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On July 28th 2008, Chuck Waterfield announced the creation of MicroFinance Transparency on the stage of our very own Regional Microcredit Summit in Bali. This summer, MFTransparency celebrates 5 years of promoting loan pricing transparency in the microfinance industry.
During the month of August, MFTransparency will highlight the most prominent works and products they have come out with so far.
Last week MFTransparency featured their Pricing Data Platform, an interactive interface that allows viewers to compare microloan data from 29 countries. The map allows users to roll over a specific country to view the number of borrowers, products, and institutions from that country. Scrolling further down on the page, the Transparent Pricing Initiatives chart displays all the countries data, including the portfolio or total amount of money (USD).
Perhaps the most interesting feature of the pricing data platform are the individual pages for each country. Each country’s page features an interactive price graph (in this case, India) which displays interest rates over loan size. The graph allows users to explore the data in a unique, custom experience.
Nithya Sridharan wrote a blog post for MFTransparency, “Pricing Transparency in the Indian Microfinance Industry” that explains how pricing of microfinance loans became so opaque and obfuscated.
To the common person, [the true price of a microfinance loan] sounds outrageous as they do not quite understand the dynamics of the business and see a final figure which sounds unacceptable to them. So, many MFIs simply stopped expressing the true price of the loan using APRs. They began to use quoted prices which were seemingly lower than the true prices. Once MFIs began adopting this route, it became hard for anybody in the industry to actually quote the true price. To do so would leave that MFI at a great disadvantage of advertising a really high interest rate; though the MFI in reality could have the lowest true price in the market. Before one knew it, hidden costs, compulsory deposit taking, insurance charges, and a lot of mumbo jumbo confusing the clientele were making the rounds, leading to obfuscated prices and a deviation from pricing transparency.
She goes on to describe the efforts by regulators and practitioners to make pricing transparency and client protection a universal value upheld by the sector. Read the full post here.