Celebrating Transparency in Microfinance

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Chuck Waterfield (right), founder of MicroFinance Transparency at the 2008 Microcredit Summit in Bali. 

Chuck Waterfield (right), founder of MicroFinance Transparency at the 2008 Microcredit Summit in Bali.

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.

Muhammad Yunus signs the MicroFinance Transparency endorsement at the 2008 Summit in Bali with Chuck Waterfield. Smiles abound._581x389

Muhammad Yunus signs the MicroFinance Transparency endorsement at the 2008 Summit in Bali with Chuck Waterfield. Smiles abound.

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).

MFTransparency Pricing Map

MFTransparency identified 526 transparent institutions with 1,761 transparent products, covering 48.7 million clients.
This impressive map identifies the 29 countries data was collected from.
Only two countries, Argentina and South Africa, failed have significant market shares.

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. 

India Price Graph

India Price Graph. Key points from the graph: (1) small loan sizes in comparison to other countries; (2) market average price of loans increase as the size of the loans decrease

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.

For more information on the 5th anniversary of MFTransparency, read the press release on their website, www.mftransparency.org. A

2 thoughts on “Celebrating Transparency in Microfinance

  1. Pingback: Celebrating Transparency in Microfinance | Truelift

  2. I have been connected with transparency networks (the analysis and apps they use) since 9.11. Could you actually bookmark us to what you define as transparency?. I cant find evidence that mathematicians would celebrate that the ownership issues of microfinance having improved their transparency since 2008. For example, while it may be hard to get ownership details on all the microfinance operations that microcreditsummit annually reports on -very detailed profiles on the 25 biggest plus any others that microcreditsummit celebrates as scaling redemption ought to have been openly available as a major criterion of transparency the way mathematicians model it

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