Ethiopia – Examples on the practice of responsible pricing

By Begashaw Woldemichael and Louisa Dennison 

Home to one of the world’s fastest growing microfinance sectors, and with one of the largest microfinance markets in Africa, Ethiopia and its microfinance pricing dynamics are of keen interest to the industry. MFTransparency’s work in Ethiopia has provided a unique insight into a market where several MFIs have achieved financial and operational sustainability whilst at the same time maintaining a strong social mission and very low product pricing. We were pleased to see many examples in Ethiopia on the practice of responsible pricing. 

Concluding months of research and analysis we launched our transparent pricing dataset for Ethiopia last week. This can be viewed here, accompanied by a webinar recording of MFTransparency’s CEO Chuck Waterfield giving an overview of the data. The interactive dataset includes institutions serving more than 2 million active clients with over 1,000 branch networks across the country. Many interesting themes can be seen within the data, including a strong focus on enterprise financing and lengthy average loan terms. Amongst the trends seen, MFTransparency research highlights that:

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New Resources from African Microfinance Transparency Leadership Forum

In October 2011, MFTransparency hosted the African Microfinance Pricing Transparency Leadership Forum in Nairobi, Kenya. This was the first event of its kind, bringing together policymakers, regulators, networks and a host of industry experts to discuss issues related to pricing transparency in African microfinance markets. More than 120 people comprised this carefully selected participant group, representing 24 different African countries. Attendees included policymakers, regulators and networks organized into teams representing their respective countries.

MFTransparency is pleased to share a body of articles and tools arising from this unique three day event, designed to condense the main learnings for sharing throughout the industry and also to support regulators and policymakers as they begin to take the next steps toward transparent pricing. 
 

MFTransparency African Microfinance Pricing Transparency Leadership Forum Report now available. Giving an overview of the event, the insights and the outcomes, a full report and a summary report are now available to download. To download the Full Forum Report click here. To download the Summary Forum Report click here.

MFTransparency is the leading provider of educational materials on pricing in the microfinance industry.

We are committed to providing an array of resources to enable industry stakeholders to better understand and implement responsible pricing and adopt more transparent practices. In addition to the event report MFTransparency is excited to announce a series of new resources from the African Microfinance Transparency Leadership Forum.

View our complete Resources library here, and our Policy for Transparency resources here.
 

Resources from the African Microfinance Transparency Leadership Forum:

Discussion Insights: Challenges and Solutions

This resource presents some of the main challenges, questions and solutions arising from the presentations, panels, roundtable discussions and delegate meetings centered around three core themes: pricing calculation, standards for reporting and client financial education.

Read this new article here

Financial Education: Heard at the Forum 

Client financial education was one of three core themes discussed at the African Microfinance Pricing Transparency Leadership Forum. This resource frames the discussion of client financial education, and extract insights on some of the most complex questions raised about this cornerstone of transparency.

Read this new article here

The Debate Over Official Pricing Disclosure Formulas 

Training sessions given by MFTransparency launched an ongoing debate among participants about what an official pricing disclosure formula should include. This resource provides insights from this debate, highlighting the most essential issues to be addressed to establish widespread agreement on this critical element of pricing disclosure policy.

Read this new article here

Stakeholder Roles and Responsibilities 

This resource provides an overview of some of the potential roles participants discussed for different stakeholder groups in the microfinance industry, as well as the relationships between them, in terms of facilitating transparent pricing.

Read this new article here

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Tailored trainings on Pricing in West Africa: Improving Pricing Practices at Institutional Level

by Melina Djre

Participants during training held in Benin

During the past few months, we, at MFTransparency, have been offering direct trainings and technical assistance to MFIs participating in The Transparent Pricing Initiative in West Africa. Following the data collection and analysis phase, all institutions that completed the data submission process were contacted one by one in order to preview their Taux Effectif Global [1] (TEG), the formula used by BCEAO to calculate effective interest rates in the WAEMU region. This process sparked many questions from institutions and generated interest in better understanding the calculation method we used. To best address these questions, we offered the possibility for MFI staff (management, field and branch level) to be trained on the following topics:

Philippine Regulation on Pricing Transparency

by Laila Q. Deles

In July 2011, the Bangko Sentral ng Pilipinas (BSP) released Circular 730: Updated Guidelines on the Truth in Lending Act to Enhance Pricing Transparency.  Among the salient points found in the Circular are the following:

  • Prescribed uniform method of computing interest based onoutstanding balance of a loan at the beginning of an interest period and that interest on installment are calculated on the outstanding balance at the beginning of each installment period
  • Such method of computing interest must be consistently reflected in loan-related documents and marketing materials
  • A simplified Disclosure Statement format, which contains the following minimum information– Total amount to be financed; Finance charges; Net proceeds of the loan; and Percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate or an EIR.

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Shaping the Path in Financial Literacy

by Jessica Massie

“If you want people to eat less popcorn, the solution is pretty simple: Give them smaller buckets.”

~ Chip and Dan Heath

American psychologists Chip and Dan Heath presented a framework for behavior change interventions in their 2010 book Switch that includes a rationale for changing the environment or situation in which a problem occurs in order to help solve the problem (“shaping the path”). In the case of pricing transparency, regulators and networks can work to shape the path for clients and MFIs by providing simple, standardized, accessible “buckets” that contain understandable information about how much credit really costs.

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New MFTransparency Case Study: Outlawing Flat Interest in Cambodia

MFTransparency is excited to announce a series of new resources, now available on our website in the Resources section.

This week’s featured new resource:

MFTransparency Case Study: Outlawing Flat Interest in Cambodia

By now you have read the article “Flat vs Declining Balance Interest: What is the Difference?” and you are wondering how you can make the switch from the flat balance method of calculating interest to the declining balance method. This case study will show you how the Cambodian microfinance market as a whole took this important step towards transparency, due to a bold policy move by the National Bank of Cambodia in 2001. Policymakers and institutions alike, this is an important resource for those wondering what the experience of transitioning to declining balance rates might be like in your own market.

Read this new article here

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Forúm de Líderes Africanos: Acerca da Divulgação de Informação Padronizada do Preçário de Créditos

por Hélia Nsthandoca

English

Durante o Forúm de Líderes Africanos para a Transparência de Preços nas Microfinanças, realizado no mês de Outubro em Nairobi, participei numa mesa redonda onde se discutia acerca da padronização da documentação do preçário dos créditos.

Nesta mesa redonda estiveram participantes de alguns países nomeadamente Guiné-Bissau, Liberia, Moçambique e Ruanda, também participou nesta mesa redonda pessoal da UNCDF.

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New Interview with an Industry Leader – Now Live

MFTransparency is excited to announce a series of new resources, now available on our website in the Resources section.

This week’s featured new resource:

MFTransparency Discussion Corner: Reserve Bank of Malawi on Pricing Disclosure

The Reserve Bank of Malawi (RBM) is setting an example for regulators of microfinance markets across Africa by leading an effort to require pricing disclosure for all microfinance institutions (MFIs) in Malawi. MFTransparency interviewed Lanjes Sinoya, Principal Examiner at the Reserve Bank of Malawi, about the pricing disclosure and client protection aspects of the bill. Read this interview for an inside look at the process of institutionalizing responsible practice through policy.

Read this new article here

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Responsible microfinance: Regulators agree on the fundamental questions to be answered

by Joseph Kiirya

A few weeks ago I was lucky enough to participate in the African Microfinance Pricing Transparency Leadership Forum in Nairobi, Kenya hosted by MicroFinance Transparency. This forum brought together policymakers, regulators, consumer advocacy associations, networks and industry actors from over 20 African countries. It was a three day-event that brought to light many of the issues surrounding pricing in microfinance, disclosure issues and the way forward if we are to achieve satisfactory levels of responsible practice in the microfinance industry.

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New Case Study from MFTransparency

MFTransparency is excited to announce a series of new resources, now available on our website in the Resources section.

 

This week’s featured new resource:

Standardized Loan Documentation in Bosnia and Herzegovina

For policymakers and regulators considering new pricing disclosure policy or financial institutions looking to revise their loan documentation, this case study is the place to start. The Bosnian microfinance industry is governed by a policy that specifies calculation and disclosure requirements for effective interest rates on loans and requires that microfinance institutions (MFIs) deliver clear, communicative repayment schedules to their clients. This case study assesses the effectiveness of these regulations in impacting MFI practices.

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Promover os preços transparentes na indústria de microfinanças de Moçambique

Hélia Dezimahata Lory Nsthandoca e Victor Valido Vilela

English

Este blog apresenta a Iniciativa para Preços Transparentes em Moçambique, o último país do Programa enabling APR & EIR, desde o seu lançamento até o estágio atual do processo de colecta de dados.

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MFTransparency Publishes New Educational Materials

MFTransparency is excited to announce a series of new resources, now available on our website in the Resources section.

 

This week’s featured new resource:

Flat vs Declining Balance Interest Rates: What is the Difference?

This educational article, first in the new series “MFTransparency Pricing Fundamentals”, provides a concise overview of the concept of interest, the different methods used to calculate it and some industry standards for disclosure. Financial institutions, investors, donors and regulators alike now have a resource to draw on in understanding and communicating this critical distinction in the pricing of microloans.

 

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African Policymakers Outline the Way Forward in Transparent Pricing

by Jordan Filko

Earlier this month MFTransparency hosted the African Microfinance Pricing Transparency Leadership Forum in Nairobi Kenya. This was the first event of its kind, bringing together policymakers, regulators, networks and a host of industry experts to discuss issues related to pricing transparency in African microfinance markets. More than 120 people comprised this carefully selected participant group, representing 24 different African countries. MFTransparency compiled country teams that would be able to achieve the two main objectives:

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Learning the Client Perspective on Pricing: Insights from the Field

by Jessica Massie and Dasha Kuts

MFTransparency‘s financial education team in Rwanda has been learning a lot about the client perspective as we complete the first phase of our financial education pilot program. Through interviews and focus groups, we are learning directly from clients about the experience of making borrowing decisions based on price, and learning about what approaches to education are effective and which may be less effective.

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Financial Education: From Rwanda to Russia

DFID Financial Sector Deepening Project Uganda & Association of Microfinance Institutions of Uganda (AMFIU)

by Dasha Kuts

Dasha Kuts is an Intern with MFTransparency’s Financial Education Program. She is also a Financial Service Expert for the International Resource Group, working on the USAID-funded Microlinks website.

MFTransparency has been instrumental in developing useful tools and processes to improve financial education and consumer protection in the microfinance sector. Recently, I got involved with the Financial Education Program that is being conducted by MFTransparency in Rwanda and Malawi.

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MFTransparency and the Association of Ethiopian Microfinance Institutions to Launch the Transparent Pricing Initiative in Ethiopia

LANCASTER, PA USA & ADDIS ABABA, ETHIOPIA, September 7, 2011 – On September 20, 2011 MFTransparency and the Association of Ethiopian Microfinance Institutions (AEMFI) will launch the Transparent Pricing Initiative in Ethiopia, funded by MicroNed. The launch will take place in conjunction with the 2011 African Microfinance Conference.

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MFTransparency’s Expanding Training Program: Microcredit Summit and Beyond

by Jordan Filko

MFTransparency is increasingly building our education and training program, offering materials and tools, technical assistance and workshop sessions to a range of microfinance industry stakeholders. Recently this has included a special policy workshop for the Bank of Zambia, training sessions for Grameen Foundation‘s Bankers without Borders and collaboration with other industry initiatives such as Oikocredit‘s social performance sessions in Accra, Ghana and the Microfinance Council of the Philippines’ (MCPI) annual conference.

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Colombia is Moving Toward Pricing Transparency, But Still Has Room to Improve

by Alexandra Fiorillo

This post was originally published on the Center for Financial Inclusion Blog.

Policymakers in Colombia have been cautiously moving toward a transparency-based approach to pricing for microfinance, reducing their traditional reliance on interest rate caps.  Important legislation in 2009 and 2010 appears to be having a positive effect, as Asobancaria, the Colombian Banking Association, asserts in a recent article. Asobancaria notes that since the changes, the number of microcredit loans offered continues to increase.

We at MFTransparency are also pleased with the initial results. We urge the government to  focus on simple, straight-forward regulation to ensure that financial service providers understand and apply the law in a clear and consistent manner.

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MFTransparency on Oikocredit, CGAP and Opportunity International

by Jordan Filko

MFTransparency authors have had great opportunities lately to guest blog for some leading industry organizations, including Oikocredit USA and CGAP. We are excited to share the concepts that we train industry leaders around the world in through these new channels. The following is an overview of two guest posts we’ve recently published.

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ASA Philippines Leads the Philippine Microfinance Industry in Pricing Transparency and Client Protection

First of 16 institutions to submit data to the Transparent Pricing Initiative in the Philippines

LANCASTER, PA USA & MANILA, PHILIPPINES August 19, 2011– ASA Philippines Foundation is the first microfinance institution in the Philippines to submit pricing data to MFTransparency, closely followed by Ahon sa Hirap (ASHI), Rizal Microbank and Kasagana-Ka Development Center (KDCI).

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