Bolivia Transparency Part 2: Interest Rate Disclosure to Clients & the Public
There are several positive mechanisms in place to facilitate interest rate disclosure to microfinance clients and the general public. Our recent trip to Bolivia was a wonderful opportunity to see firsthand how a range of legal requirements play out in practice.
Local regulation requires all supervised institutions to disclose the nominal annual interest rates on a clearly visible board (pizarra) in each of their branches, so that everyone can clearly see the current interest rates. These boards have to disclose the annual nominal rate according to loan purpose (i.e. commercial, mortgage/housing, consumption and microcredit), as well as the loan term, currency and commissions or other charges, as a minimum requirement. Where interest rates vary according to different factors, such as client risk or collateral, the financial institution is required to disclose the maximum interest rate on this board. Some local MFIs have told us that they are aware of their competitor’s prices as they regularly review the boards of the other market players. We of course made sure to check out as many pizarras as possible during our stay in La Paz and Santa Cruz.
Moreover, all regulated institutions are obliged to continuously provide their clients with updated information on the conditions of the financial services they offer, including the nominal interest rates, the terms that apply, periodicity and method of adjusting variable rates, as well as any additional financial charges. They are also required to provide typical examples illustrating the calculation of the annualized standard interest rate used in Bolivia (TEAC). Interestingly, the regulation also establishes that the financial institution has to express all the terms of the transactions in writing and provide “all records necessary for the customer to verify the actual cost of the operation”.
One positive requirement that struck me in particular is the receipt the financial institution has to issue to the borrowers each time they make a payment. This receipt includes the amount repaid, the interest rate charged and any commissions, so with each payment the annual interest rate that applies for the transaction is disclosed to the client. Both NGOs and banks showed us samples of the latest receipts they had given out to their clients. This is something we haven’t seen in any other country so far.
It was also interesting to find that the Central Bank publishes the weighted average of the nominal and effective interest rates for each financial institution weekly, and every Thursday the average interest rate (TEAC) of the week is published in the newspaper for all regulated institutions according to type of product.
Check back soon for some insights into transparency in loan contracts and publicity.