Customers duped in opaque loaning procedures: W.Bank

There is no transparency in the way loans are being offered in Tanzania, forcing many people to contract loans without being fully informed of the outcomes, a new report says.

The World Bank’s Tanzania Diagnostic Review of Consumer Protection and Financial Literacy released in November this year says that the pricing of financial offerings remains a secret to Tanzanians who go to seek for loans from various financial entities

This is happening despite that the country’s Banking and Financial Institutions Act (BAFIA) requires banks to transparently tell customers how the loans are priced.

According to the report, no official standard formula exists for comparing credit product prices, such as an effective interest rate (EIR) or an annual percentage rate (APR).

Similarly, there are no disclosure obligations for additional costs such as administrative fees or insurance.

“This prevents consumers from effectively comparing the different credit products available to them,” it notes.

The report that contains key findings and recommendations on consumer protection and financial literacy in Tanzania, was prepared by the World Bank mission that visited Tanzania from January 21st to 31st this year.

It also found that there was an incomplete legal framework guiding financial institutions, leading to variation in type and amount of information that financial institutions present to their clients.

Tanzania’s BAFIA and Microfinance Companies and Microcredit Activities Regulation contain provisions requiring the mandatory disclosure of prepayment penalties. 

They also contain provisions that prohibit unilateral modification of loan conditions. 

The latter also mandates an obligation to disclose interest rates, commissions and fees. 

To address the challenges, the team called upon the sector’s regulator and financial institutions to provide consumers with clear, understandable, timely and standardized information on financial products and services. 

This would help customers to shop around and to find the product or service that best meets their needs.

“Disclosure is key for a strong financial consumer protection framework,” the report says.

It says the provision of clear, standardized and comparable information to consumers can also be an effective mechanism to promote competition.
Source: The Citizen, reported by Felix Lazaro from Dar es Salaam, Tanzania
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