Bolivia Data Launch Part 3: Industry Dialogue for Practical Change
In this third part of my blog series on the Bolivia Data Launch Conference, I’d like to share a brief summary of the group sessions and panel discussions facilitating dialogue on pricing transparency at the event in La Paz.
The Business Case for Pricing Transparency
This panel session featured some of the most prominent social investors, specifically Fernando Prado, General Manager of Prospero Microfinanzas Fund, Irina Aliaga, Head of the Area SME of Fundación PROFIN, and Erlan Llanos, Investment Officer of LOCFUND.
Mr. Prado highlighted how MFIs, investors, donors and rating agencies, are now more than ever aware of the importance of a double-bottom line. He pointed out that “this goal can only be achieved if there is a genuine conviction, an honest commitment and ongoing practice that emphasizes the importance of pricing transparency and consumer protection as the ideal vehicle for success of both the institutions at the individual level and the industry as a whole. In my opinion, this has been the case in Bolivia”. He also touched on the SMART Campaign’s six principles of client protection, emphasizing that all of these principles, but particularly transparent and responsible pricing, result in a direct economic benefit for both MFIs and their clients. “Financial consumers require accurate information to make correct decisions. If the actual price is confusing and impossible to determine for most clients, then their decisions won’t necessarily be the wisest,” he explained. This may put the client’s repayment capacity at risk and have serious implications for the quality of the MFI’s loan portfolio triggered by over-indebtedness. Institutions with opaque pricing are eventually identified by clients and abandoned. “High and immediate profit today and many problems tomorrow, or transparency from the start to promote client loyalty and a sustainable, ethical and ongoing relationship. This is corporate social responsibility.”
Ms. Aliaga focused on three important commercial advantages for MFIs practicing pricing transparency: A better position to access second-tier financing, a better institutional positioning towards actors promoting social goals, and greater client loyalty and retention. With respect to the first advantage, she pointed out transparent institutions benefit from more favorable financing conditions and lower interest rates. The second advantage results from a positive institutional image, coupled with a competitive advantage of differentiation, and the attraction of social investors. And finally the reputation as a responsible institution, committed to transparent pricing and a relationship based on trust promote client loyalty and retention. Ms. Aliaga applauded the “inclusive nature” of the event, featuring the participation of representatives coming from “diverse sectors of the local microfinance industry, demonstrating that client protection is a topic of general interest.” She went on to point out the event also “marked a historic milestone in the country, making microfinance interest rates for the first time in Bolivia and in a public event transparent”.
Mr. Llanos shared insights on the competitive advantages transparent MFIs benefit from. Transparent practices not only have a positive impact on the relationship with clients, but also with respect to funding opportunities. He further highlighted the advantages in terms of enhanced efficiency aimed at offering competitive interest rates to microfinance clients. “A market in which all institutions make the real cost of credit transparent encourages institutions to further develop their efficiency in order to achieve higher levels of profitability. This also promotes competition in the supply of credit-related services and thus an improvement in customer service,” he pointed out. Further, he emphasized the positive impact on the development of the industry and specifically competition, based on the comparability of loan product offers. Perhaps most importantly, pricing transparency reduces information asymmetry in the market, which promotes the informed decision-making of clients and other stakeholders, and further strengthens healthy competition. Mr. Llanos congratulated the Bolivian MFIs for their commitment to pricing transparency: “The participation of MFIs is remarkable, the fact that 100% of member institutions of ASOFIN and FINRURAL have participated and provided the necessary information demonstrates the willingness of these institutions to make their prices and supply of services transparent.”
We’re especially thankful to the moderator of this panel, Régula Chávez-Malgiaritta, Representative of Swisscontact Bolivia, who made this session an interactive and dialogue-oriented discussion. Ms. Chávez-Malgiaritta summarized the different perspectives the panelists highlighted in their speeches, specifically the business case for pricing transparency at the client level, the institutional level, the industry level and at the level of society at large. She also pointed out that “all these business advantages are the means, not an end in itself ─ they are the means for the clients to enjoy better living conditions.” Following her summary of the panelists’ contributions, the discussion was opened to the audience who engaged in lively dialogue with the panelists.
The Experience of NGO MFIs (IFDs) in Promoting Pricing Transparency
Moderated by the regional consultant Dusan Halkyer, this session provided a forum for dialogue for NGO MFIs to share experiences in transparent communication with their clients, delve into the challenges NGOs may face when promoting financial literacy in primarily rural areas, as well as discuss different ideas to enhance pricing transparency in the local microfinance sector. Among the panelists were María Eugenia Moscoso, CEO of FONDECO, Gustavo Díez de Medina, General Manager of FONCRESOL, Waldo Claros, Finance Manager of ANED, and Gonzalo Araoz, Business Manager of IDEPRO. Ms. Moscoso drew attention to the momentum gained with respect to pricing transparency, as MFTransparency’s initiative coincides with ASFI’s current efforts to include NGO MFIs into the regulatory framework, thereby institutionalizing transparency. In the course of the group discussion, the panelists also addressed the challenge of providing urban and rural clients with full and accurate information on interest rates and other loan conditions, so as to support their freedom of choice, taking into consideration existing communication channels and the limited access for many clients in rural areas to information online.
The Practice of Pricing Transparency at the Client Level
During this session, Andrés Urquidi, Commercial Manager of Banco FIE, shared some of FIE’s best practices and explained how the principles of FIE’s Code of Ethics are translated into practical actions. In his presentation he highlighted the following principles and practices:
- Transparent Communication and Dissemination: Responsible advertising with full, accurate and accessible information, coupled with appropriate communication channels to reach the target group.
- Ethical and Responsible Treatment of Clients: Take time in interacting with clients to explain products and conditions, fulfill what is promised, and provide written information that serves as some kind of guarantee for the client.
- Transparent Prices and Conditions: FIE has one national interest rate for each product, despite the fact that some geographical areas are more difficult and expensive to serve. The interest rate published and quoted is the maximum interest rate for a given product. Long-term clients with excellent payment history may benefit from more favorable interest rates, but the interest rate displayed and advertised is always the highest possible rate. FIE only charges interest, no additional charges such as fees or commissions. The loan contracts are clear and straightforward. The client also receives a receipt for each payment made.
- Means of Access: FIE runs an information hotline free of charge, where clients can receive information, submit suggestions and make complaints. In addition to ASFI’s regulatory mechanisms for redress of grievances, FIE has an institutional mechanism called “FIE Responde” (“FIE Responds”) where clients can make complaints which is more flexible and less bureaucratic than ASFI’s legal mechanism. For example, complaints to “FIE Responde” may be submitted anonymously.
- Financial Literacy Training: FIE has recently established a Financial Education Program and has started to provide training sessions primarily in rural areas covering topics such as credit and savings products, credit and debit cards, ATMs and the detection of fake bills.
Juan Carlos Bustillos, Submanager of Corporate Development at Fortaleza highlighted the MFI’s corporate policy which embraces principles of transparency towards clients. Having endorsed both MFTransparency and the SMART Campaign, Fortaleza’s transparent practices include the principle of non-misleading advertisement, the publication of information in Quechua and Aymara to include native speakers of these languages, and the provision of ongoing training to staff aimed at facilitating a clear and transparent communication with clients. Further, Mr. Bustillos mentioned the specific loan documentation Fortaleza provides to ensure clients have access to all the necessary information they need to make informed decisions. Beyond reporting to the regulators, Fortaleza also publishes relevant information through the local network ASOFIN. The data launch conference “has been an important start to continue a process that involves working with the client focusing on transparency. It is essential for all financial institutions to acquire and develop a policy of pricing transparency, for which the event has been very important as the impetus for this objective,” Mr. Bustillos remarked.
The Bolivia Data Launch Conference certainly illustrated how the interaction and discussion of the newly available pricing data among industry actors transform its value into practical change. We are excited to continue collaborating with Bolivian industry stakeholders to promote pricing transparency in the microfinance industry. We also encourage the remaining cooperatives and commercial downscaling banks to join this important initiative and submit pricing data of their microloan products to MFTransparency.