Session III: Facilitating Transparent Pricing
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The document discusses the implementation of transparent pricing in the microfinance industry, emphasizing the need for clear and understandable disclosure of financial product terms. Over the past two years, significant progress has been made in promoting pricing transparency in multiple countries, with 300 institutions serving 38 million clients. The initiative benefits consumers, microfinance institutions, and regulators by providing insights into market pricing and refining strategies for responsible lending.
Session III: Facilitating Transparent Pricing
- 1. Promoting Transparent Pricing in the Microfinance IndustrySession III: Facilitating Transparent Pricing South Africa | February 2011
- 2. What is Transparent Pricing?Transparent pricing means the pricing, terms, and conditions of financial products will be transparent and adequately disclosed in a form understandable to clients.
- 3. Which loan would you pick?
- 5. Self-RegulationMFTransparencyfacilitates self-regulation on pricing transparency
- 6. Pricing Transparency Advances2009 “Pilot Year”
- 7. Facilitated pricing transparency in five countries
- 9. Funding from MasterCard Foundation, Ford Foundation, Luxembourg Government, Citi Foundation, Deutsch Bank, Dell Foundation, Standard Chartered Bank, Oikocredit, Cordaid, others
- 10. Offices on five continents
- 11. Facilitating transparency in over 15 countries6
- 12. Rapid Progress in Transparency(Results of past 18 months)MFT currently working in 17 countries (adding 1 more each month)300 Institutions1,000 different loan products38 million clientsUS$11 billion in outstanding portfolioMicrofinance is the first industry of any kind in the world to practice global, voluntary disclosure of true pricing.
- 13. Bolivia Data
- 14. Ecuador Data
- 15. Kenya Data
- 16. Cambodia Data
- 17. Bosnia Data
- 18. And… This month MFT published transparent Pricing for India83 Institutions27 million clients (over 90% female)US$4.5 billion of outstanding portfolioThe process:Transparency was initiated by the MFIs themselves, leadership through MFINFunders stepped forward immediately (Standard Chartered, CITI, Dell Foundation, and MFIN)
- 19. India Data
- 20. MFTransparency also doesPricing Certification Reports(in countries where we are not active)
- 21. Why so much price variation?
- 24. Example 3: Peru
- 25. What have we learned?
- 26. What have we learned?
- 27. How to Use the DataIn most environments, we see a “price curve”The price curve is the result of a “cost curve”Do not fall for the common assumption that all micro-loans should have the same price
- 28. How does transparency affect pricing?
- 29. What does transparency mean for responsible pricing?
- 30. Who Benefits from Pricing Transparency?Consumers:They get to know the real price – they can decide whether they want to borrowThey can decide between competing loan products or MFIs based comparative dataMFIsThey learn what the market price is, where they stand, and can take steps to refine their pricing strategyIndustryMicrofinance sector gets a database from which it can take up issues with policy makers
- 31. Who Benefits from Pricing Transparency?Funders and donors:They know what their client MFIs charge their customers, and can choose their partners accordinglyRegulatorsObserve the prices prevailing in the market, sharpening their ability to intervene specifically and refine policy
- 32. Conclusions
- 33. Promoting Transparent Pricing in the Microfinance Industry
Editor's Notes
- #2: Cover slide
- #4: Our pricing is not transparent. Moving toward standardized truth-in-lending indicators helps all stakeholders understand product pricing
- #6: Our approach:We facilitate the process country-by-countryWe partner with networks and stakeholders in each countryWe assist all to publish true prices all at the same timeWe do so in an objective way, treating and respecting each MFI equallyWe are active in nearly 20 countries
- #19: I don’t know what else should be added here
- #21: Discuss examples that illustrate thisInterest rate cap legislation makes transparency difficult as MFIs are often charging prices above the cap in order to be viable and sustainable but they don’t want to be transparent for fear of sanction (i.e. West Africa)Countries where politicians play aggressive roles in the legislative process (not leaving legislation to central bank or ministry of finance) are places where transparency is difficult as politicians don’t often understand microfinance pricing and misinterpret rates, causing over-legislation (i.e. India)
- #22: Discuss examples that illustrate thisPAWDEP in Kenya – first to be transparent in the Initiative saw it as an opportunity to access new investors and donors and for growth
- #25: What ramifications does this have for responsible pricing?Without transparency, there is less competitionWith less competition, there is a wider range of pricesWe generally argue that “responsible prices” are prices that are competitive with other businesses
- #29: Cover slide