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> Posted by Elisabeth Rhyne, Managing Director, CFI
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What are the most important unanswered questions in financial inclusion?
Last week I was fortunate to participate in the small, idea-packed Conference on Financial Inclusion at Harvard Business School, organized by Professor Rajiv Lal. The attendees were a high-level microcosm of the financial inclusion world, a sort of mini-Financial Inclusion 2020 Global Forum. A prime purpose of the gathering was to identify a potential research agenda.
Among the ideas emerging from very rich conversations, I identified three distinct areas of research: business questions that could be addressed through HBS’s famous case method; research focused on regulation; and social science research focused on consumers. Because what one says at HBS stays at HBS, I cannot identify who offered what idea, but here is a brief summary.
> Posted by Sergio Guzmán, Lead Specialist, The Smart Campaign, CFI
The Smart Campaign will soon launch its Certification Program on client protection for microfinance institutions (MFIs). In this second post in a series, Sergio Guzmán uses his experience from the field to shed light on standards that are often overlooked by MFI managers but that are a crucial part of client protection.
When I talk with microfinance practitioners about interest rates they often say, “Clients don’t care about the interest rate; they care about the installment amount and how quickly you can disburse the loan.” Also, I’ve often heard from providers the following gem: “The most expensive loan is the one you never take out.”
In my experience, it’s absolutely true that clients are very concerned with how expensive loans are going to be relative to their monthly income, and it’s also true that when seeking a loan, clients want the money now if not sooner. But providers should not let those client traits become an excuse for non-transparency in price structure and calculations.
> Posted by Kelley Mesa
Center Director Elisabeth Rhyne’s latest Huffington Post blog delves into microfinance interest rates and what should be expected…
Americans often suffer sticker shock when they hear about interest rates charged in international microfinance. At annualized rates above 20 percent, most Americans start getting uncomfortable, and when they hear that in some places annual rates rise as high as 100 percent or even more, their moral outrage beepers start to malfunction. This is unfortunate, because when we are in a state of high outrage, it’s hard to listen.
When asking “how much is too much?” it is important to reserve judgment long enough to examine the conditions that determine international microfinance interest rates. Here are three factors that international microfinance providers have to consider as they face the hard task of determining what constitutes responsible pricing.
Read the article…
> Posted by Elisabeth Rhyne
Jonathan Lewis, founder of MicroCredit Enterprises, loves spirited dialogue, and that’s why as moderator of the recent Microfinance USA 2010 panel on interest rates, he went for the jugular. He knew that the hardest – and most sensational – questions to answer are: How much is too much? and Who changes too much? I was interviewed by a reporter recently, who kept repeating this request: Give me a number. Give me a name. We like the concreteness of the numbers and the moral satisfaction of scolding price gougers.
Of course I didn’t want to give a name or a number, though I was surprised that two panelists did come up with upper bounds for the U.S. (Paul Leonard of the Center for Responsible Lending said 36 percent per FDIC limits, while Lynn Trojan of ACCION said that 50 percent would allow everyone to be reached sustainably).
But these questions take the dialogue in the wrong direction. They ask us to ignore the contextual factors that determine the right balance between client affordability and institutional sustainability, necessary to ensure that services remain available to all those who seek them. I am only prepared to call the price a lender charges responsible if I understand how large the loans are, what kind of cost structure the lender faces and how it uses its profits.
The best question of the day came from an audience member who asked, “Why is the price of money so emotionally charged when the price of other goods is not?” The answers to this question are very important to keep in mind as we work for consumer protection. Read the rest of this entry »
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