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Transparency is key to positive MFI branding

Published on October 19, 2010

by Jean Kilheffer Hess

Every business has a brand, whether intentionally shaped or left to the active observations and imaginations of customers and peers.  It’s easy to figure out what attributes you’ve assigned a business (its “brand”), just list the first three words that come to mind when you consider a company name.

As microfinance vendors proliferate in local markets, every MFI wants to be the first choice of potential borrowers.  A strong brand, with transparent pricing practices and healthy communication of those prices as part of its vital core, can provide an advantage in an increasingly competitive marketplace.

Transparency Builds Trust

Trust is the foundation on which a brand is built.  A customer learns to trust that she or he can consistently expect X kind of experience or Y product when doing business with this institution.  And, as in any relationship, trust thrives on transparency.  I can make the best decision when I am confident I know everything I need to know in order to decide whether to invest myself in this relationship or not.

MicroFinance Transparency’s Transparent Pricing Initiatives, currently active in 13 countries, provide an opportunity for an MFI to earn the trust of today’s and tomorrow’s clients by building transparency as part of their brand.  By submitting their data to MFTransparency, an MFI can signify its commitment to transparency to the world. Funders and regulators can visit MFTransparency’s website and see both quantitative and qualitative loan terms for a given product, as well as Annual Percentage Rates (APRs) and Effective Interest Rates (EIRs). For making this commitment, MFIs also receive a Seal of Transparency to add to their marketing materials and website as well as a Certificate of Transparency to hang in their offices. Every current and potential client sees these indicators of transparency and so the association of trustworthiness with the MFI’s brand is strengthened.

The data collected by MFTransparency and published on our website lists, among other things, the “Quoted Interest Rate” by product, alongside the effective APR or, alternatively, EIR. Our hope is that over time these will become more similar. When they do,or when an MFI at least provides its clients with both sets of figures, the MFI can prove it has implemented transparent pricing practices!  Its customers can walk in the door with confidence that they will learn what they need to know to assess what the loan relationship will cost them.  And, if all goes well, they will make their last payment and walk out the door eager to assure others that this loan supplier can be trusted.

The Role of Technology

Word-of-mouth marketing holds something of “holy grail” status in technologically advanced societies where people are tuned in to all kinds of electronic media.  Imagine how much more powerful word of mouth may be in a primarily oral culture where one spends each day talking with and listening to other people, in the flesh! In a techonologically-savvy environment, I might compare Aunt Marie’s product recommendation with other reviews via web search.  Without easy access to the web, Aunt Marie’s referral takes on even greater importance in my decision-making.

Speaking of technology, the mobile money phenomenon provides exciting opportunities for formerly un-banked communities.  Sarah Rotman’s recent post on the CGAP technology blog highlights branding as a key component to success in providing mobile money services.  What kind of trust do you think must be present in an exchange relationship when the customer has previously been familiar solely with transactions involving cash or physical goods?  Now the service supplier is asking her to trust that even though she doesn’t have cash in her hand, the money is actually “there!”

In short, transparency builds trust in a microfinance institution, which is essential for a strong brand and a competitive edge in the marketplace.  MFIs attend to their own long-term interests when they participate in MicroFinance Transparency’s Transparent Pricing Initiatives.  Transparency is good for everyone!

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