MF Transparency is a US-based non-profit organization that promotes pricing transparency in the microfinance sector. They have collected pricing data from over 400 institutions in 28 countries, representing over $14 billion in loans to 38 million clients. Their work includes data collection, training, and consulting with regulators on disclosure policies. The document discusses their efforts in the Philippines, including an upcoming data launch and technical assistance for participating MFIs. It also covers the Philippines' Circular No. 730 which aims to enhance loan transaction transparency through standardized disclosure of pricing information.

1. Preparing for Pricing Transparency
Laila Deles & Darrel Flores
MF Transparency
2011 RBAP‐MABS Regional Roundtable Conference
Hya= Hotel & Casino, Manila
November 9, 2011

2. Promo%ng Transparent Pricing in the Microfinance Industry
Preparing for
Pricing
Transparency
RBAP‐MABS Regional Roundtable
Manila | November 9, 2011

3. What is Transparent Pricing?
Transparent pricing means the pricing, terms, and
condiIons of financial products are 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:
• To regulators / policy makers
• To investors / donors / funders
• To clients and “the market”

4. 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 compeIng loan products or
MFIs based comparaIve 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

5. 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

6. Promo%ng Transparent Pricing in the Microfinance Industry
• U.S. Based Non‐Profit OrganizaIon
• Work in 28 countries
• Mission: to promote pricing transparency in
the microfinance sector through:
• Data collecIon, standardizaIon, & disseminaIon
• Training & capacity building for financial insItuIons
• Development of educaIonal materials
• ConsulIng to regulators & policy makers on price
disclosure legislaIon

7. Rapid Progress in Transparency
Data collec?on
• 400+ InsItuIons
• 1,400+ loan products
• 38 million+ clients
• US$14 billion+ in outstanding poraolio

8. Combined Approach
Self Regulated
SupporIve
PracIce of
Government
Transparent
Regula?on
Pricing
Responsible
Pricing

9. Updates on the Transparent Pricing
Ini?a?ve in the Philippines
• Data collecIon conducted from April to October
• Preview for parIcipaIng NGOs, rural banks and
cooperaIves ongoing
• Data launch scheduled for the first week of
December
• Delivery of technical assistance and training for
parIcipaIng insItuIons
9

10. Par?cipa?ng MFIs
1st Valley Bank (formerly RB Kapatagan Valley) KGI (Kazama Grameen)
AJDFI (Ad Jesum Devt. FoundaIon, Inc.) KMBI (Kabalikat para sa Maunlad na Buhay, Inc.)
ASA Philippines FoundaIon Lorenzo Tan MPC
ASHI (Ahon sa Hirap) Mallig Plains RB
ASKI (Alalay sa Kaunlaran, Inc.) Milamdec Development FoundaIon
Banco San Enrique NWTF (Negros Women for Tomorrow Found.)
Bangko Kabayan Paglaum MPC
CanIlan Bank PBC (People's Bank of Caraga)
Caritas Salve Credit CooperaIve People's Center for Sustainable Development (PCSD)
CCT Credit CooperaIve RB Labason
CEVI (Community Economic Ventures, Inc.) RB Liloy
DSPI (Daan sa Pag‐unlad, Inc.) RB Montevista
ECLOF‐PHL Rizal Microbank
FCB FoundaIon, Inc. RSPI (Rangtay sa Pagrang‐ay, Inc.)
FMB (First Macro Bank) Rural Bank of Angeles (RBA)
GM Bank San Francisco Growth Enhancement MPC (SAFRAGEMC)
HSPFI (Hagdan sa Pag‐Uswag FoundaIon, Inc) Simbag sa Pag‐Asenso
JVOFI (Jaime V. Ongpin Found., Inc.) TSKI (Taytay sa Kauswagan, Inc.)
Kasagana‐Ka Development Center, Inc. (KDCI) TSPI Development Corp.
KaIpunan Bank Valiant RB

11. BSP Circular No. 730
Enhancing Loan Transac.on Transparency
Method of compu?ng interest: Banks may only
charge interest based on the outstanding
balance of the loan at the beginning of an
interest period.
11

12. BSP Circular No. 730
Enhancing Loan Transac.on Transparency
Informa?on to be disclosed. The following are the minimum
informaIon to be disclosed:
a) Total amount to be financed
b) The finance charges (includes fees, interest, service
charges, discounts and such other charges incident to the
extension of credit)
c) Net proceeds of the loan; and
d) The percentage the finance charge bears to the total
amount to be financed expressed as simple annual rate or
an effecIve annual interest rate (EIR). EIR may also be
quoted as a monthly rate
12

13. Calcula?ng the Annual/Monthly
Effec?ve Interest Rate

14. Update on MFTransparency’s APR Calculator
Calculation of Transparent Pricing Display EIR values
Basic Loan Conditions Amortization: Equal installments (amortized) MPR threshold
Loan Amount: P15,000 Interest: Multiple installments 6
Term & Repay Freq. 24 Weeks Days/per (t): 7
Capital Int Pmt Int Calc Balloon Per/Mon (m) 4.33
Grace or Prepay (Weeks) Per/Yr (n): 52.00
Loan Pricing Period MPR (nom) APR (nom) EIR (comp)
Nominal interest Rate (%) 4.613% Per month i i * m i * n (1 + i)n ‐ 1
Nominal Annual & Method 55.36% Declining balance 1.065% 4.61% 55.36% 73.70%
Upfront Ongoing Increment
Fee (%) 2.00%
11.9% 1.294% 5.61% 67.27% 95.46%
Fee (fixed amount) 100.00
Insurance (%) 1.00%
16.6% 1.612% 6.99% 83.84% 130.25%
Insurance (fixed amount) 20.00
Value‐Added Tax (%) On Fees:
0.0% 1.612% 6.99% 83.84% 130.25%
On Interest:
Security Deposit (%)
0.0% 1.612% 6.99% 83.84% 130.25%
Security Deposit (fixed)
Interest Paid on Deposit (%) .

15. Implica?ons of ShiQing
from Flat to Declining Balance Method

16. Sample Typical LOAN CONDITIONS
Loan Amount PhP 15,000.00
Bank Microloan Term & Freq. 24 weeks
Product Interest Rate/Method 2.5% per mo./Flat
Amortization Equal principal
OTHER CHARGES Upfront Ongoing
FEES
Service Charge 3.00%
Notarial Fee PhP 100.00
INSURANCE
Credit Insurance 1.00%
Life Insurance/MBA PhP 20.00
TAXES
Doc. Stamps/GRT 0.5% x Term
16

17. Case 1: ShiQing to Declining Balance Without Reduc?on in
the Total Cost of the Loan
Flat Declining Balance
2.50% per mo. 4.613% per mo.
Quoted Interest Rate
30% per yr. 55.36% per yr.
Total Interest Paid: 2,076.92 2,076.92
Total Fees Paid: 400.00 400.00
Total Insurance Paid: 610.00 610.00
Total Taxes Paid: 37.50 37.50
Total Cost of Loan: 3,124.42 3,124.42
Total Months 5.6 5.6
Cost per month 562.33 562.33
Average Loan Balance 7,729.00 7,729.00

18. Equal Principal VS Equal Installments
Loan Cost and Cashflow Interest Loan Cost and Cashflow Interest
Principal Principal Interest Cashflow Principal Principal Interest Cashflow
Balance incl. Interest Balance incl. Interest
Disbursed Paid Paid Disbursed Paid Paid
15,000.00 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00
625.00 14,375.00 86.54 (711.54) 584.53 14,415.47 86.54 (671.07)
625.00 13,750.00 82.93 (707.93) 587.90 13,827.57 83.17 (671.07)
625.00 13,125.00 79.33 (704.33) 591.29 13,236.28 79.77 (671.07)
625.00 12,500.00 75.72 (700.72) 594.70 12,641.58 76.36 (671.07)
625.00 11,875.00 72.12 (697.12) 598.13 12,043.45 72.93 (671.07)
625.00 11,250.00 68.51 (693.51) 601.58 11,441.86 69.48 (671.07)
625.00 10,625.00 64.90 (689.90) 605.05 10,836.81 66.01 (671.07)
625.00 10,000.00 61.30 (686.30) 608.55 10,228.26 62.52 (671.07)
625.00 9,375.00 57.69 (682.69) 612.06 9,616.20 59.01 (671.07)
625.00 8,750.00 54.09 (679.09) 615.59 9,000.62 55.48 (671.07)
625.00 8,125.00 50.48 (675.48) 619.14 8,381.48 51.93 (671.07)
625.00 7,500.00 46.88 (671.88) 622.71 7,758.77 48.35 (671.07)
625.00 6,875.00 43.27 (668.27) 626.30 7,132.46 44.76 (671.07)
625.00 6,250.00 39.66 (664.66) 629.92 6,502.55 41.15 (671.07)
625.00 5,625.00 36.06 (661.06) 633.55 5,869.00 37.51 (671.07)
625.00 5,000.00 32.45 (657.45) 637.21 5,231.79 33.86 (671.07)
625.00 4,375.00 28.85 (653.85) 640.88 4,590.91 30.18 (671.07)
625.00 3,750.00 25.24 (650.24) 644.58 3,946.33 26.49 (671.07)
625.00 3,125.00 21.63 (646.63) 648.30 3,298.03 22.77 (671.07)
625.00 2,500.00 18.03 (643.03) 652.04 2,645.99 19.03 (671.07)
625.00 1,875.00 14.42 (639.42) 655.80 1,990.19 15.27 (671.07)
625.00 1,250.00 10.82 (635.82) 659.58 1,330.61 11.48 (671.07)
625.00 625.00 7.21 (632.21) 663.39 667.22 7.68 (671.07)
625.00 - 3.61 (628.61) 667.22 - 3.85 (671.07)
15,000.00 15,000.00 1,081.73 (1,081.73) 15,000.00 15,000.00 1,105.58 (1,105.58)
18

19. Implica?ons
Shin from flat to declining balance and maintaining
the level of the total cost of loan
• Shin from equal principal payments to equal
installments
• Increase in nominal interest rate to achieve the
same level of MPR/EIR
• The true price of the flat rate (4.613% per month) is
equal or close to the rate applied in the declining
balance method (4.613%).

20. Case 2: Simple ShiQ from Flat to Declining
Same nominal rates, different calcula.on method
PRICING Flat Declining Balance
Interest
EIR 73.70% 34.98%
MPR 4.61% 2.50%
Interest + Fees
EIR 95.46% 51.93%
MPR 5.61% 3.49%
Interest + Fees + Insurance
EIR 130.25% 80.24%
MPR 6.99% 4.92%
Interest + Fees + Insurance + Taxes
EIR 132.93% 82.34%
MPR 7.10% 5.03%

21. Total Cost of Loan
(Flat vs Declining Balance)
Flat Declining Balance
Total Interest Paid: 2,076.92 1,081.73
Total Fees Paid: 400.00 400.00
Total Insurance Paid: 610.00 610.00
Total Taxes Paid: 37.50 37.50
Total Cost of Loan: 3,124.42 2,129.23
Total Months 5.6 5.6
Cost per month 562.33 383.22
Average Loan Balance 7,729.00 7,729.00

22. Implica?ons
Simple shin from flat to declining balance (Same
Quoted Interest Rate)
 Decrease in the total cost of loan or the total
interest paid by the client
 Decline in the true price of the loan from an MPR
of 7.10% to 5.03%

23. Why should ins?tu?ons use the Declining
Balance Method?
 It is an accurate reflecIon of the cost of
borrowing.
 It is closer to the actual price.
 Using one method, borrowers can compare
prices.
 It enables price compeIIon based on
transparency.
23

24. Pricing Strategies:
Lowering Prices without Lowering Profit
INCOME = APR x Avg. Loan Balance
Bigger loan amounts
Use of grace periods
Lump sum payments
24

25. CommunicaIng Prices
Schedule

26. Constant Charges Generate Similar Prices
Across Different Loan Amounts
Term and Freq. 24 Weeks Loan Amount MPR
Nominal Interest Rate 4.613% per month
Method Declining Balance 3,000 PHP 6.13%
Upfront Fees 2.00% 8,000 PHP 6.13%
Upfront Insurance 1.00%
Upfront Taxes 1.00% 15,000 PHP 6.13%
30,000 PHP 6.13%
Prices across different loan
60,000 PHP 6.13%
amounts can be similar in the
current policy if the increase in 90,000 PHP 6.13%
charges are constant (charges as a 150,000 PHP 6.13%
percentage of loan amount).
26

27. Examples from Other Markets
Bosnia – Sample Completed Template
27
SOURCE: Translated from Instruc?on for Applying Decision on
Unified Way of Calcula?ng and Expressing Effec?ve Interest Rate to
Loans

28. Examples from Other Markets
Bosnia – Prizma
28
SOURCE: MFTransparency Dataset

29. Examples from Other Markets
Cambodia ‐ AMK
SOURCE: MFTransparency Dataset 29

30. Model Repayment Schedule
MFTransparency Template
Note: Declining balance method with equal installment amounts

31. Resources offered by MFTransparency
31

32. Calcula?ng Transparent Prices Tool
Calculation of Transparent Pricing Display EIR values
Basic Loan Conditions Amortization: Equal installments (amortized) MPR threshold
Loan Amount: P15,000 Interest: Multiple installments 6
Term & Repay Freq. 24 Weeks Days/per (t): 7
Capital Int Pmt Int Calc Balloon Per/Mon (m) 4.33
Grace or Prepay (Weeks) Per/Yr (n): 52.00
Loan Pricing Period MPR (nom) APR (nom) EIR (comp)
Nominal interest Rate (%) 4.613% Per month i i * m i * n (1 + i)n ‐ 1
Nominal Annual & Method 55.36% Declining balance 1.065% 4.61% 55.36% 73.70%
Upfront Ongoing Increment
Fee (%) 2.00%
11.9% 1.294% 5.61% 67.27% 95.46%
Fee (fixed amount) 100.00
Insurance (%) 1.00%
16.6% 1.612% 6.99% 83.84% 130.25%
Insurance (fixed amount) 20.00
Value‐Added Tax (%) On Fees:
0.0% 1.612% 6.99% 83.84% 130.25%
On Interest:
Security Deposit (%)
0.0% 1.612% 6.99% 83.84% 130.25%
Security Deposit (fixed)
Interest Paid on Deposit (%) .

33. Standardized Repayment Schedule

34. Standardized Pricing Dissemina?on
34

35. Case Study:
Outlawing Flat
Interest Rates
in Cambodia
• Experience of Cambodian
microfinance market in
switching from flat to declining
balance
• Impact on market:
o Increased transparency
o Lower prices over Ime
35

36. Case Study:
Standardized Loan
Documenta?on in
Bosnia
• EvaluaIon of policy
requiring disclosure of
EIR on repayment
schedules
• Impact on market:
o Overall greater level
of pricing disclosure
o Be=er understanding
of pricing
calculaIons
36

37. Immediate Effects of
Transparency in Pricing
• MFIs lowering prices for products priced high
relaIve to the market
• MFIs increasing their prices for products priced low
relaIve to the market
• Progress by regulators toward new policies to
protect clients and facilitate disclosure
37

38. How does the Philippine industry
stand to benefit?
• Clients can make be=er decisions about borrowing
• InsItuIons can set prices based on knowledge of
market rates
• Policy can be determined according to a more
accurate understanding of the market

39.
Promo?ng Transparent Pricing
in the Microfinance Industry