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Bosnia Pricing Discussion

Published on November 1, 2009

Here are some points to consider as you review the Bosnia and Herzegovina data as well as some questions we would like to hear your comments on.

1. Price Curve: Smaller loans have higher prices – Loans of under KM1,000 in Bosnia have an average APR of over 30%, while those of KM8,000 or more have an average APR of under 20%. This fits with the reality that costs of loans – expressed as a proportion of the loan amount –  increase as the loan size decreases, and therefore the price charged to cover those costs must increase as well. Notable when compared to data from other countries is that the Bosnia curve is relatively shallow. In viewing our PowerPoint presentations on this website, you will see steeper curves in other countries. What theories do you have for the flatter curve in BiH?

2. There is a wide range of APR prices at the same loan size – At every loan size of the graph there is a range of 20 percentage points or more in the prices charged by different lending institutions. This is true even when lenders are offering similar products in the same locations. What factors do you think could most explain these broad prices? Product use, e.g., business, housing, consumer usage? Product quality differences? Geographic differences between products? Lack of transparent pricing?  What impact do you think transparent, comparable pricing data will have on the range of product prices in the future?

3. There is an even broader range in quoted prices
– Lenders in Bosnia, like in most other countries we have visited, employ a wide range of pricing methods, making it difficult for clients to compare similar loan products. For example, a client looking for a working capital loan of KM3,000 will receive interest rate quotes ranging from 1.1% (per month) to 25.35% (per year) with fees ranging from 0% to 5%. The actual APRs on these loans bear little resemblance to the quoted rates. Other than APRs, what other ways do you think pricing can be made less confusing for clients when comparing products?

4. APR per product provides better information on prices than Total Portfolio Yield – Before the MFT data became available, providing product-specific pricing, the microfinance industry used Total Portfolio Yield information to estimate price. Since the Portfolio Yield is an average of all the different interest rates charged by a lender, it can tell virtually nothing about the price of any one product. What do you find when you compare the product prices in any one institution in the data?  Are product prices similar, or do MFIs price their products very differently?

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  1. kevinfryatt says:

    What I find interesting is that loan prices of 'For-Profit' MFI are actually all located under the average price curve. What would explain this? Does this have something to do with the local environment in which they operate (ie. intense competition amongst the for-profit institutions, government pricing regulations, etc.)? n nWhat do you think the reaction of these for-profit MFIs will be knowing that they are currently pricing below the 'market average'?

    • Larry_at_mft says:

      Good question, Kevin. It is interesting that all the green dots (For-Profit MFIs) are below the average price curve. It turns out that these are all from the same institution, Mikrofin, as it is the only for-profit MFI member of AMFI (the Association of Microfinance Instiutions in Bosnia and Herzegovina). So it is hard to draw a lot of conclusions out of one organization. It is interesting to note that Mikrofin makes a significant proportion of its loans in rural areas (ranging from 45% to 70% depending on the product) so the answer to their lower prices is not because they only work in urban areas. n nThis will be something to watch for in other countries as we post their data. In Cambodia all the MFIs are for-profits because of local registration requirements, so no comparison there. But watch as we post data from other countries to see where the for-profit institutions line up against the price curve. It may lead to more interesting discussions.

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