Promo%ng
Transparent
Pricing
in
the
Microfinance
Industry
                                                              Ove...
Which
loan
looks
less
expensive?
 Loan
Product
     Loan
         Total
Cost
     Length
of
                  Amount
     ...
Example
of
Loan
Pricing
•  Interest
rate
of
3%
per
month
•  Small
loan
processing
fee
of
2%
•  Loan
security
savings
of
15...
Declining
Balance
interest
reflects
the
textbook
defini2on
of
interest
as
a
charge
for
the
use
of
money
over
8me.

APR
is
eq...
With
“Flat”
interest,
interest
is
charged
on
the
original
loan
amount
resul2ng
in
nearly
double
the
cost
of
declining
bala...
In
addi2on,
the
client
is
o^en
charged
fees
for
the
loan.

In
this
example,
a
2%
up‐front
fee,
because
of
the
short
loan
t...
The
red
area
shows
money
                                  invested
in
business.
          The
blue
line
shows
money
held
...
Clients
are
paid
interest,
but
significantly
less
interest
on
their
savings
than
they
are
charged
on
their
loans.
When
earn...
In
this
example,
the
client
pays
a
total
cost
of
$131
for
the
$1,000
loan
for
16
weeks.

If
she
were
to
renew
the
loan
con...
Average
net
loan
balance
is
$360
But,
the
client
never
had
a
$1,000.

She
only
received
$850
because
of
the
savings,
and
t...
And
with
compulsory
savings
there
are
some
months
in
which
the
client
actually
has
more
money
in
savings
than
invested
in
...
Which
loan
looks
less
expensive?
  Loan
Product
 Ini8al
Loan
   Total
Cost
   Length
of
Loan
    APR
                  Amo...
What
is
Transparent
Pricing?
Transparent
pricing
means
the
pricing,
terms,
and
condi2ons
of
financial
products
will
be
adeq...
Combined
Approach
Self
Regulated
                                  Suppor2ve
  Prac2ce
of
                                ...
How
to
achieve
Responsible
Finance?
                                               
             MFTransparency’s
Business...
Client
Protec8on
Principles
      1.
Appropriate
product
design
      2.
Transparency
      3.
Responsible
pricing
      4...
Social
Performance
Indicators

Promo%ng
Transparent
Pricing
in
the
Microfinance
Industry
• U.S.
Based
Non‐Profit
Organiza2on
• Work
in
28
countries
• Missi...
MFTransparency
Coverage

Our
Sponsors
                                                Ford Foundation Elena
Nelson

• Anna
Maria
Zegarra• Nancy
Goy...
Our
Partners
Global
Regional
AFRICA

Our
Partners
Na8onal
Argen8na
                 Azerbaijan
           Benin
                        Bolivia
Bosnia
     Bur...
Self‐Regula8on
MFTransparency
facilitates
self‐regula8on
on
          pricing
transparency
   Our
Approach
  • Country
by
...
Transparency
for
a
Healthy
Microfinance
Industry
                                  Policy
/
Regula8on
                     ...
MFT
Works
with
all
Industry
Stakeholders
                                 Networks,
        MFIs
              Associa2ons...
Funded
Pilot
Project                                     
•  Methodology
tested
in
Peru
and
Bosnia
in
 March
2009
•  Of
th...
Immediate
Effects
of
the

           Transparent
Pricing
Ini1a1ve
•    MFIs
lowering
prices
for
products
priced
high
     r...
MFTransparency
Transparent
Pricing
    Ini8a8ve
in
the
Philippines
             1.  Data
Collec2on,
                 Stand...
Par8cipa8on
Rewards
                   
                       30

Endorse
MFT
We
invite
all
to
sign
our
endorsement
statement,
commimng
to
transparency
in
pricing
and
educa2on
of
MF
stakeh...
Partner
to
Develop
or
Distribute
              Educa8onal
Materials  
•    MFT
is
looking
for
     partners
to
develop
   ...
Rapid
Progress
in
Transparency
              (Results
of
past
18
months)
  MFTransparency
currently
working
in
27
countri...
Example
1:
Cambodia
Prices
• Must
be
disclosed
• Charging
flat
interest
rates
prohibited
• Calcula2on
of
compounding
intere...
Example
2:
Bosnia
Prices
• Compounding
calcula2ons
required
• Must
be
included
on
loan
contract
and
  repayment
schedule
R...
Example
3:
Peru

Interest
Rates
•  Interest
rates
must
be
disclosed
•  Calcula2on
of
compounding
interest
required
Repor8n...
Standardized
Repayment
Schedule

Standardized
Pricing
Disclosure
Repor8ng

Standardized
Pricing
Dissemina8on

Standardized
Pricing
Dissemina8on

MFTransparency
also
does
 Pricing
Cer8fica8on
Reports
(in
countries
where
we
are
not
ac8ve)

Who
Benefits
from
Pricing
Transparency?
  Consumers:
  ◦ They
get
to
know
the
real
price
–
they
can
decide
whether
    the...
Who
Benefits
from
Pricing
Transparency?
  Funders
and
donors:
  ◦ They
know
what
their
client
MFIs
charge
their
customers,...
Conclusions
Transparent
pricing
is
a
prerequisite
for
responsible
pricing
•  We
need
beler
knowledge
and
understanding
of
...
Next
Steps
in
the
Philippines
  Review
materials
  One‐on‐one
discussions
and
dialogue
  Begin
data
submission
process
...
Promo8ng
Transparent
Pricing

 in
the
Microfinance
Industry

Promo8ng
Transparent
Pricing

 in
the
Microfinance
Industry

NRT 2011: Overview of MFTransparency - Transparent Pricing Initiative
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NRT 2011: Overview of MFTransparency - Transparent Pricing Initiative

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Published on

NRT 2011
May 23-24, 2011
Manila

Session 3:
The Price is Right

By: Ms. Laila Deles,
Research Associate/Project Manager for MFTransparency's Transparent Pricing Initiative

Published in: Economy & Finance, Business
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Transcript of "NRT 2011: Overview of MFTransparency - Transparent Pricing Initiative"

  1. 1. Promo%ng
Transparent
Pricing
in
the
Microfinance
Industry
 Overview
of
 MFTransparency
 and
the
 Transparent
 Pricing
Ini8a8ve
 Philippines
|
2011

  2. 2. Which
loan
looks
less
expensive?
 Loan
Product
 Loan
 Total
Cost
 Length
of
 Amount
 Loan
Loan
Op2on
A
 $1,000
 $131
 16
weeks
Loan
Op2on
B
 $511
 $425
 12
months
Loan
Op2on
C
 $360
 $425
 12
months
 The
standard
way
to
compare
cost
of
loan
op2ons
is
by
 calcula2ng
the
APR
(Annual
Percentage
Rate).
 We
will
now
see
how
to
calculate
APRs.

  3. 3. Example
of
Loan
Pricing
•  Interest
rate
of
3%
per
month
•  Small
loan
processing
fee
of
2%
•  Loan
security
savings
of
15%

•  MFI
pays
client
5%
interest
on
savings
•  What
do
you
think
the
APR
or
EIR
of
this
loan
 is?

  4. 4. Declining
Balance
interest
reflects
the
textbook
defini2on
of
interest
as
a
charge
for
the
use
of
money
over
8me.

APR
is
equivalent
to
declining
balance
interest
with
no
fees.

  5. 5. With
“Flat”
interest,
interest
is
charged
on
the
original
loan
amount
resul2ng
in
nearly
double
the
cost
of
declining
balance
interest.

Why
double?

The
area
of
the
rectangle
under
the
green
line
is
almost
double
the
area
under
the
red
stair‐step
loan
balance.

  6. 6. In
addi2on,
the
client
is
o^en
charged
fees
for
the
loan.

In
this
example,
a
2%
up‐front
fee,
because
of
the
short
loan
term,
surprisingly
adds
13%
to
the
APR.

A
loan
adver2sed
as
36%
interest
is
now
the
equivalent
of
78%
APR.

  7. 7. The
red
area
shows
money
 invested
in
business.
 The
blue
line
shows
money
held
in
savings.
Compulsory
savings
adds
to
the
cost.
Clients
are
charged
interest
on
the
original
loan
($1000)
even
though
they
never
have
use
of
that
amount.

In
this
example,
the
APR
is
now
107%.

  8. 8. Clients
are
paid
interest,
but
significantly
less
interest
on
their
savings
than
they
are
charged
on
their
loans.
When
earning
5%
interest,
the
APR
only
drops
from
107%
to
105%.

  9. 9. In
this
example,
the
client
pays
a
total
cost
of
$131
for
the
$1,000
loan
for
16
weeks.

If
she
were
to
renew
the
loan
consistently
for
an
en2re
year,
she
would
pay
a
total
of
$425
for
the
year.

  10. 10. Average
net
loan
balance
is
$360
But,
the
client
never
had
a
$1,000.

She
only
received
$850
because
of
the
savings,
and
then
she
paid
back
a
por2on
each
week.

She
paid
$425
to
have
an
average
loan
balance
of
$360
for
a
year,
giving
an
APR
greater
than
100%.

  11. 11. And
with
compulsory
savings
there
are
some
months
in
which
the
client
actually
has
more
money
in
savings
than
invested
in
her
business,
giving
a
nega%ve
net
loan
balance.



  12. 12. Which
loan
looks
less
expensive?
 Loan
Product
 Ini8al
Loan
 Total
Cost
 Length
of
Loan
 APR
 Amount
 Loan
Op2on
A
 $1,000
 $131
 16
weeks
 79%
 Loan
Op2on
B
 $511
 $425
 12
months
 79%
 Loan
Op2on
C
 $360
 $425
 12
months
 105%
 The
three
products
we
were
comparing
are
actually

 iden8cal
in
financial
terms.
Loan
C
includes
cost
of
compulsory
savings
in
the
APR
calcula2on.
 Loans
adver%sed
as
3%
per
month
can
have
APRs
of
79%
or
even
105%

  13. 13. What
is
Transparent
Pricing?
Transparent
pricing
means
the
pricing,
terms,
and
condi2ons
of
financial
products
will
be
adequately
disclosed
to
the
clients
in
a
clear
manner
that
allows
both
accurate
understanding
of
prices
and
comparison
of
different
products.
Different
levels
of
transparency:
•  o
regulators
/
policy
makers
 T•  o
investors
/
donors
/
funders
 T•  o
clients
and
“the
market”
 T
  14. 14. Combined
Approach
Self
Regulated
 Suppor2ve
 Prac2ce
of
 Government
 Transparent
 Regula8on
 Pricing
 Responsible
 Pricing

  15. 15. How
to
achieve
Responsible
Finance?
 
 MFTransparency’s
Business
Model 
1.  Consul8ng
on
Legisla8on
&
Regula8on:
MFT
provides
 recommenda2ons
to
central
banks
and
regulatory
authori2es
around
 consumer
protec2on
and
pricing
transparency

2.  Data
Collec8on
&
Dissemina8on:
MFT
collects
product
prices
and
 informa2on
to
display
on
its
website
to
facilitate
a
more
transparent
 market.
3.  Technical
Assistance
&
Training
to
Service
Providers:
MFT
provides
 technical
training
to
MFIs,
ra2ng
agencies,
industry
ini2a2ves,
and
other
 organiza2ons
to
improve
prac2ces
and
create
standardized
prac2ces
in
 the
industry
4.  Consumer
awareness,
educa8on
and
“financial
capability”:
Provide
 training
materials
and
resources
to
improve
client
consumer
literacy

 
 
 16
  16. 16. Client
Protec8on
Principles
 1.
Appropriate
product
design
 2.
Transparency
 3.
Responsible
pricing
 4.
Responsible
treatment
of
clients
 5.
Effec2ve
complaints
resolu2on
 6.
Privacy
of
client
data

  17. 17. Social
Performance
Indicators

  18. 18. Promo%ng
Transparent
Pricing
in
the
Microfinance
Industry
• U.S.
Based
Non‐Profit
Organiza2on
• Work
in
28
countries
• Mission:
to
promote
pricing
transparency
in
 the
microfinance
sector
through:
 •  Data
collec2on,
standardiza2on,
&
dissemina2on
 •  Training
&
capacity
building
for
financial
ins2tu2ons
 •  Development
of
educa2onal
materials
 •  Consul2ng
to
regulators
&
policy
makers
on
price
disclosure
 legisla2on

  19. 19. MFTransparency
Coverage

  20. 20. Our
Sponsors
 Ford Foundation Elena
Nelson

• Anna
Maria
Zegarra• Nancy
Goyburo
 Maria
Sara
Jijon• Bill
Maddocks• Kim
Wilson
• 21 21
NarasimhanSrinivasan• Point
Loma
Nazarene
University

  21. 21. Our
Partners
Global
Regional
AFRICA

  22. 22. Our
Partners
Na8onal
Argen8na
 Azerbaijan
 Benin
 Bolivia
Bosnia
 Burkina
Faso
 Cambodia
 Colombia
 Ecuador
 India
 Ivory
Coast
 Kenya
 Malawi
 Mali
 Niger
 Rwanda
 Senegal
 South
Africa
 Direc8on

 de
la
 Microfinance
 Togo
 Uganda

  23. 23. Self‐Regula8on
MFTransparency
facilitates
self‐regula8on
on
 pricing
transparency
 Our
Approach
 • Country
by
country
 • Partner
with
local
networks,
policy‐ makers,
regulators
and
stakeholders
 • Publish
true
prices
all
at
the
same
2me
 • Objec2ve,
equal
treatment
of
all
MFIs

  24. 24. Transparency
for
a
Healthy
Microfinance
Industry
 Policy
/
Regula8on
 Regulators
 75
Countries
 Analy8cal
 Conferences
and
 MFI
Industry
 Educa8onal
Materials
 Publica8ons
 5,000
MFIs
 Transparency
 Public
and
Press
 Consumers
 100
million
 Pricing
Data
 Website
 Educa8on
Effec8ve
policy
requires
building
a
strong
founda8on
at
the
Bogom
of
the
Pyramid
‐‐

 Pricing
Transparency
and
educa8on
of
all
stakeholders
creates
an
enabling
 environment
for
a
healthy
microfinance
industry

  25. 25. MFT
Works
with
all
Industry
Stakeholders
 Networks,
 MFIs
 Associa2ons,
Industry
 Ini2a2ves,
Ra2ng
 Agencies
 MFT
Regulators,
Supervisory
 Bodies,
Consumer
 Donors
&
Investors
 Protec2on
Agencies
 26
  26. 26. Funded
Pilot
Project 
•  Methodology
tested
in
Peru
and
Bosnia
in
 March
2009
•  Of
the
MFIs
that
alended
the
training
 sessions:
 • 14/14
Bosnian
MFIs
submiged
data

(100%)
 • 35/43
Peruvian
MFIs
submiged
data
(81%)
•  Bosnia
data
live
on
www.m^ransparency.org
 27

  27. 27. Immediate
Effects
of
the

 Transparent
Pricing
Ini1a1ve
•  MFIs
lowering
prices
for
products
priced
high
 rela2ve
to
the
market
•  MFIs
increasing
their
prices
for
products
priced
low


 rela2ve
to
the
market
•  Progress
by
regulators
toward
new
pro‐poor
policies
 28

  28. 28. MFTransparency
Transparent
Pricing
 Ini8a8ve
in
the
Philippines
 1.  Data
Collec2on,
 Standardiza2on
&
 Dissemina2on
 2.  Training
and
Capacity
Building
 3.  Promo2on
of
Transparent
 Pricing
Standards
 4.  Promo2on
&
Implementa2on
 of
Pricing
Disclosure
Policy
 5.  Development
of
Educa2onal
 Resources
for
the
Sector

  29. 29. Par8cipa8on
Rewards
 
 30

  30. 30. Endorse
MFT
We
invite
all
to
sign
our
endorsement
statement,
commimng
to
transparency
in
pricing
and
educa2on
of
MF
stakeholders

 31

  31. 31. Partner
to
Develop
or
Distribute
 Educa8onal
Materials 
•  MFT
is
looking
for
 partners
to
develop
 educa2onal
 materials
•  Possible
ac2ons:

 • Co‐author
materials
 • Allow
MFT
to
 distribute
your
 materials
 • Host
pricing
&
 transparency
 workshops
with
MFT
 32

  32. 32. Rapid
Progress
in
Transparency
 (Results
of
past
18
months)
  MFTransparency
currently
working
in
27
countries


 (adding
nearly
1
more
each
month)
 ◦ 300+
Ins2tu2ons
 ◦ 1,000+
different
loan
products
 ◦ 38
million
clients
 ◦ US$11
billion
in
outstanding
porpolio
  Microfinance
is
the
first
industry
of
any
kind
in
the
 world
to
prac2ce
global,
voluntary
disclosure
of
true
 pricing.

  33. 33. Example
1:
Cambodia
Prices
• Must
be
disclosed
• Charging
flat
interest
rates
prohibited
• Calcula2on
of
compounding
interest
 rates
required
Pricing
Informa8on
• Informa2on
about
prices
must
be
 published
on
MFI
websites

  34. 34. Example
2:
Bosnia
Prices
• Compounding
calcula2ons
required
• Must
be
included
on
loan
contract
and
 repayment
schedule
Repor8ng
• Prices
by
product
must
be
reported
to
 regulators
Pricing
Informa8on
• Informa2on
about
prices
must
be
published
 on
MFI
website


  35. 35. Example
3:
Peru

Interest
Rates
•  Interest
rates
must
be
disclosed
•  Calcula2on
of
compounding
interest
required
Repor8ng
•  Prices
by
product
must
be
reported
to
regulator
Pricing
Informa8on
•  All
fees
and
insurance
charges
must
be
disclosed
•  Informa2on
about
prices
must
be
published
on
the
MFI
 website

  36. 36. Standardized
Repayment
Schedule

  37. 37. Standardized
Pricing
Disclosure
Repor8ng

  38. 38. Standardized
Pricing
Dissemina8on

  39. 39. Standardized
Pricing
Dissemina8on

  40. 40. MFTransparency
also
does
 Pricing
Cer8fica8on
Reports
(in
countries
where
we
are
not
ac8ve)

  41. 41. Who
Benefits
from
Pricing
Transparency?
  Consumers:
 ◦ They
get
to
know
the
real
price
–
they
can
decide
whether
 they
want
to
borrow
 ◦ They
can
decide
between
compe2ng

loan
products
or
 MFIs
based
compara2ve
data
  MFIs
 ◦ They
learn
what
the
market
price
is,
where
they
stand,
and
 can
take
steps
to
refine
their
pricing
strategy
  Industry
 ◦ Microfinance
sector
gets
a
database
from
which
it
can
take
 up
issues
with
policy
makers

  42. 42. Who
Benefits
from
Pricing
Transparency?
  Funders
and
donors:
 ◦ They
know
what
their
client
MFIs
charge
their
customers,
 and
can
choose
their
partners
accordingly
  Regulators
 ◦ Observe
the
prices
prevailing
in
the
market,
sharpening
 their
ability
to
intervene
specifically
and
refine
policy

  43. 43. Conclusions
Transparent
pricing
is
a
prerequisite
for
responsible
pricing
•  We
need
beler
knowledge
and
understanding
of
pricing,
 and
beler
data
to
analyze
Porlolio
yield
is
far
from
adequate
•  Individual
product
pricing
is
essen2al,
and
it
is
alainable
if
 we
work
together
Transparent
pricing
leads
to
more
compe88on
and
beger
decisions
by
all
stakeholders
•  More
compe22on
and
beler
decisions
lead
to
more
 responsible
pricing

  44. 44. Next
Steps
in
the
Philippines
  Review
materials
  One‐on‐one
discussions
and
dialogue
  Begin
data
submission
process
  Addi2onal
training
&
technical
support
  Consider
recommenda2ons
on
price
transparency
  Implement
financial
educa2on
resources

  45. 45. Promo8ng
Transparent
Pricing

 in
the
Microfinance
Industry

  46. 46. Promo8ng
Transparent
Pricing

 in
the
Microfinance
Industry


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