, reduced credit processing costs and times as well as loan write-offs. It lowers borrowing costs,, which in turn will allow for the provision of much-needed much finance nance for the development of various social economic infrastructures. Prevent over-indebtedness indebtedness of consumers and FS granting reckless credit as CRB focuses on ethical lending and ethical borrowing. Understand consumers’’ rights under credit information system A consumer has a right to be informed that his or her information is shared with and stored by a credit registry. The consumer also has the right to obtain a copy of his or her personal credit data contained in a credit report. The consumer can have one free copy each year, year and should review the information to ensure that it is accurate.

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3.6

Ayoub’s Story on saving, budgeting and credit information sharing

3.6.1

Give the consumer time as needed to read the following fact pattern:

Ayoub was a teenager living in Arusha who was raised by his grandmother. Ayoub’s grandmother, Grace took Ayoub in at the age of five because his mother fell ill and subsequently passed away. Grandma Grace worked very hard as a trader in the market and invested her earnings from the market in livestock, and she also cultivated a small vegetable garden on a plot of land; earning an amount sufficient to cover the family’s expenses including the Ayoub’s school fees, but life was difficult for Grace. Much to Grandmaa Grace’s displeasure, Ayoub fell in with the wrong crowd who convinced him to leave school at age 14, attracted by the allure of earning pocket money being a guide for the tourists wanting to ‘do’ Kilimanjaro. Being personable and athletic, Ayoub was much appreciated as a guide, and earned a substantial amount of tips, in addition to a small base salary. His clients often gave him their email addresses with promises to remain in contact. Ayoub enjoyed his job, however he lived very much in the moment, moment, and spent as much as he earned; again much to Grandma Grace’s displeasure. Grandma tried to introduce Ayoub to her rotating savings club, but Ayoub scoffed that he was a busy man who had no time to sit chatting with the old women. b also began to play and lose money at cards, and began to take out loans to cover his debts. Unfortunately, Ayoub First, Ayoub went to microlenders, pretending he needed money for a new business venture, and, he also took loans from money lenders; none of which Ayoub could pay back. Ayoub was in a bad way and his former mates would no longer play cards with him, and made excuses not to see him at all. Grandma Grace knew from talk in the marketplace that Ayoub was in difficulty. Since Ayoub was born, she had been saving saving money on his behalf as well, having opened accounts for both her and her grandson, hoping that one day the funds would be used for Ayoub to attend the university, or when he got married to start building a home for his own family. ied as she withdrew all the money from the account in Ayoub’s name and hers, and used the Instead, Grandma cried savings instead to pay off Ayoub’s loans to the micro lenders and the money lenders. She did not however tell Ayoub she’d paid his debts, but sent him to stay with an uncle in Dar es Salaam telling him he must flee Arusha for his own safety. Grandma Grace was quite clever and knew that if Ayoub thought his debts were paid, he would simply return to his bad behavior. She also instructed the lenders that this was the first and only time she would be paying her grandson’s debts:that it would be their problem in the future if they chose to lend anymore money to her grandson. So, Ayoub left Arusha to live with his uncle who worked in a hotel in Dar, and who was also able to get Ayoub a job as a porter in the same hotel. Ayoub was humbled by his previous bad experiences with cards and debt, and his uncle was a stern man and nott about to let Ayoub stray again into trouble with cards or a bad crowd. In fact, Ayoub respected his uncle and was content to stay in Dar, but Ayoub remained an ambitious youth with the goal of being his own boss. After a year or so passed of hard work work in the hotel, Ayoub began to study how he could open his own tourism business. He planned to use the internet and social networks to market his services to tourists he had already met and to connect with their friends and family in America and Europe who who might be interested in planning similar trips to Tanzania.

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Ayoub wanted to create a professional website so that tourists could submit an offer for how much they were willing to pay for pre arranged travel packages like safaris, treks up Kilimanjaro and and sailing on a dow. And, independent guides could accept the work they were interested in doing. When a deal was concluded, both the tourists and the guides would pay a small percentage to Ayoub’s company to use the service. Ayoub had great business ideas, but lacked the money to start up his business. Ayoub’s uncle sent Ayoub to talk with a cousin who worked in a bank about taking out a business loan. His uncle’s cousin questioned Ayoub about his business plan, how much the website would cost, cost and how much Ayoub thought it could make based on other similar websites. He also asked about Ayoub’s ability to contribute funds to the business. Then, he asked Ayoub whether he had other existing debts. Ayoub answered that he did not have any existing existi debts in Dar es Salaam. But, this question made Ayoub anxious and he began to wonder about whether he needed to discuss his past debts with the bank. He left the meeting, and returned to his uncle’s where he told his uncle about the meeting. It was then that his uncle informed Ayoub about Grandma Grace’s sacrifice, and the fact that she had paid Ayoub’s debts for him. Ayoub felt both sad and happy at the same time, and immediately called his Grandma to thank her, and tell her that he would work veryy hard, hard and make her proud of the new Ayoub. The next day, Ayoub returned to the bank with his business plan and his uncle who agreed to act as a guarantor for Ayoub’s business loan, and Ayoub was granted the loan he needed to start his new tourism business. busine

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3.6.2 Ask the consumer the following questions related to responsible borrowing and credit information sharing and discuss the answers EXERCISE 1 Q1.

How was Ayoub’s grandmother’s financial behavior and planning different from her grandson’s? Discussion points for Q1 (Discuss how Grandma Grace saved her earnings from her trading in the market with several different institutions and she reinvested profits in her business expansion, and planned for the future; while Ayoub lived from paycheck to paycheck aycheck spending on fun, disregarding the future).

Q2.

How did Ayoub get into financial difficulty? Discussion points for Q2 (Discuss issues in line with multiple loans and borrowing for a nonproductive reason as opposed to saving)

Q3.

What if Grandma Grace had not paid Ayoub’s debts for him; what could have been some of the potential consequences? Discussion points for Q3 Discuss issues that would happen at personal level, real harm from money lenders; loss of business and (Discuss creditworthiness thiness reputation as you are now aware on issues regarding credit information sharing)

Q4.

Discuss whether Ayoub had an obligation to reveal past debts to the uncle’s cousin at the bank. Discussion points for Q4 (Discuss in line with issuess like a borrower rower needs to divulge that they have other existing debts, and that through financial institutions sharing information that this information will eventually be discovered by the lenders once credit information sharing begins; also highlight the importance importa credit information bureau in helping a good borrower differentiate fferentiate from a bad borrower) borrower

Q5.

Ayoub’s uncle volunteered to guarantee Ayoub’s loan. What does it mean to be a guarantor? Discussion points for Q5 (Discuss in line with the consumer’s responsibility for fulfilling the obligations of repayment of a loan if Ayoub cannot).

Q6.

What are some important considerations to reflect on when starting a new business as Ayoub did? Do you think he was substantially prepared? Discussion points for Q6 (Discuss the risky nature of a new business; business; does person have sufficient savings to live on until the business makes money or in the event business fails? How could a business failure can impact one’s credit history adversely if debts are not repaid. Or How could a business success positivly impact one’s credit history and his/her ability to tap to additional funding needed for further business expansion)

Q7.

Discuss how you think Ayoub should plan for his future once he starts his new business. Discussion points for Q7 (saving for retirement; reinvesting profits;paying off his loan and trying to use business profits to grow organically vs. taking on too much debt to expandand maybe he could/should pay back the money to Grandma so she has retirement nt savings) savings

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EXERCISE 2 Choose the best corresponding answers from B and match it with sentences from A

No 1

Column A

Column B The consumer could have difficulty obtaining credit in the future from a microfinance institution, or the lending terms offered could be less beneficial, such as a higher interest rate.

A good credit report

The consumer can obtain a copy of his/her Credit report

Financial institutions and infrastructure Services providers

If the consumer onsumer finds an error in report rereporther repo

May share consumersâ&#x20AC;&#x2122; financial data and payment history with the credit bureau.

If a consumer makes his or her loan payments late to a Sacco.

Once per year from the credit bureau

The consumer should report the Mistake to the credit bureau so that it May investigate and correct ect the error if necessary. Can make it easier for the consumer to obtain credit in the future.

Answers: Column A

Column B

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4.0

Module Three: Rights and responsibilities of consumers of Financial Services

4.1

Core weaknesses identified during du consumers’ baseline study

•

The study revealed that there is low understanding by consumers of their rights and responsibilities.

•

Personal financial stability isn’tt guaranteed as majority are using financail services but lack knowledge of significant issues.

4.2 • 4.3

Module Objective/s Enable consumers to translate their financial rights and responsibilities into acts The rights of consumer for financial services

•

You have the right to be furnished with all the necessary information about the potential benefits and risks of the service you are going to buy or sign in order for you to make an informed choice.

•

You have the right to have true rue and accurate information: information financial institutions are obliged to be truthful, honest and fair with consumers.

•

You have the right to be provided with high quality products and services for your money, such that they are not selling you products which are inappropriate to your needs, or which you are not able to afford.

•

The he consumer has a right to know what information is collected and shared about him or her, and thus has a right to obtain his or her own credit report for free once per year.

•

The consumer has the right to data and information privacy. When institutions gather and share the consumer’s private data, they should take reasonable measures to protect the security and privacy of that data.

•

You have the right of be given all the necessary information you need to understand the product or service, service including notice of default,, foreclosure and possible remedial measures, and implications if no remedial measures can be taken into account.

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Consumer Rights in Financial Services illustrated

You have the right to be treated with respect. In this picture, you see the loan officer demonstrating respect to a consumer by welcoming her warmly. Picture 1: with respect

Right to be treated

You have the right to decide which products or services you want to use. In this picture, you see a loan officer offering a consumer a house improvement loan, a loan for a motorcycle and a savings account.. Picture 2: services to use

Right to decide which

Picture 3: Right to receive clear, truthful and timely information

Picture 4:

Picture 5:

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Right to be heard

Right to privacy

However, the consumer is only interested in opening a savings account. It is your right to decide which products or services to take.

You have the right to receive clear, truthful, and timely information.. In this picture we see the loan officer using complex terms. The consumer is confused about that information. It is your right to receive truthful information in terms that you understand. underst

You have the right to be heard. In this picture, we see how the consumer is explaining something to the loan officer, and we see how the loan officer is listening carefully to what she says, and even taking notes.

You have the right to privacy. Your personal information should be kept confidential between you, the loan officer and your group members. In this picture you see that the loan officer is thinking about sharing the consumerâ&#x20AC;&#x2122;s information with someone else, but this thought is crossed out. A loan officer cannot disclose personal information n without the consumerâ&#x20AC;&#x2122;s consent.

4.4

The Responsibilities of the Financial Services Consumer

Tell consumers that financial inancial consumer protection is a two way process which involves rights and obligations in order to ensure that the relationship with the services provider works for both the customer and the service provider; therefore there cannot be rights without responsibilities. 4.5.1

Financial consumer has the following responsibilities:

•

To ask for information and clarifications if you do not understand something about the product and service; service

•

To o ensure that you evaluate the costs of the product or service to be sure that you can afford it according to your actual income;

•

agreement To read any services agreements; and ask questions if you do not understand the agreement.

•

To seek legal support or advice from a trusted third party like TCAS if you have any uncertainties prior to contract signing.

•

To o be honest with financial services providers by proving acurracy information about earnings and existing debt obligations, so they may fairly evaluate the potential risk of lending to you.

•

To o honour and comply with any agreements you do eventually sign. sign

•

To pay your credit or any other bill as per the agreed timeframe.

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Consumer responsibilities in Financial inancial Services illustrated You have the responsibility to treat others with respect. In this picture, we see how the consumer is warmly greeting the loan officer when she arrives at the group meeting. Picture 6: Responsibility to treat other individuals with respect

Picture 7: Responsibility to evaluate the costs of a product

You have the responsibility to evaluate the costs of the financial products you might be interested in. In this picture, we see the consumer is analyzing whether or not she can repay a loan and how it will benefit her and her family. It is your responsibility to analyze the productâ&#x20AC;&#x2122;s costs and benefits. You have the responsibility to comply with the terms and conditions of the product you choose. In this picture, we see the consumer is paying her loan on time. It is your responsibility to meet your commitments.

Picture 8: Responsibility to comply with terms and conditions of the chosen product

Picture 9: Responsibility to provide truthful and timely information

Picture 10: Responsibility to protect other peopleâ&#x20AC;&#x2122;s personal information

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You have the responsibility to provide truthful and timely information.. In this picture, we see the loan officer asking the consumer whether she has a big house. The consumer is answering honestly saying that her house is a small one. It is your responsibility to be honest nest with the financial institution and your group. You have the responsibility to keep any financial information you have about your family, friends or neighbors confidential. confidential This is especially important for those in group savings and lending programs. In this picture, the members share their information within the group, but they keep this information to themselves and do not share it outside the group.

5.0

Module Four: Credit contract before and after signing

5.1

Core weaknesses identified duirng consumers’ baseline study

• • 5.2 • • 5.3

Consumers are pushed to sign the loan contract without knowing what obligations bind them. Consumers have difficulty understanding understand their responsibilities after signing a credit contract. contract Module Objective/s Ensure that the consumer understands understand a credit contract. Ensure that the consumer understands understand how to behave after signing a credit contract. What is a contract?

A contract is defined as an agreement between two or more parties which is binding in law. This means that the agreement generates rights and obligations that may be enforced in the courts. Contracts ontracts consist of various statements, promises and stipulations grouped together together to word terms, rights, duties and remedies available if the terms are broken. 5.4

A financial inancial contract explained

The following is a Samplee Consumer Loan Agreement with annotations annotations explaining the potential consumer challenges (indicated with red flags).

A red flag represents an area where the consumer should be aware that there are possible adverse implications for the consumer, and/or issues to clarify with the lending institution.

If an issue remains unclear, it is the lender’s responsibility responsibili to explain it in simple and clear terms so that the consumer does understand the loan agreement.

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U.O.Me Microfinance, Inc. Fast loans for your fast paced life

This agreement dated ____________ is between the borrower ______, residing at ______________in Dar es Salaam, Republic of Tanzania and your heirs, successors and assignees and U.O.Me Microfinance, Inc. (hereinafter “Borrower,” and “U.O.Me” respectively). lobal financial services institution dedicated to providing those excluded from the financial services U.O.Me is a global sector with access to credit and insurance products. It is headquartered in Washington, DC, USA and has a local office in Dar es Salaam, Tanzania. 1) a financial services institution based abroad may be less flexible in terms of modifying its contracts or allowing the consumer to negotiate new terms of the agreement, specifically because its headquarters will probably have to approve all changes in lending terms or deviations in procedure. procedure Loan Terms: McMFI desires to lend and Borrower desires to borrow a sum of 500,000 Tanzanian Shillings at the interest rate of 27% for a term of 12 (twelve) months. 2) Pay attention to the stated interest and if other fees, taxes or insurance costs follow, this will raise the effective interest rate. Further, if a portion of the loan is ‘blocked’ and unavailable to the consumer/borrower, but the consumer is responsible for paying interest on the whole amount, this too will raise the interest rate. A microfinance interest rate calculator can be found on the MFTransparency.org site; see TCAS for details on how to calculate the real interest rate of this loan. The loan will be distributed net 100,000 shillings, which will be held as security for Borrower’s loan in a separate account at U.O.Me. 3) Please see comment no. 2. as this will effectively raise the borrower’s interest rate; and if this is a business loan, the borrower may not have all the funding required required to successfully start or expand his/her business. Borrower will make monthly payments, in the amount of _______ beginning one week after signing of this agreement. 4)There is no grace period for this loan, thus the consumer may want to either try to negotiate that initial payments will begin later, perhaps at the end of the month, or to ensure that he/she has adequate cash flows from the household or business budget so as not to fall immediately in arrears and be obliged to pay late fees or other penalties. Borrower is also responsible for payment of 30,000 shillings for insurance, as well as a loan processing fee of 1.5% of the total loan value. 5) Please see comment 2. The borrower should ask for either the loan policy agreement and/or what the insurance covers specifically and how the claims procedure works. Ideally, the borrower should ask for this information in writing prior to signing. McMFI may adjust the applicable lending rate upon a 7 (seven) day notice to Borrower, who following notice n would have the option to prepay the remaining loan balance. Prepayment penalties may apply. 6) The borrower orrower should ask for a greater notice period and paying a penalty is patently unfair as a result of the lender’s unilateral changes to the agreement. ment. Borrower should ask for a range as to how much the interest rate could increase and ensure he/she still has sufficient funds to make repayments. FinancialEducation Guide

Borrower agrees to utilize the loan for the stated purpose of purchasing a motorcycle to start a bodaboda bodab and courier delivery business. Failure to utilize funds for this purpose, or diversion of same will result in a default. Death of the borrower or failure to make 2 (two) loan payments in a timely manner, either consecutively, or cumulatively throughout the lifespan of the loan will also be deemed a default. Taking out additional loans by borrower will be deemed a default. And, a substantial and material change in borrower’s financial circumstances will be deemed a default. 7) This default clause is particularly burdensome; borrower should ensure that he/she has informed the lender of the actual use of the funds. The final inal statement regarding a material change in borrower’s financial circumstances however is overly broad and borrower should ask for clarification or removal of this clause. In the event of a default, all loan payments plus interest and applicable penalties penalties will be due immediately. Should Borrower be unable to pay, McMFI will have a right to seize and sell any assets belonging to Borrower and his spouse(s) (list of assets attached) without recourse to the Courts of Tanzania or appropriate authority. 8) There may be applicable auction procedures per Tanzanian law for the seizure and sale of collaterals. Borrower should indicate to the lender that this clause may even be illegal as an attempt to circumvent applicable law of the land. Borrower signature re and date _________________________________ Guarantor signature and date _________________________________

U.O.Me Microfinance, Inc. CEO Wana M. Denaro Annex to Loan Agreement (list of assets for purposes security for the loan) 4 goats :value 200,000.00 (Tz shillings) 1Bicycle: value 100,000 1 4’x6’ bed:value 100,000 1 wedding dress (used):80,000 Assorted pots & pans:10,000 cooking stove:30,000 9)Posting Posting some of these assets may implicate a spouse’s or family rights to the item, thus borrower should consult with family members before risking their property as collateral for a risky loan. Further, if collateral is used as a tool for a business or trade, borrower should also consider that it is not wise to risk losing one’s income generating gene equipment.

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5.5

Questions to ask a financial services provider before signing a loan agreement

The consumer can take this with them and use it as a checklist when talking to loan officers. The TCAS officer should go through the questions first to explain the terms/questions to the consumer so he/she can take part in the customer’s survey before taking a loan. Again, TCAS counselor should explain that it is the consumer’s right to have ALL of his/her questions answered and if the loan officer seems reluctant to do so, the consumer should rethink using this institution as a financial services provider). provider)

•

The financial consumer can even ‘role play’ an actual loan negotiation with the consumer to help the consumer will feel more confident about asking sking questions.

Sample questions to be asked 1. What types of loan products are available and what are the positive and negative features of each? (Some MFIs, SACCOs etc. may offer group as opposed to individual loans with varying terms, rules and interest rates) 2.

What are the minimum and maximum loan amounts available and what are the corresponding repayment time periods?

How often would I have to make a repayment and would there be a ‘grace period’ before I have to start making repayments?

What are all the costs involved in borrowing? Please indicate whether there is an application fee? A handling/processing fee? A disbursement fee? A collection fee? A commitment fee? Any taxes? An account opening or closing fee? A registration fee? And what is the applicable interest rate and please explain to me how that is calculated (weekly, monthly or annually) and on a flat rate or declining balance?

Under what circumstances can the lender change my interest rate? How much notice will I receive should this happen? When was the last time the lender raised its interest rates? Do you anticipate an interest rate increase in the near future? Does the lender offer fixed interest rate?

Is loan insurance required with this loan, loan and if so what does it cost and specifically what loss does it cover? How would I file a claim to be reimbursed by the insurance if needed? If not required is it available if I want it?

Is there security or collateral required for this loan and if so what type (household assets, asse land, vehicles, guarantees)?

Are savings required before a loan is disbursed? Is any money removed from a loan as blocked savings? Is interest paid on thosesavings?

Can I reschedule or refinance my loan and if so, under what conditions? Is there an applicable fee?

10. Can I repay my loan early, and if so what fees will I be charged. Does the lender offer no penalty for early repayment? 11. What happens if I pay my loan late; will I be penalized? What happens if I am unable to repay my loan? Please explain plain all the potential actions that the lender could take (seizure/sale of collateral; demanding payment and fees from guarantor etc.) 12. If I have a complaint about my loan or how the lender treats me, what is the procedure to resolve it? FinancialEducation Guide

5.6

Action points for the consumer onsumer after he/she has interviewed the loan officer:

Write it down! • The consumer should ensure that he/she writes down the lender representative’s responses to these questions and compares this information to what is actually contained in the loan contract. Consumer should be reminded that they are probing a very sensitive deal which may even cost your house/asset if you are unable to repay. Don’t sign until you are sure! •

If there is a conflict between what the loan officer has told the the consumer and what appears in the loan agreement, or if some information appears to be missing, the consumer should 1) clarify that issue with the lender, and 2) not sign until he/she is satisfied of the explanation.

•

The consumer should not feel pressured pressured to sign anything that he or she does not understand and should not feel embarrassed about not understanding. To not understand is normal as the financial services sector can be complicated and intimidating and we are not born with the knowledge of how to use financial services.

•

Lastly, the consumer should review his or her household budget very carefully to ensure that he or she has sufficient money to repay the loan. The consumer should also consider how he or she would repay the loan if current earnings ings were reduced in any manner.

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5.7 For further information or assistence

Tanzania Consumer Advocacy Society Ubungo Industrial Area Urafiki Compound Block EC House No 24 1st Floor Morogoro Road Kinondoni - Dar es Salaam Tel +255222443122 +255715170555 Email: info@tcas-tz.org Skype: bernard.kihiyo

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The Central Bank of Tanzania Postal Address 10 Mirambo P.O Box 2939 Dar es Salaam Tanzania Tel: +255-22-2233000 2233000-20 Fax: +255-22-223 223 4075/8