MFInsights: A Conversation with Chuck Waterfield, CEO and President, MFTransparency
As the microfinance sector picks up pace in improving industry practices, MFTransparency, a US-based nonprofit is working with microfinance institutions (MFIs) around the world to shed light on what has remained a dark and opaque corner of the microfinance business – the interest rates MFIs charge their clients.
In India, MFTransparency will begin talks with MFIs later this month and hopes to have the first data sets ready for viewing by October 2010. At the recent launch of the Microfinance Institutions Network, or MFIN, a self-regulatory body, it was announced that MFIN would work closely with MFTransparency to get this project off the ground in India.
Microfinance Insights spoke with Chuck Waterfield who was in the country recently to begin discussions with industry participants.
Microfinance Insights (Insights): Tell us about the MFTransparency Project.
Chuck Waterfield: The increased interest in consumer protection and values that manifest responsible microfinance caused a group of us to start MFTransparency, which initially focuses on one critical aspect of consumer protection – pricing – which can have a quick and concrete impact. We work with microfinance institutions (MFIs) in each country and encourage everyone to use a common comparable pricing communication model.
Insights: When was the project launched?
Waterfield: We have to go back three years to the time when Compartamos had its IPO. Profits comes from prices and if your price is two to three times higher than what you’re telling people it is, there’s a lot of opportunity to make high profits. Academics say that nontransparent pricing results in market imperfection; the market cannot work if consumers don’t know the price they’re paying for a product.
A lengthy discussion followed the Compartamos IPO and one of the main points that came out was that lack of clear, comparable pricing is a problem – a serious impediment to the industry. And there was a broad, global concern to do something about pricing. So about 18 months ago, we launched the project at the Global Microcredit Summit in Bali.
Insights: What countries are you starting with?
Waterfield: We raised funding to collect data in five countries – Bosnia, Peru, Cambodia, Azerbaijan and Kenya. The response from the MFIs had been overwhelming. Data of Bosnia and Cambodia are already on our website. Participation of MFIs in these two countries has been 98% of the MFIs. In Peru, we have collected just 80% of the market, but it’s a bigger market and we’re still in Phase I. Participation will increase as we move into subsequent phases.
Insights: How do you go about collecting data?
Waterfield: It’s a process that takes several months – about six to seven months from when we get the green light to go into a country to the time the data is out. We meet with key stakeholders in each country and invite everyone to explain how the process works. Then they send us the data and we analyze, clean and validate the data, go through a process with the MFIs to eliminate errors and then the data gets processed before it goes online on our website.
Insights: What are your plans to expand the data gathering to other countries?
Waterfield: We recently did Cambodia, Kenya, and Azerbaijan, and now we’re in India. We add both Ecuador and Bolivia in April, and in 2010 we plan to add a total of 18 countries to the five we already work with.
Insights: When will the data for India go up?
Waterfield: At this point we’re not 100% certain when. This is our first visit and the receptiveness is high and right now we are talking to a network of key investors and some of the largest MFIs, and laying out a strategy going forward to build consensus and awareness about this. We’re also putting together the funders and implementing partners and so far, everyone is very interested in continuing to talk. Most initial indications have been very positive and if everything continues to go well, we’ll have the first set of data by October.
Insights: How do you choose the countries you want to work with?
Waterfield: The pilot countries were chosen carefully to get our feet on the ground so we chose relatively safe and stable countries; mature markets where the government is not hypersensitive; also places where our endorsers and investors have a lot of influence. We begin work in countries when we’re invited, which means the conditions must be right. That indicates the needs and the desire are there. We work with the local networks in all cases and we haven’t barged our way in anytime. In Bangladesh, the Microfinance Regulatory Authority invited us as did the central bank in Cambodia.
We come in with the blessings of the key elements of the country. That’s a good thing when we’re going in as an outsider because it gives the local MFIs the confidence and reassurance to provide us with data. Also, our staff and board are well known, so that adds to our credibility. Now that we’re beyond the pilot stage, we’re now looking at markets such as India where we can have the most impact.
Insights: How do you convince MFIs to give you the data?
Waterfield: We tell them we can facilitate the creation of transparency but we can’t force them to give us data. But when you see the country’s central bank behind you and the government behind you, and the data from other countries online, it creates a sense of confidence. Transparency is a principle which is hard to argue against; once we address concerns of the MFIs that fear being individually exposed to public scrutiny, MFIs willingly participate.
Insights: How do you ensure MFIs will report to you on a regular and consistent basis?
Waterfield: We do a lot of focus group discussions where we work with them to understand how to ensure the data are accurate and tell them: “The key thing is – if you don’t trust the MFI across the street, you click on our website and you know how much they’re charging; and they can do the same to you.”
And when the MFIs sign our agreement to participate, they promise to update the data as and when it changes. When they change it, our staff validates it and the data are hosted online. It’s about unity, expectations, transparency. It’s also a peer-pressure driven process.
Our cardinal rule is to treat each country with respect and take into account the general principles and values. We have the tools and techniques, but to adapt those and work in partnership with the local organizations is very important. Regulators, stakeholders, clients, journalists, everyone agrees that transparency is a good thing. And we don’t threaten or force anyone to share data. We do it in an objective, structured way.
Insights: Who enforces this?
Waterfield: What is interesting is that we often think we need punishments. What the MFIs tell us is that there’s a business case to be made, a bonus to be earned, for being transparent. We provide them with a certificate and they can tell their donors, their clients, their network, and the media that they’re not hiding anything. If you’re not transparent, that’s where the danger is. And funders will look suspiciously at an MFI that doesn’t update its data often. As a result, no data on the website are more than three months old.
Insights: Who are your funders/sponsors?
Waterfield: We have many endorsers and funding is provided mainly by Oikocredit, DOEN Foundation, Citibank, Deutsche Bank, Oxfam Novib, ICCO, Hivos, CGAP, Triple Jump and Ford Foundation. Then there’s one that I am very proud of: we had about 35 individual organizations that sponsored the data launch, raising a total of US$45,000 – many of whom were individuals. Not corporate checks, but individuals providing their support from around the world. It was very nice to see this support. The funders list is set to expand shortly with Standard Chartered apart from Citibank and others supporting MFT especially in India.
Insights: What is the final timeline for this project?
Waterfield: We are scheduling 18 countries this year. We’d like to do more but it’s not practically possible. Ideally we’d like to have data from about 50 countries, so we’ll reach there in another two years or so. Once the data are on the website the initial stage of the work is complete. But ongoing maintenance and bringing in more (and new) MFIs will be a continuing task.
Insights: What are some significant challenges you’ve faced till date?
Waterfield: Challenges are not always the ones that are obvious.. For instance, we can’t keep up with the invitations we get from countries. We go to regional conferences and there’s so much demand at these venues. The biggest challenge is to get the staff in place to address this demand. Funding also takes a while but that is now starting to come in.
Our team has four full-time employees but we’re looking to hire more. We have a laughably small staff but we have interns, network organizations and board members – and they’re all helping us. So we look smaller than we are.
Insights: What are some ways, other than pricing transparency, of improving governance in the MF sector?
Srinivasan: Other than disclosing repayment rates, transparency is also about staff incentive policies and governance codes. Every institution should have an open disclosure policy.
In terms of challenges, bringing a wide variety of people onto a single platform and making them agree on a single purpose will take some organizational and mobilization skills. But we’re positive from all the feedback we’ve received until now.
This is all about making information freely available to a market that is badly in need of it to function better. We’re trying to harness the power of information to bring about second and third-order effects which will make the market more mature than what it is right now.
MFT makes no judgments. It just provides descriptions, observations and truth.
Waterfield: Microfinance was intended as a low-cost alternative because conventional rates were high but now we ourselves don’t know what our prices are. Rather ironic, rather embarrassing. MFT wants to put an end to the uncertainty.
Insights: What has the feedback been since your launch?
Waterfield: We did our data launch in October 2009 debuting with Bosnia. The feedback has been in terms of data display and data filters etc. We have a lot of ideas and features that are not on the website yet. We have to make sure that the ideas work in sharing this sensitive data. We are pretty good at collecting data but we’re still in the early stages of posting that data online for the world to see.
Insights: How does transparency affect an MFI’s ability to scale up?
Waterfield: An MFI looking to grow through high profits may not have as much latitude to hike up interest rates if its rates are displayed. On the other hand, competitive MFIs will stand to gain as their reasonable prices will attract clients. So there are going to be winners and losers.
Srinivasan: What it does is to make the competition landscape fairly even. Hidden profits from wrong pricing will go away. This will improve the landscape for those committed to fair business practices to scale up.
Waterfield: This will encourage healthy scaling up in that customers are making more rational choices, profits are more reasonable, and moreover, this is responsible growth. In the next few years, the industry will be bigger than it would be otherwise.
Insights: Where to next?
Waterfield: Bolivia is the next country on our list. We have one funder for four countries in Latin America and another to cover a significant portion of Africa.
In India, we need to talk to MFI networks and dialogue with MFIs in groups on how to provide data and keep updating the information. Several steps on customer education, MFI training, web-based tools and learning events later in the year are to follow.
Interview by Arjun Kashyap, Senior Editor – Publications