Transparent Pricing Initiative in Malawi Off to a Great Start
On the 31st of August 2010, MicroFinance Transparency launched the first country project of the enabling Africa to Price Responsibly and Educate on Interest Rates (enabling APR & EIR ) Program in Lilongwe, Malawi. Sixty-five participants, representing microfinance institutions, donors, investors, government officials and regulators, participated in the project launch.
The chairperson of the Malawi Microfinance Network (MAMN), Joseph Mononga, gave the opening remarks in which he stressed that transparent pricing is critical for ensuring a sustainable microfinance industry in Malawi. He also expressed the importance and timeliness of the MFTransparency project since pricing has recently been a major issue of discussion in Malawi. He expressed thanks to MFTransparency for undertaking this important initiative.
Dr. Perks Ligoya, the Chairman of the Reserve Bank of Malawi (RBM), was the keynote speaker. He described himself as a long time “champion of credible microfinance” and explained the Reserve Bank of Malawi’s position on interest rates in the sector. The policy on interest rates, which were deregulated in 1989, is that each institution uses the prime rate plus their own margin to set the interest rates on their loans. The Governor described the Reserve Bank’s current approach to its responsibility of supervising the microfinance industry as focused on licensing, consumer education and interest rate disclosure. He stated clearly that the Reserve Bank will not tolerate excessively high interest rates but will not impose interest rate caps either.
Alexandra Fiorillo, Vice President of MFTransparency, led the training portion of the workshop where she explained the importance of transparent pricing and the urgent need to promote transparent pricing globally. She also explained the procedure for calculating the effective interest rate (EIR), referred to as Annual Percentage Rate (APR) in Malawi. Ms. Fiorillo encouraged the MFIs to participate in the nationwide data collection process geared towards collecting individual loan product information and calculating interest rates to determine the real cost of a loan product. The data published on MFTransparency’s website will tell the complete story of an individual loan in Malawi, including both the quantitative and qualitative terms given to the client.
The workshop was interactive with participants engaging in a lively dialogue about issues of transparency in the local microfinance sector. Attendees viewed and discussed live data from other country projects, and inquired about MFTransparency’s procedures to avoid data mining during the data collection process.
The participants of the workshop welcomed the Initiative and expressed their belief that the information shared during the workshop would be useful for their organizations. One participant stated, “We had a very wonderful day yesterday the 31st August 2010. The information will be very useful to our organization and we will not be the same. We are now a step forward, those who did not attend missed a lot.”
The next step for the project is the data collection process, where MFTransparency staff will meet with individual microfinance institutions and collect data on interest and fees charged on each microfinance loan product. The goal of this data collection is to identify the true price of each loan that institutions charge to microfinance clients. Once analyzed, the data will be posted, along with other countries, on MFTransparency’s website. Check back for updates on this project in upcoming blog posts.
Malawi is the first of 8 countries to participate in the Transparent Pricing Initiative of the enabling APR & EIR Program. The other countries are Uganda, Rwanda, South Africa, Ghana, Tanzania, Zambia and Mozambique. The MasterCard Foundation is the sponsor of this program, which will continue over the next year.