Bolivia Transparency Part 4: How MFTransparency’s Pricing Data Complements Current Regulation
In my series of Bolivia posts so far, I have shared insights on several positive aspects of pricing transparency in the Bolivian microfinance industry. In today’s post, I’d like to highlight how MFTransparency’s pricing data will complement the Bolivian microfinance regulation and transparency efforts already underway.
Under current regulation, the weighted average of the annual interest rates is published on a weekly basis according to product type. All regulated institutions also display the maximum nominal rate for each type of loan product on a clearly visible board in each of their branches. However, the weighted average of the interest rates for all microloans provided by an MFI may not always be meaningful, especially where the institution offers a range of microloan products with different characteristics and prices. There is currently no central location where the true prices (i.e. the effective rates) of all products in the market are disclosed. While each client does see the annual interest rate (TEAC) of his or her specific loan, there is no mechanism in place that allows all stakeholders to see the accurate price of each loan product in the market and easily compare the different options available. This means that not even the local microfinance networks currently know the prices charged by their member institutions. The data currently available also doesn’t show how rates vary with loan size. This correlation is very important and creates the market curve.
The local microfinance networks ASOFIN and FINRURAL, our strategic partners in this Initiative, are already reporting a range of indicators including the portfolio yield of their member MFIs in their monthly bulletins. The specific and detailed pricing data to be published by MFTransparency will complement the financial and social indicators already made available by both networks.
Our Transparent Pricing Initiative in Bolivia is complementary to the local regulation and existing transparency efforts. We will calculate the prices of all loan products offered by the participating institutions as an Annual Percentage Rate (APR) and Effective Interest Rate (EIR), and disclose real client repayment schedules for each product. APR and EIR are internationally accepted formulas used in many countries around the world, so they also allow for better intermarket comparison. The presentation of this data both in graphical and tabular form facilitates a full understanding of the prices paid by clients.
There are several very positive aspects about the Bolivian regulatory framework for microfinance that facilitate pricing transparency, and it is also worth noting that all NGO MFIs are currently in the process of being incorporated into this regulatory structure and already report financial information to the Supervisory Authority ASFI. This means pricing transparency regulation will soon cover all microcredit providers in the market. Under the new regulation, NGOs will keep their non-profit status but act as financial intermediaries. They will be allowed to offer additional products and capture deposits.
If you are interested in learning more about the status of transparency in Bolivia, please check out MFTransparency’s recent interview with both managers of the Bolivian microfinance networks about the benefits, challenges and recommended strategies of the Transparent Pricing Initiative in Bolivia (available in English and Spanish).
In my next blog post I will share some specific examples of outstanding pricing transparency efforts voluntarily undertaken by local MFIs.