by Jordan Filko
A new version of MFTransparency’s “Calculating Transparent Prices Tool” is now available. MFTransparency’s most popular resource, this Excel-based tool allows users to input loan terms to analyze the cost of a particular loan product, learn how various factors influence the cost of a loan and view borrower cash flow through graphs and repayment schedules.
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by Jordan Filko
In a recent post on his Open Book Blog, David Roodman discusses the difference between the pricing information provided by MFTransparency and the MIX Market. This is essentially the difference between portfolio yield, used by the MIX as a proxy for price, and the product-specific pricing information published by MFTransparency. The full post is available here.
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by Tim Langeman
When we receive loan data from microfinance institutions that wish to become transparent, they enter the information about their loans into our Data Collection Tool. In addition, we always ask for real repayment schedules for active loans given to real borrowers. We use these repayment schedules to verify the information the MFI has entered into our Data Collection Tool, but they also serve another purpose.
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Recently David Roodman posted an interesting discussion on his blog. You can read what he wrote here: “Quick: What’s the Grameen Bank’s Interest Rate?”
There are some very interesting points in his posting, to which I wrote the following reply. You’ll find it best to read his posting first, but even without that context, the following points are relevant. (more…)
by Deepak Goswami & Alexandra Fiorillo
Microcredit products often carry additional fees on top of the basic nominal interest rate charged to the client. In this blog post I will discuss credit insurance, also known as credit-life or credit-plus insurance, as it is one of the most common charges associated with microcredit products.
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Just how difficult is it to calculate the true cost of a loan? For many clients of MFIs, it is nearly impossible. Despite the public image of microfinance lenders as being altruistic and philanthropic, some are as predatory as the moneylenders they are supposed replace as a better alternative for their clients. With clients with a low level of financial literacy and a market lacking standardized pricing, many MFIs, including winners of responsible business awards, issue loans with actual costs orders of magnitude higher than advertised costs.
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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.
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 Tim Langeman
In a previous blog post, I described how to use a spreadsheet like Microsoft Excel to calculate interest rates. Again, interest rate calculations are at the core of MFTransparency‘s ability to provide accurate data that can be compared across various products offered by numerous MFIs. In the last post we looked at Excel’s IRR and XIRR functions and concluded that XIRR is more accurate because it takes into account the actual payment dates of the loan and thus allows us to calculate annualized interest rates even with irregular repayment schedules.
But for the more technical among us, I realize that even this may not be sufficient. Today I’m going to demonstrate how to write a computer program that is as accurate as Excel 2007′s XIRR function. This article is likely to be of less broad interest, but it provides transparency into how we will calculate interest rates for future data collection trips; and it may be useful for MFIs that wish to automate interest rate calculations for a larger data set than can be handled with Excel.
by Tim Langeman
Chuck Waterfield and Alexandra Fiorillo, MFTransparency‘s CEO and VP respectively, have been doing many presentations about how interest rates can be calculated using our excel tool, but we haven’t yet featured a story on our blog about our data collection process and our corresponding excel tool. Although technical, interest rate calculations are really at the heart of MFTransparency‘s mission and calculating accurate interest rates is vital to providing transparent pricing data. So today, I would like to give you a brief demonstration of the IRR and XIRR Excel functions, as a way to provide background for the techniques we’ve used to automate interest rate calculations on our web site.
For those of you less familiar with excel, this spreadsheet software offers numerous formulas allowing quick and easy calculations within each spreadsheet. As it is particularly geared towards financial use, there are ready made formulas specifically meant for calculating interest rates. The most basic (but still powerful) calculation is the internal rate of return. (more…)
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