Bolivia Data Launch Part 2: Pricing Data Analysis
In today’s blog post, I’d like to share some insights into the pricing data we launched at our industry conference in La Paz. Our current dataset includes all members of the local microfinance networks ASOFIN and FINRURAL, as well as all but one of the MFIs reporting to the MIX.
Of all participating institutions, 59% are currently unregulated and not covered by the local truth-in-lending regulation. It is worth noting, however, that all members of FINRURAL, the NGO MFIs known as IFDs (Instituciones Financieras de Desarrollo), are currently in the process of being included in the regulatory framework under the supervision of the Regulatory Authority ASFI. NGOs comprise 64% of our participants, followed by privately-owned for-profits with 32% and finally one cooperative representing the remaining 5%.
As Bolivia is one of the most mature microfinance markets worldwide, it is not surprising to find higher average loan sizes among Bolivian MFIs in comparison to their regional and international peers. It is interesting to note that 84% of the 174 products included in our analysis feature individual loans. The village banking methodology is used for 11% of all products, followed by the solidarity group methodology. Additional services linked to the loan product, such as credit education, technical assistance and training, are relatively uncommon, but are offered along with several of the products included in our dataset. Most products are specifically provided for businesses purposes. 60% of all products are for business use, 30% may be used for any purpose, 16% for housing, 13% for consumption, 11% for education and 10% for emergencies. The majority of products, specifically 80%, have one single purpose, while 7% have two purposes, and the remaining 13% at least 3 purposes. An interesting observation we have made is that most products are not gender-specific, with only 15 out of 174 products exclusively targeting women. The most common eligibility criterion, cited for 107 of the 174 products, is that the borrower run a business.
The interest rate quoted to clients ranges from 1.2% monthly to 39.0% annually, which highlights the need to present loan prices in effective annual terms. The majority of MFIs charge interest on the declining balance, a methodology which is legally required for all of ASOFIN’s member institutions and strongly promoted by FINRURAL among its members. 91% of all products feature this calculation method. We expect to see many of the remaining MFIs shift from charging flat to declining balance interest rates over the coming months, as this is an important requirement for NGO MFIs seeking to upgrade to a new model identified by the regulator.
Interestingly, MFIs charge variable interest rates for 44% of all microloan products, which perhaps provides another indication of the maturity of the Bolivian microfinance sector. This means the interest rate is not fixed over the term of the loan, but varies periodically based on the Central Bank’s reference rate (TRe). This may also make it more difficult for the borrower to understand the actual price of the loan, depending on how this concept of variable rates is communicated. Moreover, for 80% of products the clients are charged different interest rates for the same type of loan based on a range of different factors. The most common pricing differentiation factor by far is the size of the loan. The second most common reason is collateral, followed by the length of time as a client, and the client profile and risk.
Compulsory Savings & Fees
Compulsory savings is only required for 16% of all products and is most common in village banking, as ASFI encourages MFIs using this methodology to promote a savings culture among group members. For 56% of the 27 products with compulsory savings, the borrowers control these savings internally, which is, again, typical in village banking. They also earn interest on compulsory savings for 81% of these products, and savings are disclosed on the repayment schedule for 63% of the 27 products. Commissions are still common, although they have been recently outlawed by ASFI, so for regulated institutions we are observing an important reduction in fees. It is not unlikely that NGO MFIs will also adopt this practice. Continuing charges, which apply for 57% of products, are primarily insurance fees. Insurance is the purpose cited for 84% of the 99 products with continuing fees.
Data Published on the MFT Website
During our data launch conference, both MFIs and social investors drew attention to the finding that NGO MFIs included in our country graph appear to have relatively higher prices than their regulated peers, and detailed the factors explaining these interest rates, in particular the target market in remote rural areas, the cost of funds and the smaller loan sizes.
It is worth noting that our APR calculations mirror the national formula used by the Central Bank of Bolivia (BCB) to calculate comparable annual interest rates. In addition, we also publish the interest rates for each microloan product in EIR terms. This allows for comparability across countries, especially since the central banks of some of Bolivia’s neighboring countries such as Ecuador use the EIR formula to calculate effective interest rates.
We’d like to encourage you to use the filters on our interactive graph and take a closer look at our brand new pricing data for the Bolivian market. You’re also welcome to share your comments, questions and observations on the data in the comments section below.