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.
Posts Tagged ‘EIR’
Bolivia Transparency Part 4: How MFTransparency’s Pricing Data Complements Current Regulation
Friday, June 25th, 2010Total Cost of Credit vs. APR
Wednesday, June 16th, 2010Often 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:
Interest Rate Transparency in Brazil: Addressing Cultural Questions
Tuesday, March 30th, 2010by Martin Hadsell do Nascimento
Brazilians, as I’ve learned from having lived in the Northeast of the country over the past several months, love credit. Common are the signs sitting in most São Paulo storefronts that advertise the interest rate of products by the “vez”. The number of “vezes” or “aprestações” is the number of months across which the full price of a product can be divided, giving the consumer the number of installments in which one is allowed to pay for a good that can range from a car to a cellular phone to a t-shirt to a plate of beans and rice. Given the strictly monthly nature of such installment plans, perhaps it is logical that the interest rates associated with the purchases be denominated in monthly terms. However, when applied to Brazil’s microfinance industry, denoting prices in familiar monthly terms may also hide important factors that influence the true price of the loan.
Calculating Interest Rates Using Newton’s Method
Friday, March 5th, 2010by 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.
Calculating Interest Rates with Excel
Wednesday, February 24th, 2010by 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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