1. Clic para editar título
Deconstructing Interest Rates &
Value Creation
Nov 2011

2. Agenda
1. Our Cost Structure
2. Reduction of our Interest Rate
3. How we re-invest the money back
4. Customer Touch Points in Pricing
5. Ask the customer

3. Interest Rate Cost Structure
Profits generated
that are reinvested
back in the Bank
Applied Mexican (75% in RE)
80% taxes
70%
All overhead and
60% staff costs (salaries,
rent, training) 22%
50%
Loan loss provisions 9%
40% for client cases that
are non-recuperable 70%
30%
Diversified funding
33%
20% LT Debt,
via
commercial &
development banks,
10% Capital
and
3%
0% 3%
Cost of Funds Loan loss Operating Costs Taxes (ISR) Profits Total Cost
provision (Gross Interest
Yield)
(Note: 2010 Financial Data)

4. Gradually Reducing our
Interest Rates
% Change
Interest Rate Structure (2006-2010)
Total Cost (Gross Interest Yield) -14%
Operating Costs -7%
Profits -15%
Taxes -29%
Cost of Funds -51%
Loan Loss Provision +84%
• As our interest rate has decreased by 14% (2006-2010) this has been attributed to many
factors, such as cost of funds, differente tax structure, etc.
• However, even with these cost reductions, profit has moderated by 15% during the same
period.

5. Profits reinvested back into
Customer Programs
Programs that directly benefit
the Client 2010
Distribution of Operating Costs 2010 100.0%
90.0%
Philanthropic Donations (2% of
15.6% profits 2009)
7%
80.0%
3.2%
70.0% Transactional Channels
15.4%
34% 60.0%
50.0% Customer Service
59%
40.0%
3.1%
30.0%
Corporate Social Responsibility
20.0% (Educational Finance)
Other Personnel Costs 10.0%
Other Admin Expenses 14.6% Savings program
Programs that DIRECTLY benefit the CLIENT 0.0%
1

6. Customer Touch Points
on Pricing
2.Group Formation Terms and conditions
All marketing & (including pricing) are
promotional materials discussed with the
display the interest client during the 1st
rate (CAT), as step of a 10 step credit
regulated by the analysis and approval
CNBV process
1.Promotion 3.Closing
Customer Credit
Life Cycle
Loan contracts display
the CAT and APR
All group members 4. Weekly Meetings figures in addition to a
manage pass books detailed amortizaction
for recording weekly table where loan
payments, savings, officer reads the
receipts as well as contractual clauses
group accounting (CAT) to the borrower
The CHALLENGE: In Mexico ¨Transparency in pricing is also high for regulated institutions, but non-
regulated MFIs tend to avoid publishing effective interest rates. Disclosure of fees, however, is mandated
for both regulated and non-regulated institutions by CONDUSEF, the financial sector consumer protection
agency.¨ EIU Global Microscope Report on MF 2011

7. Ask the Customer
• We need to ask the customer, what is the best way for them to interpret the interest rate
that serves THEIR needs (demand driven approach).
• This will allow us to communicate more effectively the interes rate in their language &
help them make more informed financial decisions.
• What do existing studies on consumer behavior tell us about pricing transparency?:
CGAP Study Univ Chicago Study
Consumer Protection Policy Making Pay Day Lending
• How they interpret the interest • Treatment 1: APR Disclosure and
rate: Participants had limited ability to comparison across other financial
explain or interpret the interest rate, products (i.e. Car loans, credit card)
more likely to refer to the weekly • Treatment 2: Information on
payment required than the total cost accumulated fees, such as dollar fee of
of the loan or the interest rate. the loan (i.e. $15 per $100 of loan)
• How they compare interest rates: • Treatment 3: Share the repayment
Respondents in general did not do profile, e.g. the frequency distribution
comparison shopping of different credit of time to repayment of a given loan.
products. Furthermore, their lack of Conclusion: The information disclosure
understanding of key financial terms DID have a significant effect on
limits their ability to conduct in-depth individuals decisions on whether to take
analysis of competing offers. the payday loan.

8. Clic para editar título
Attachments

9. Interest Rate – Crédito Mujer
TIR TIR
Instituciones Tasa Anual (con comisiones + (con comisiones +
(sólo del ahorro inicial) con ahorro inicial) SIN
crédito) retorno de ahorro retorno del ahorro
CAME 124.88% 149.84% 196.06%
Maskapital 122.68% 147.25% 193.74% Only require 10% in
FINCA 120.47% 144.66% 191.42% Savings
Credicomún 113.82% 136.84% 184.44%
Financiera Súmate 113.82% 113.82% 113.82%
Only charge comissions
FINSOL 98.88% 148.93% 197.17%
Forjadores de Negocios 98.88% 119.21% 168.76%
Solfi 89.81% 108.46% 159.24% Require savings and charge
comissions
Solución Asea 89.73% 108.36% 159.15%
Crezkamos Kapital 89.43% 108.01% 158.84%
FINCOMÚN 88.14% 88.14% 88.14% Don´t require savings nor
charge comissions
Compartamos 77.33% 93.62% 146.15%
Sistema Coopera 71.64% 129.45% 129.45%
Nuestra Caja 69.62% 128.95% 180.50%
Grameen Carso 34.14% 34.14% 34.14%
Benchmark 93.55% 117.31% 153.40% Anexos I
Nota: Las tasas no incluyen IVA Anexos C

10. Benchmark para Crédito Mujer
Tasas
Tasa Anual (sólo del crédito)
225% TIR (comisiones + ahorro) regresando ahorro
196% 197% TIR (comisiones + ahorro) NO regresando ahorro
194% 191%
200% 181%
184%
169%
175%
159% 159% 159%
150% 147% 145% 149%
150% 146%
137%
129% 129%
125% 119%
125% 123% 120%
114% 108% 108% 108%
114%
94%
100% 99% 99%
90% 90% 89% 88% 93.55% (TA)
77%
75% 72% 70%
50%
25% 34%
0%
L
fi
E
CA
N
i ta l
ún
a
ate
os
so
a
tal
era
SO
So l
s
CA M
MÚ
Ase
C aj
ocio
FIN
tam
m
C ar
ap i
kap
Súm
FIN
oo p
dic o
CO
stra
n
sK
Neg
p ar
en
Mas
uc ió
FIN
aC
Cr e
iera
mo
me
Nue
Co m
de
tem
So l
zka
Gra
anc
s
Si s
or e
Cr e
Fin
ja d
For

11. CGAP Consumer Insights for
Consumer Protection
Consumer Experience
• Majority of respondents interested in using savings products, but had negative experiences related to hidden fees and
commissions that they did not understand or anticipate.
• Consumers found informal sector providers like pawn shops, and retail outlets like Wal-Mart offered easier to
understand terms, lower minimum balances, and less unexpected fees than traditional banks.
Financial Capability and Decision-Making (Findings from showing participants an actual loan contract)
• Participants had limited ability to explain or interpret the interest rate, total annual cost, or other key
information presented on the contract. Participants were more likely to refer to the weekly payment
required than the total cost of the loan or the interest rate.
• Respondents in general did not do comparison shopping of different credit products. Furthermore, their lack
of understanding of key financial terms limits their ability to conduct in-depth analysis of competing offers.
Consumer Rights
• Participants mentioned a range of grievances, including hidden fees and charges, aggressive collection
practices, and poor customer service. One participant saw their savings account balance reduced from
15,000 to 9,000 when they tried to close the account due to commissions, fees for non-use, and interest
charged on top of these fees.
• None of the participants knew their rights were as financial service consumers, and very few had heard of
CONDUSEF, the government agency responsible for financial consumer protection.
Areas for Further Investigation
• CGAP and CONDUSEF are discussing ways in which to build upon the initial findings around the difficulty
users have in interpreting disclosure documents, and in turn making informed financial decision. Both parties
plan to conduct further consumer 11