This article was inspired by me watching my grand mum Akua Aboagyewaa, market queen of Sepe-Buokrom market. As a young chap, I watched how she dealt with other traders and more so susu collectors. On the second anniversary of her passing (12 June 2017), I deem it a great honour to write this piece to honour women all over the world and her memory. We love you Nana.
SUSU COLLECTION IN GHANA: LESSONS LEARNT AND HOW WE CAN LEARN FROM ITS MIS-STEPS.
Traditionally, in Ghana market women/traders used to make monetary contribution. ‘SUSU’ as it is called is an informal banking system and an innovative system of financial inclusion for the un-banked. Each person contributed a set amount and periodically the accumulated sum was given to each member in-turn until each person has had their share mostly on market days.
This system is Know Your Customer (KYC) at the basic level. Participants of susu knew each other, they knew each other’s reputation, employment background, family income levels among others.
This traditional system adopted a risk-based approach. People involved in these schemes avoided characters with bad reputation. The system of susu collection had among its key ingredients: trust and confidence. As a friend intimated “You only give your house keys to the people you trust”.
Over time, traders became embroiled in their day to day activities and employed the services of money managers (Susu collectors). These susu collectors collected the deposits on behalf of traders and acted as their intermediaries.
They had all the list of the susu participants and their key facts.
They had more on information on the profession of the members of the scheme, they were privy to their home addresses, how much each made and a whole lot of personal data, which he (susu collector) had privilege access to.
Hitherto members of susu schemes knew each other individually, however overtime , the susu collector, became the repository of knowledge and information. With this information asymmetry, the balance of power shifted. This imbalance did not inure to the benefit of the members of the scheme. From a less sophisticated system of KYC grew a more complex system.
The more complex and sophisticated susu collection became, the less trust and confidence was reposed in the system.
Whereas from the on-set Susu schemes were built on trust, confidence, reputational risk of participants, source of income, employment history, risk appetite, and most importantly Information was available to everyone.
The moment, key membership information became known to a few or just one person, the risk matrix went high. Participants become just contributors and not people with key information.
There is anecdotal evidence of Susu collectors dying, absconding, or misappropriating the proceeds of the scheme. Any time such events occurred, it bred mistrust and lack of confidence. Financial systems thrive on confidence and with little or no confidence in financial products, such products no matter how well-intentioned they may be will ultimately fail.
ARE VICTIMS OF PONZI SCHEMES GREEDY, IGNORANT (MAYBE) OR BOTH?
Some people have labelled victims of Ponzi schemes as greedy. Others think they lack judgment and are not diligent enough. I share the view espoused by Gordon Gekko in the movie World Street, the most valuable commodity is INFORMATION.
I am off the view that, victims of Ponzi schemes are ‘too trusting”. There is nothing wrong in one person, trusting another. However much we trust our neighbour, such level of trust should be coupled with relevant information and due diligence.
When people are mis-informed they become victims. Most often than not Victims of Ponzi schemes tend to invest their hard-earned money because, their friends and relatives are doing the same.
They hear their neighbours talk incessantly about massive interest and dividends that accrue from such schemes and often as social beings, they are swayed to dip their toes a little bit into the waters, sometimes, they end up going overboard. In the words of Felix Houphouet-Boigny, this malady can be summed as “the aggregate of misery does not create abundance”.
SUGGESTED SOLUTIONS FOR REGULATORS AND BANKS IN BUILDING A ROBUST AND COMPLIANT FINANCIAL SYSTEM TO COMBAT FRAUD AND PONZI SCHEME
In Building a robust and compliant system of regulatory risk to combat Fraud and Ponzi Schemes in Ghana, knowledge, and information is key.
Regulators and stakeholders need to understand the law. Customers who are beneficiaries of financial products and services need as much information as they can get. The key mantra is for customers to be fed with information so much so that they will be information overload.
Banks and financial institutions on the other hand also need information.
They need information about their clients – background, risk appetite, source of wealth, nationality, how their business operates, income levels among others.
We live in a post Menzgold era, I have enumerated previously in other articles of the failure of the Financial Services Regulators in curtailing the activities of Menzgold. As of today, there are other innovative Ponzi schemes that are rearing their ugly heads. I am not going to mention names just yet, but I have proffered some solutions below, on how to mitigate against the rise of Ponzi Schemes in Ghana.
1. Accreditation and training of actors in the financial service sectors.
In the UK and other major financial service capitals, people working in controlled functions are authorised and are part of a ‘senior management regime. Just as lawyers, doctors and nurses are highly regulated. People in financial services industry (banking, insurance, pensions, investment management/ broking/advisory among others should be accredited. This system of accreditation should not be very different from the CeMAP/CeFA regime in the UK.
People working in these sectors should be well abreast of Financial Regulation in Ghana as well as Financial services products that are available to customers of banks. This system of certification would ensure that regardless of their educational background, every person working in the financial services industry will be a basic understanding to do due diligence, KYC.
They will also have a working knowledge and have a good understanding on Investment products and investment advice, general customers service and record keeping and data protection.
Going by Minister of Finance, Ken Ofori-Atta statement to the Ghanaian Parliament, it seems that people working in banks, BoG and MPs had invested in Menzgold. Had there been such a system of accreditation, and regulatory knowledge, the risk of investment in Menzgold would have been kept to the barest minimum. Most participants would have known that it was an unregulated enterprise, and the products they were offering were make-belief.
A degree in banking and finance should not be enough for people to work in banks, there should be industry wide certification, and continuous professional development which should be monitored by the regulators.
This system of accreditation should be paid for by employers and or employees. As it is to their benefit. This will create a dynamic financial service workforce and would lead to financial innovation.
2. A central register for banking and financial services professionals.
In addition to the point I just raised, there should be a centralized register of financial services professionals, just as we have for lawyers and doctors. The chartered institute of bankers and chartered accountants have a centralized register and the proposed system should follow in its footsteps.
The proposed register should be accessible to the public. It should evince which areas each regulated member has expertise in. Say a person has expertise in general banking as per the register, then, he would not have been able to advice people on investment products unless he has that certification to do so. This register will show the practice area of expertise of finance professionals.
Any person who receives investment or financial advice should then be told about key facts about the products they are investing in, their individual risk profile, inherent product risk. Advisers should then be able to match a customer’s risk profile to the products that best meet their needs. There should also be a system to capture and store customer information for a given number of years, subject to audit and inspection by the regulators.
3. Financial Ombudsman: There should also be a system of Financial Ombudsman, where customers can make complaints and seek redress against financial services firms. Most often than not customers of banks complain about poor services at different branches. Customers loan applications are turned down, whereas banks charge excessive interest rates to those lucky enough to get loans. There should be a system in place where customers can get refunds when products and services do not meet the needs of customers.
4. There should be a system of screening of staff of financial services firms, and periodically every 3 – 5-year period. There should also be a robust system to record bankruptcy and financial distress and Court judgements.
There is no such system in Ghana electronically. People who have been in default or have been directors of companies that have been in default, should be listed on a credit file system, and this will impact on their ability to get credit and or work in sensitive positions. These people should not own, operate and work in the financial services industry and or any regulated profession.
5. Corporate Governance (new companies code) should be promulgated.
The current companies Act was devised in 1960. From that period till now, a lot has happened, and this act is not adequate to address these new trends and developments. The register general’s department should have an online portal, where there is a robust system to capture information of directors of companies, SIC and NACE codes, Annual Filings and Reports, Charges, registered and operating address and Shareholder information.
a. Companies must publish their audited accounts annually and should be available online, the same goes for churches, foundations, charities, political parties etc.
b. There should be a register for naming and shaming, suspensions, negative media alerts. This will encourage best practices and reputational risk issues.
c. Directors and senior managers of companies should have a system of accreditation, so they know to the letter what their duties are. During the current bank collapse it became clear that some board chairmen and directors were not aware of their roles as non-executive directors. There were widespread related party transactions, and most minutes of board meetings were not available.
6. Auditing should be carried out in real time and not just years after events had taken place. Auditing in Ghana is more of a post-mortem affair. This should be done in state institutions, churches, charities, political parties, etc. There should be quarterly reports as well as annual reports.
7. Financial Stability Council
This body should form part of the new company’s code. It should be enshrined into law, and not just be an advisory body. From the initial information, it will be composed of regulators in banking, investment and securities, pension and insurance. This body should audit and act as an assurance mechanism for all these other regulatory bodies and should be pro-active and not re-active. In spotting potential red flags in our financial system.
8. Increase the level of financial education discipline among the populace.
Ghanaians by nature love information. Sometimes it is misplaced (gossip aka kokonsa).
We all love to share information, about our neighbours, football, tactics, politics among others.
The typical Ghanaian is aware of his favourite celeb, football club (local or international), and or political party. However, this level of detail is quite scanty when it comes to financial news, and data.
Growing up, I was always amazed how grand mum, Akua Aboagyewaa, a cassava trader (market Queen) at Sepe market, Kumasi. She knew her pesewas and cedis to the hilt although unlettered.
She was part of a susu scheme. She could tell a bad deal from a good one. I always observed after school, how she would bargain and negotiate with her suppliers. (Akosua Adoma and the mum of triplets). She always carried with her an aboso) She always wrapped her waist. That was her bank, where she kept her money. Most market women of her generation were walking banks.
I remember her once remarking ‘susu wura no awu, ne wofase no na eba she no ananmu’ to wit, the susu collector is dead, his nephew is the replacement.
Akans have a traditional system of matrilineal inheritance, and nephews were deemed to inherit positions of their maternal uncles.
I remember back in 1995, the first time I heard of a Ponzi scheme was Pyram. My mum and a few of her colleagues apparently had invested in the scheme. My Dad a chartered banker, had been away to UK for further studies and upon his return, my mum intimated that, there was new bank in town, and the way they were paying interest, if my Dad had known about such aspects of banking, then he should not have travelled abroad at all to study banking.
Just hearing my mum say these things, made my Dad laugh and angry at the same time. He enquired from my mum the mechanics of the scheme. Once satisfied with all the answers, he then advised my mum and her colleagues to withdraw all their investments as it was a Ponzi scheme.
He advised everyone who cared to listen that, the central Bank, was going to shut those guys down. My mum and her colleagues managed to salvage some of their investments but could not retrieve all before the chaps bolted and left Ghana. Till this day, my Dad always refer to my mum’s statement as a running joke.
Within the same household, my dad is a chartered banker, and my mum is a Businesswoman. Had my Dad not been financially literate my mum and her friends would have lost everything.
They lost something but at least, they had to pay for their ignorance as well. Current happenings in Ghana show that people who work in banking and other professions were victims of Menzgold, and even LOOM -another pyramid scheme.
Question is, do we ever learn? what can help us to identify Ponzi Schemes.
PROFFERED SOLUTIONS TO MEMBERS OF THE PUBLIC
Below are a few pointers to what the public should look out for in identifying Ponzi/pyramid schemes.
1) Before anyone invests their money in any underlying scheme, they need to, first of all, seek professional advice. They need to know the right people who can give them information about the underlying product information, returns, etc. which should be matched with a customer’s risk appetite. And they should receive ‘key facts’ documentation about products. They should also have the right to cancel such products. She should be made aware of any commissions that are to be charged etc.
2) The principle of caveat emptor should also apply -buyer beware. Once they have invested their money, they should understand that returns are not guaranteed, they can lose and gain an equal measure.
3) They should understand whole-of-the market information and should be given alternatives.
4) On the individual side, customers should check commercial registers for the name, and registration details of companies they invest with. Such checks will bring about the registered and operating addresses of companies. Names of their directors and senior managers.
5) Also, they should check with regulators to see if these companies have the required permits in the areas that they are investing. Had Menzgold customers checked with SEC or bank of Ghana, they would have realise that they had no such licenses to operate. Even after regulatory circulars warning these customers, they still did not heed and kept their monies with Menzgold.
6) People should also know and understand that even economic bubbles can themselves be Ponzi schemes. Items like gold, shares and other financial instruments can have their prices inflated due to speculation and such prices can fall, however, unlike normal Ponzi scheme, these asset bubbles, even after deflating, do have intrinsic value. This in a way is different form Ponzi schemes.
This article will be re-produced on the international news aggregation website www.thefinancialcrime.com
Written by Kwadwo Kusi-Frimpong, a Financial Crime, Governance and Regulatory Expert, who has extensive Experience working with banks and financial institutions in UK and Switzerland.
He holds an LLM from University of Law and is a graduate University of Ghana and Said Business School, University of Oxford.
Assisted by Emmanuel Adu-Ameyaw (PhD University of Liverpool)
Umar Mohammed (PhD Economics at Ankara Yildirim Beyazit University) and Charles Brew, Graduate of University of Ghana, English and Philosophy Combined Major.