The Need for Financial Literacy in Microfinance and its Impact

by Jordan Filko

Microfinance Africa recently published a blog post on The Need for Financial Literacy in Microfinance and its Impact. This post outlines five different arguments for the importance of financial literacy campaigns. Among these, MFTransparency is highlighted for the case we have made for the importance of pricing transparency.

The post, written by Fehmeen A. Khan, a regular writer for the Microfinance Hub blog, quotes the MFTransparency blog when discussing the issue of pricing transparency:

“The following excerpt from the MFTransparency blog says it well:

“For many clients of MFIs, it is nearly impossible (to calculate the true cost of a loan). Despite the public image of microfinance lenders as being altruistic and philanthropic, some are as predatory as the moneylenders… 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.”

Some MFIs may have good intentions, such as the notable Grameen Bank, but their effective annual interest rates are still uncertain considering compulsory savings.”

Fehmeen also references David Roodman’s recent blog post on the Grameen Bank‘s interest rates, which MFTransparency CEO & President Chuck Waterfield responded to on our blog here. The full post that Fehmeen has excerpted here is an introduction to Mr. Waterfield’s paper, “The Challenge of Understanding Pricing of Microloans,” which discusses some complicated aspects of pricing using a Compartamos product as an example.

We are happy to be a part of this important discussion throughout the microfinance industry. Please feel free to leave comments and check out our many educational resources to better inform your own position on the issue of pricing transparency.