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> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
The Central Bank of Nigeria (CBN) is preparing to issue a Guide to Charges for Banks and Other Financial Institutions for providers in Nigeria, which sets out rules for commissions, charges, and rates on various products and services. It has shared the draft Guide on its website for a period of public review and commentary.
As a campaign that seeks to keep the client at the center, the Smart Campaign is always happy to see provisions in such financial sector guidelines or regulations related to thoughtful transparency and disclosure requirements. We are, however, more cautious when it comes to mandated pricing limits, given the unexpected implications we have seen them bring for clients’ lives. We notice that the CBN file introduces monthly interest rate caps.
This is at odds with the suggested policies in the Model Legal Framework for Financial Consumer Protection, which is based on the Campaign’s seven client protection principles. The Framework’s section on pricing procedures advises supervisory authorities to not set price or interest rate ceilings or floors, but rather to seek long-term solutions related to improving disclosures and facilitating market competition.
> Posted by Mary Ellen Iskenderian, President and CEO of Women’s World Banking, and Michael Schlein, President and CEO of Accion, who are Co-Chair and Founding Member, respectively, of the Microfinance CEO Working Group
The following post was originally published on the Microfinance CEO Working Group blog.
As leaders of international organizations dedicated to financial inclusion, we welcome and support initiatives that hold the microfinance industry to the highest standards of client protection, social performance, and pricing transparency. This is the principal reason why the members of the Microfinance CEO Working Group came together – a shared commitment to these principles as well as a shared recognition that enforcing them takes work that none of us can do alone.
When our group first formed in 2011, we scanned the landscape of actors and initiatives working to enforce high quality microfinance industry standards. Chuck Waterfield and MFTransparency (MFT) stood out. Pricing transparency is widely considered the most challenging standard to uphold in our industry, and there was no denying that Chuck and his small but dynamic team had created something unprecedented with MFT.
Publicly reporting pricing information is extremely complicated, which is why all industries struggle with it. The microfinance industry, however, is actually further along than most, and that is largely due to MFT’s efforts. Chuck and his staff developed a methodology to present credit pricing information in a clear and consistent way, so all stakeholders can learn the true price of credit products for clients. As a direct result of MFT’s methodology, microfinance institutions in many countries now report their pricing data. Multiple institutions also reduced their prices after publishing data and determining that they were out of line with other institutions in their market. Since MFT has been operating, many governments have also started to require pricing transparency in their regulation of the microfinance industry.
>Posted by Center Staff
Microfinance Transparency recently released an interactive video designed to share information about flat and declining interest rates in an engaging new way. It tells the story of “Chantal” and “Auntie-Need-a-Loan.” Auntie doesn’t read the terms and conditions of her loan. Unfortunately, her carelessness leads her to get tricked by loan predators, pay high fees, miscalculate her interest, and miss her loan payments. The concept was created to help industry stakeholders to convey important pricing transparency and consumer protection messages.
In addition to this animation, “Auntie-Need-a-Loan” will be featured in radio public service announcements, training materials and other print materials throughout Rwanda and Malawi.
Check out the full animation here!
Image credit: 17triggers.com
Have you read?
A Call for Caution in Judging the Merits of Financial Education: A Review of ‘Bridging the Gap‘
Structure for Success: Lessons from a Kenyan Financial Literacy Teacher
> Posted by Leah Wardle
Last week, MFTransparency hosted the first “African Microfinance Pricing Transparency Leadership Forum” in Nairobi. The meeting was one of the more unique and encouraging microfinance events I’ve ever attended. About 130 regulators and policymakers from 24 African countries participated in spirited debate and idea sharing on the controversial issue of pricing transparency, and how to better regulate and support microfinance providers.
The meeting itself was a real success in that turnout was high and discussion was energetic—policymakers from all over Africa care enough about pricing transparency to assemble themselves for three intense days—awesome! But the real triumph was the general agreement that service providers in our industry are not naturally incentivized to be transparent with clients, and regulators and policymakers play a vital role in making sure transparency is a priority.
Policymakers concluded that they:
1. Must create a level playing field in their respective countries, namely through standardized pricing calculation and disclosure requirements. This priority emerged through a discussion of the opaque pricing practices endemic to most countries and how few institutions want to be the first to self-regulate. A minister from the DRC told us about how his government has started requiring microfinance providers to state their prices as both the effective interest rate and the nominal interest rate. Additionally, all microfinance providers must publish these rates in the national newspaper so that consumers can compare prices and providers are incentivized to offer competitive rates. Read the rest of this entry »
> Posted by Alex Fiorillo, COO, MFTransparency
Policymakers in Colombia have been cautiously moving toward a transparency-based approach to pricing for microfinance, reducing their traditional reliance on interest rate caps. Important legislation in 2009 and 2010 appears to be having a positive effect, as Asobancaria, the Colombian Banking Association, asserts in a recent article. Asobancaria notes that since the changes, the number of microcredit loans offered continues to increase.
We at MFTransparency are also pleased with the initial results. We urge the government to focus on simple, straight-forward regulation to ensure that financial service providers understand and apply the law in a clear and consistent manner.
Progress Toward Transparency
The Colombian government took steps to consolidate and enhance consumer protection and pricing transparency in the commercial and microfinance sectors through Law 1328 of 2009. This law sets out strict regulations regarding the minimum information to be provided to prospective borrowers, the prohibition of abusive clauses, and an effective mechanism to deal with complaints. It also provides sanctions for abusive practices. Read the rest of this entry »
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