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I read with interest James Mphande’s article on how much profits banks in Malawi are making, which appeared in the Daily Times of 5 April 2010. I concur with Mr. Mphande and seek to extend the discussion to disclosure of bank charges.
How much money are you losing to bank fees each year? Odds are you don’t know, and despite being required to do so by law, many banks fail to disclose their fee structures and charges to customers. Some have the information on their websites but I do not expect a tobacco farmer from T.A. Simlemba to have access to the internet. It is disturbing that many consumers are not provided with account terms and information about fees before opening an account. You don’t have to buy a car before you find out how much fuel it consumes, and you don’t have to move into a house before you find out what your monthly rent will be. In the same way, consumers should not be forced to walk blindly into the terms and conditions of a bank account.
What are the major types of charges that banks impose on your money? First there is the monthly account management
RBM Headquarters in Lilongwe
charge – a fixed service fee for the provision of the account. This is levied on all current accounts, and a few banks impose this fee on savings accounts too (as I write, I have one such savings account with a local bank which is now in the negative due inactivity– I will let them decide what to do with it). Have you ever wondered why customers have to pay for online account management? And then there is the double-charge for ATM withdrawals on ‘foreign’ or ‘out-of-network’ machines (other banks’ ATMs) – your bank charges you and the owners of the other ATM charge you too.
Banks in Malawi, it seems, are very dependent on fees to meet profit goals. In defense, the banks argue that Malawians are actually paying for state-of-the-art ATM and computer technology, invested into a market with relatively few consumers and that it is unfair to compare bank charges in Malawi with those of developed countries. Granted, it is risky to extend credit in Malawi because the country lacks the mechanisms for protecting lenders (and our judicial system is always crowded with cases) but there is no justification for selling cash withdrawal slips when deposit slips are free in the first place. And does anyone know why nobody asks any questions when you try to deposit huge sums of money into your personal account but you get frustrated with questions when you attempt to withdrawal the same amount? If Malawian banks were indeed not making so much money, why is there more interest from international banks in the Malawian market? Why have we seen the birth of new local banks and an influx of international banks into the industry over the past five years?
Last year, I had a colleague send me money from the US by telegraphic transfer which I was to use to pay for some services he had used during his visit here. I had looked up the exchange rate from the schedule my bank publishes in one of the dailies and it said K140. I did my conversions and told my friend the US$ equivalent, plus a tiny contingency in case my calculations were off. After waiting in line for almost an hour (only two teller counters were open out of 5, and I have grown to accept that as the norm), the teller asked me to step aside while I wait for confirmation that the account was mine (which took a good 15 minutes – the owner of the account probably was not picking up the bank’s calls). My friend had told me that he paid all the necessary wire transfer fee at his bank in the US but when the money reached my account here, I discovered it was 5% less than what I had expected. I tried for several days to get an explanation from my bank for the difference but was never successful. Without an explanation, I could not ask my colleague to send me extra money – I had to meet the shortfall from my own pocket. It comes as no surprise to me that most Malawians in diaspora would rather risk carrying all their foreign currency savings in their pockets (and those of their kids and spouses, if any) when returning home than to safely deposit it into their local accounts before departure. This customer service (or lack thereof) is a prime example of how our banks operate. In Malawi, the customer is no longer the king. We all are at the mercy of our banks that you sometimes wonder if saving your money in a hole underneath your bed is a better option.
A strange lack of serious research into the issue of bank charges baffles me. As far as could be established, none of our public universities has ever properly researched the issue. This is an indictment against tax-subsidised research institutions, and suggests that Malawian consumers are not getting their money’s worth from their universities.
I suggest that the Reserve Bank of Malawi include assessments of the need for disclosure in their regular oversight of banks and lenders, and that consumers regularly receive fee and penalty disclosures prior to opening an account. By the way, do we still have the Competition and Fair Trading Commission? Consistent conspiracy theories have it that the banks have for years colluded over pricing. Nearly all of my friends seem to know someone who knew someone who once worked at one of the banks and regularly attended meetings between officials from different banks where price levels were agreed. As Mr. Mphande pointed out in the prelude to this article, there is no competition in the banking industry in Malawi. You can almost just pick a bank by looking at which of them has your favourite colour and logo, they are all the same.
Earlier this year, parliament passed the Credit Reference Bureau (CRB) bill whose objective, according to Finance Minister Ken Kandodo, is to ensure that individuals and companies in the country have easy access to loans. The CRB will also allow lenders to check defaulters through the sharing of a borrowers’ credit behavior. The Reserve Bank of Malawi has been mandated with the oversight of the CRB. During debate on the bill, opposition politicians worried if the CRB will not be used to victimize people, especially those deemed to be critical of the powers that be. In some countries that have an operational credit bureau industry, one of the problems is that CRBs are not required to give any consideration to the circumstances around a defaulting lender. A responsible person who loses his job unexpectedly, for instance, is treated no differently from a fraudster. Indeed, one of the biggest problems faced by entrepreneurs is access to credit, and a system of blacklisting without sufficient regulation and transparency can severely undermine national economic objectives in the promotion of entrepreneurship and the development of the small business sector. I sure hope the CRB is going to have a human face. Government needs to look at all these issues, and to develop a clear policy on how it is going to police the credit bureau industry. More generally, it also needs to decide how it will regulate the collection and distribution of consumers’ personal information.
Memoirs of an economist | Christopher Chibwana 