My first job as a summer intern for MFTransparency has been to research the market in Malawi in preparation for the Transparent Pricing Initiative in Malawi, the first project launch of the enabling APR & EIR Program, on August 31st. Through my research I have learned many things, but none more poignant than how poor and underdeveloped the majority of Malawi is. Read the rest of this page »
Over the past two years, supporters in the industry have validated our belief that microfinance interest rates are confusing and complicated and that we, as an industry, must improve how we think about and communicate microfinance product prices. At MicroFinance Transparency, our first approach to help demystify microfinance interest rates has been to collect, standardize and disseminate information about prices in select microfinance markets. Read the rest of this page »
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.
Today, I’d like to continue my previous post on interest rate disclosure to clients and the general public, and share some insights on transparency in loan contracts and publicity.
While interest rates are freely negotiated between both parties, the loan contracts have to include several pricing details. As a minimum requirement, the contract has to specify the:
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.
As promised in my last blog post on the Bolivia launch, I’d like to share some insights on the regulatory framework in Bolivia and outstanding transparency efforts we learned about during our initial trip to Bolivia where we recently launched the Transparent Pricing Initiative. Over the next few days I’ll be providing a series of posts to tell you a bit about what we’ve discovered. In this first part, I’ll focus on pricing strategies in Bolivia as well as challenges associated with current pricing practices and general challenges currently perceived in the local microfinance community.
Often when we talk about reporting the “true cost” of loans we are asked why it isn’t enough to simply tell borrowers the “total cost” of their loan—in other words, the total amount of interest they will pay over the life of the loan. At first glance this can seem like an obvious solution, but in reality it’s a deceptive way of thinking about loan price.
To see why, consider the following loans, all for the same amount:
by Jessica Haeussler and Michael Tucci
How do banks and MFIs in Azerbaijan respond when asked to report their interest and fees publicly in a common APR or EIR format?
How does the shape of the price curve for Azerbaijan differ from other countries?
What factors seem to be driving prices in Azerbaijan?
How much variation is there in price for loans of similar size, and how might transparency change prices over time?
These are some of the questions that were explored during MFTransparency’s Webinar to highlight the launch of pricing data for the Azerbaijani microfinance market. On June 1st, Azerbaijan’s microfinance community took a definitive step towards pricing transparency and market efficiency, as 10 of the largest MFIs had their pricing data displayed publicly on MFTransparency.org. We here at MFTransparency would like to congratulate Azerbaijan on this important step forward and for their commitment to providing straightforward pricing information for their clients and other stakeholders. Additionally, we would like to extend our gratitude to the Azerbaijan Microfinance Association (AMFA) for their cooperation and coordination of the Transparency Initiative as well as to KfW, who funded our work in the Azerbaijan market.
Chuck Waterfield, CEO & President of MFTransparency; Fernando Prado, Secretario Ejecutivo of ASOFIN; Nestor Castro, Gerente of FINRURAL; signing MFTransparency’s Endorsement Statement at the transparency workshop in La Paz, Bolivia.
Last week, we officially launched our Transparent Pricing Initiative in Bolivia, sponsored by the Ford Foundation and MicroNed. This project launch in our third Latin American country has been a great success and we’re excited about the widespread support from the diverse Bolivian microfinance community!
Stakeholders from the entire spectrum of the local microfinance industry joined us in the launch of the Transparent Pricing Initiative in Bolivia. The two local microfinance networks ASOFIN and FINRURAL are our strategic implementation partners in this effort and we are very pleased to announce that all their member institutions attended our events in La Paz and Santa Cruz. In La Paz, 71 participants attended our workshop on May 4th, including representatives from the vast majority of MFIs, among them Banco Los Andes ProCredit, Banco Sol, Banco FIE, CRECER, PRODEM and ProMujer, downscaling banks such as Banco Unión and Banca Minorista del Banco de Crédito BCP, as well as the Central Bank of Bolivia (BCB) and the Supervisory Authority of the Financial System (ASFI). Also in attendance were investors including Oikocredit, LOCFUND, Bolivian Investments Management and Alphamundi Group, and other industry stakeholders such as the Corporación Andina de Fomento (CAF), World Vision, Fundación PROFIN, Consultora IMPACTO, CONFIE, AFIN, and representatives of the local media.
As I mentioned in my last blog post, I would like to share some insights on Ecuador’s regulatory framework for the microfinance sector and advances in the area of transparency.
Regulations that Support Transparency in Pricing
Ecuador’s regulatory framework already includes several mechanisms for facilitating transparency in pricing. For instance, financial institutions can only charge interest on the remaining balance of a loan, which effectively outlaws flat interest rates. Moreover, regulated institutions are no longer allowed to charge fees. Both these aspects make loan pricing more transparent, allowing borrowers to better understand what they are paying and to compare between the different products available to them. In all marketing materials, financial institutions are required to specify the nominal and effective annual interest rate, the frequency of interest payments and the loan term (Regulación No. 153 del Directorio del Banco Central del Ecuador). The regulation also establishes that all product documentation has to clearly specify the loan amount, term, payment frequency and the nominal and effective annual interest rate. The formulas to calculate these figures are defined in the regulation as well.
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