A Conversation with ASOFIN & FINRURAL on the Transparent Pricing Initiative in Bolivia
LANCASTER, PA & LA PAZ, BOLIVIA, June 9, 2010 — MFTransparency and its strategic partners, the local microfinance networks ASOFIN and FINRURAL recently launched the Transparent Pricing Initiative in Bolivia with two workshops in La Paz and Santa Cruz de la Sierra. This Initiative is sponsored by the Ford Foundation and MicroNed with the objective of promoting fair and transparent pricing in the microfinance industry.
MFTransparency spoke with Fernando Prado and Néstor Castro about the benefits of the Initiative in Bolivia, the challenges MFTransparency will be facing in the local market and strategies to succeed in this effort.
MFTransparency: From your experience in ASOFIN and FINRURAL, what is the current situation with regard to pricing transparency in the microfinance industry in Bolivia?
Néstor Castro: The microfinance sector in Bolivia has made an effort towards pricing transparency in the market for many years, even before the issuance of the interest rate regulation by the former Superintendency of Banks. In this sense, pricing transparency is present in the microfinance sector both in the Development Finance Institutions (DFIs) as well as in the FFP and specialized banks.
Fernando Prado: The current state of pricing transparency in Bolivia is very good. I think the necessary steps have been taken for many years in order to have an appropriate level of transparency. One element that helps in appreciating this statement is that the number of clients has continued to grow steadily and the average lending rate has been declining. Competition and scale have contributed to the fact that the institutions have to be more transparent and “show all their cards”.
However, I am aware that much remains to be done. There are still commissions, flat fees, terms, grace periods, etc. that do not allow customers to “see” clearly what the real price is, the effective rate to be paid.
MFTransparency: What, in your opinion, is the greatest benefit of this initiative, both for institutions and for the Bolivian microfinance sector?
Fernando Prado: The major benefit of this initiative is that microfinance institutions will be respected and appreciated for being serious entities, which don’t cheat their clients and fully present all components in their loan offers and work with effective rates easily understood by everyone. For the clients, there is nothing like knowing how much a good costs and how much I should pay for it. This transparency creates client loyalty and a good reputation for the institutions.
Néstor Castro: The biggest benefit to our institutions is being able to have a standardized mechanism for price comparison specialized for microfinance which facilitates knowledge of the pricing situation not only in the country, but also in other countries around the world. Moreover, by promoting transparency in the microfinance sector, the real work of support these entities perform will become evident.
MFTransparency: What role do your institutions play in this Initiative? As local networks, how important is it that your members participate?
Fernando Prado: As ASOFIN (www.asofinbolivia.com) is the network that includes all the regulated entities specializing in microfinance, its role is to ensure that all members join this transparency initiative and that they characterize and distinguish themselves by “selling what they preach.” Microfinance institutions are institutions with a vocation different from the rest of the financial system. They are entities that are committed to the people, the marginalized and disadvantaged, it is therefore in their best interest to be honest, transparent and fair with this population.
Néstor Castro: For FINRURAL, our participation will focus on promoting information transparency of the 13 DFI members through our website www.finrural-bo.org, at the same time we, along with the Bolivian regulatory authorities permanently seek the use of mechanisms and rules that promote transparency not only in the area of pricing, but of all financial activity in the country.
MFTransparency: What challenges do you foresee for the Transparent Pricing Initiative in Bolivia?
Néstor Castro: The main challenge for MFTransparency is tied to the belief in the effectiveness of the interest rates calculation and the method of publicizing, so as to avoid misinterpretation by the operating entities.
Fernando Prado: Becoming completely transparent also means being willing to sacrifice and give up all chances of “earning” more thanks to an interest rate that is not very clear to the end client. That is a huge challenge for these entities, as they have to make their interest rates more honest and give up other revenue streams.
MFTransparency: What would be your advice to MFTransparency to succeed in its effort in Bolivia?
Fernando Prado: The best contribution by MFTransparecy to Bolivia will be to succeed in having all microfinance institutions understand the value and ethics of having transparent interest rates that are easily understandable for the client. If the government and the authorities also realize that there are no high or low rates, but those that are fair and appropriate to serve each segment of the population, then a giant step in the history of microfinance in Bolivia will have been accomplished.
Néstor Castro: To hold institutional presentations in each financial institution, showing executives the benefits of pricing transparency through MFTransparency’s tool. At the same time, it is important to continue the rapprochement with regulatory agencies to promote permanent transparency through regulation, not only for microfinance but for the entire financial system.
MFTransparency: What would be your suggestions to encourage the majority of the sector to participate in this Initiative?
Néstor Castro: Promote regular meetings in the countries and the region to exchange knowledge between regulators, national networks and microfinance operators.
Fernando Prado: Voluntary participation, because I have the conviction, because I sincerely believe that this benefits the population I want to reach and that I claim to support and because I benefit from presenting myself as an honest, ethical, fair and transparent entity, is the best incentive to participate. So that those entities that do not participate will be almost directly saying: I do not want transparency, I do not want to be ethical, I do not care about my clients, I just want my profit.
MicroFinance Transparency is an international non-governmental organization founded in 2008 with the purpose of facilitating transparent markets through the dissemination of true cost information to all market stakeholders. MFTransparency represents an industry movement toward fair practices and responsibility. Based in the United States, the group has organized transparent pricing efforts in Bosnia, Peru, Cambodia, Azerbaijan, Kenya and Bangladesh. For more information please visit www.mftransparency.org. Grameen Bank’s Dr. Mohammad Yunus and Elizabeth Littlefield, CEO of CGAP, as well as more than 200 industry professionals and organizations have committed to transparent pricing by endorsing MFTransparency and its initiative. For information on MFTransparency staff, please see Who We Are.
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