NRT 2011
May 23-24, 2011
Manila
Session 3:
The Price is Right
By: Ms. Laila Deles,
Research Associate/Project Manager for MFTransparency's Transparent Pricing Initiative
3. Which loan looks less expensive?
Loan Product Loan Total Cost Length of
Amount Loan
Loan Op2on A $1,000 $131 16 weeks
Loan Op2on B $511 $425 12 months
Loan Op2on C $360 $425 12 months
The standard way to compare cost of loan op2ons is by
calcula2ng the APR (Annual Percentage Rate).
We will now see how to calculate APRs.
8. The red area shows money
invested in business.
The blue line shows money held in savings.
Compulsory savings adds to the cost. Clients are charged interest on the original loan ($1000)
even though they never have use of that amount. In this example, the APR is now 107%.
13. Which loan looks less expensive?
Loan Product Ini8al Loan Total Cost Length of Loan APR
Amount
Loan Op2on A $1,000 $131 16 weeks 79%
Loan Op2on B $511 $425 12 months 79%
Loan Op2on C $360 $425 12 months 105%
The three products we were comparing are actually
iden8cal in financial terms.
Loan C includes cost of compulsory savings in the APR calcula2on.
Loans adver%sed as 3% per month can have APRs of 79% or even 105%
16. How to achieve Responsible Finance?
MFTransparency’s Business Model
1. Consul8ng on Legisla8on & Regula8on: MFT provides
recommenda2ons to central banks and regulatory authori2es around
consumer protec2on and pricing transparency
2. Data Collec8on & Dissemina8on: MFT collects product prices and
informa2on to display on its website to facilitate a more transparent
market.
3. Technical Assistance & Training to Service Providers: MFT provides
technical training to MFIs, ra2ng agencies, industry ini2a2ves, and other
organiza2ons to improve prac2ces and create standardized prac2ces in
the industry
4. Consumer awareness, educa8on and “financial capability”: Provide
training materials and resources to improve client consumer literacy
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17. Client Protec8on Principles
1. Appropriate product design
2. Transparency
3. Responsible pricing
4. Responsible treatment of clients
5. Effec2ve complaints resolu2on
6. Privacy of client data
21. Our Sponsors
Ford Foundation
Elena Nelson • Anna Maria Zegarra• Nancy Goyburo
Maria Sara Jijon• Bill Maddocks• Kim Wilson • 21
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NarasimhanSrinivasan• Point Loma Nazarene University
23. Our Partners
Na8onal
Argen8na Azerbaijan Benin Bolivia
Bosnia Burkina Faso Cambodia Colombia Ecuador
India Ivory Coast Kenya Malawi
Mali Niger Rwanda Senegal South Africa
Direc8on
de la
Microfinance
Togo Uganda
24. Self‐Regula8on
MFTransparency facilitates self‐regula8on on
pricing transparency
Our Approach
• Country by country
• Partner with local networks, policy‐
makers, regulators and stakeholders
• Publish true prices all at the same 2me
• Objec2ve, equal treatment of all MFIs
25. Transparency for a Healthy Microfinance Industry
Policy / Regula8on
Regulators
75 Countries
Analy8cal Conferences and
MFI Industry Educa8onal Materials
Publica8ons 5,000 MFIs
Transparency
Public and Press
Consumers
100 million
Pricing Data Website Educa8on
Effec8ve policy requires building a strong founda8on at the Bogom of the Pyramid ‐‐
Pricing Transparency and educa8on of all stakeholders creates an enabling
environment for a healthy microfinance industry
26. MFT Works with all Industry Stakeholders
Networks,
MFIs Associa2ons, Industry
Ini2a2ves, Ra2ng
Agencies
MFT
Regulators, Supervisory
Bodies, Consumer Donors & Investors
Protec2on Agencies
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27. Funded Pilot Project
• Methodology tested in Peru and Bosnia in
March 2009
• Of the MFIs that alended the training
sessions:
• 14/14 Bosnian MFIs submiged data (100%)
• 35/43 Peruvian MFIs submiged data (81%)
• Bosnia data live on www.m^ransparency.org
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28. Immediate Effects of the
Transparent Pricing Ini1a1ve
• MFIs lowering prices for products priced high
rela2ve to the market
• MFIs increasing their prices for products priced low
rela2ve to the market
• Progress by regulators toward new pro‐poor policies
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29. MFTransparency Transparent Pricing
Ini8a8ve in the Philippines
1. Data Collec2on,
Standardiza2on &
Dissemina2on
2. Training and Capacity Building
3. Promo2on of Transparent
Pricing Standards
4. Promo2on & Implementa2on
of Pricing Disclosure Policy
5. Development of Educa2onal
Resources for the Sector
32. Partner to Develop or Distribute
Educa8onal Materials
• MFT is looking for
partners to develop
educa2onal
materials
• Possible ac2ons:
• Co‐author materials
• Allow MFT to
distribute your
materials
• Host pricing &
transparency
workshops with MFT
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33. Rapid Progress in Transparency
(Results of past 18 months)
MFTransparency currently working in 27 countries
(adding nearly 1 more each month)
◦ 300+ Ins2tu2ons
◦ 1,000+ different loan products
◦ 38 million clients
◦ US$11 billion in outstanding porpolio
Microfinance is the first industry of any kind in the
world to prac2ce global, voluntary disclosure of true
pricing.
42. Who Benefits from Pricing Transparency?
Consumers:
◦ They get to know the real price – they can decide whether
they want to borrow
◦ They can decide between compe2ng loan products or
MFIs based compara2ve data
MFIs
◦ They learn what the market price is, where they stand, and
can take steps to refine their pricing strategy
Industry
◦ Microfinance sector gets a database from which it can take
up issues with policy makers
43. Who Benefits from Pricing Transparency?
Funders and donors:
◦ They know what their client MFIs charge their customers,
and can choose their partners accordingly
Regulators
◦ Observe the prices prevailing in the market, sharpening
their ability to intervene specifically and refine policy