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> Posted by Leah Wardle
A kid named Boyie is a popular radio disk jockey in Kenya. At 19 years old, he has a nationally syndicated radio show playing daily on 21 stations and half of Kenya’s mostly low-income youth say they’ve listened to him. He’s so popular that he also stars in his own monthly comic book series, Shujaaz (“Heroes”), read by about 10 million people in the past 20 months. The ladies love him and the guys copy his dreadlocks. But someone else answers his calls, texts, and Facebook messages (which flood in by the thousands), because Boyie is a cartoon character.
A cartoon character can be more powerful than a real person when it comes to influencing the thoughts and behavior of Kenyan youth, argues Rob Burnet, director of Well Told Story, the Kenyan communications company behind Boyie and Shujaaz. He and his team are using virtual characters to reach Kenyan teenagers through comic books, radio shows, and virtual media with messages of social change. Their methods may hold creative new ideas for microfinance practitioners looking to connect with clients.
It’s something else to witness the compelling struggle of a teenage head-of-household, living in a slum, facing multiple challenges and pleading siblings, yet still setting aside a little bit each week. Now tell the story with colorful images and dramatic plots that resonate with the experience of the audience, and deliver through easily available media, and they readily absorb the messages as they follow the lives of the quirky characters.
Microfinance practitioners might take a page from Shujaaz to increase the transparency of financial information for clients. Transparency means providing full information (like detailed product terms and prices) in a way that is meaningful to the client. That means clients can absorb the information because it’s presented in their own language, and they feel comfortable with the medium. To reach this goal, Well Told Story’s model would suggest practitioners ask themselves three important questions: Read the rest of this entry »
> 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 »
> Posted by Beth Rhyne
In the Economist Intelligence Unit’s annual “Microscope” country rankings of the enabling environment for microfinance, the Philippines has been number two for the past two years (behind Peru). But the players in the Philippines microfinance sector, regulators and providers alike, want to be number one. They also want to avoid the kind of crisis that has affected Indian microfinance.
Those considerations prompted the back-to-back seminars I attended in Manila last week. One event, sponsored by the Rural Bankers Association of the Philippines and Microfinance Council of the Philippines, examined the factors leading to the Indian crisis and asked whether the Philippines is vulnerable to the same kind of problems. The second event, sponsored by the Central Bank of the Philippines, asked what was needed to move the Philippines to the top of the Microscope’s chart.
There is little evidence that an immediate crisis might be on the way. According to Ron Chua of the Asian Institute of Management, a long-time analyst of microfinance in the Philippines, the sector has been growing at a rate of about 25 to 35 percent per year – fast but not excessive. And while the range of institutional types makes it hard to count, the total number of clients (somewhere between 2 and 6 million borrowers) does not appear to be creating severe market saturation as yet, though there are pockets that may have high saturation. Read the rest of this entry »
> Posted by Jon Pattee
It is with great sadness that we note the imminent departure of Glenn Beck from Fox News, an exit that may or may not be linked to his show’s crumbling audience share.
We will miss Beck’s chalkdust-fuelled theorizing about “micro financing” as embodied in lines from his show, like this classic:
“[D]o you know who Barack Obama was doing micro financing with? The Ford Foundation. Guess who was also doing micro financing on the Ford Foundation. His dad. Timothy Geithner. Isn’t that — what are the odds? Man, it’s just — it [sic] just becoming a very, very small, small world. Very small.”
Small indeed. Small, and surreal. We will miss the depth of analysis that Beck brought to the debate surrounding microfinance. But we’re comforted to know that others, with similar mental acuity, are surely waiting to hoist his fallen standard.
Nominations?
Image credit: y6y6y6
> Posted by Center Staff
Consumers International doesn’t mince words.
Since the global financial crisis, according to CI, the world has been mired in an “ongoing crisis in financial consumer protection.” This crisis creates a “myriad of problems for consumers around the world,” says CI, a world federation that constitutes the “only independent and authoritative global voice for consumers.”
Consumers International is a federation of consumer groups that up to now has focused mainly on physical products like safe car seats and reliable appliances. It is significant that this year CI is, for the first time, taking up financial services.
Which brings us to today. March 15 is World Consumer Rights Day, and CI has selected financial services as its focus, in keeping with its Consumers for Fair Financial Services campaign. It is urging the G20 to adopt its recommendations on consumer protection in financial services. This campaign will also be highlighted at CI’s annual forum, to take place in May in Hong Kong. Consumers International largely represents consumers from higher-income countries, and that makes the G20’s financial inclusion effort a relevant focus. Read the rest of this entry »
> Posted by Anita Gardeva
There is little doubt that the Malegam Sub-Committee Recommendations will have serious implications for microfinance providers in India if they are passed. But what might the consequences be for clients?
In order for financial inclusion to have a positive impact on clients it needs to result in quality financial services. Financial services that lack quality will not be effective tools to help the poor manage their limited and volatile resources.
Quality financial inclusion means that financial services are convenient, affordable, suited to client needs, and flexible. It also means that products are delivered in a sustainable manner, with strong client protection practices operating, and with dignity for clients.
The recommendations proposed by the Malegam Sub-Committee are focused on preventing client over-indebtedness. They include a loan size cap (Rp. 25K), an interest rate cap (24 percent), a limit on the number of MFIs that can serve one client (two), and the number of self-help groups that a person can be a member of (one). If passed into law, the recommendations would also require that 75 percent of every microfinance loan be used for income-generating activities. Finally, the proposed rules would make it hard for NBFC-MFIs to provide individual loans or develop other financial services.
These rules look like strong medicine for preventing over-indebtedness and protecting clients, but they would have debilitating side effects. If passed, they would move the Indian microfinance industry backwards in other aspects of quality, such as product suitability and flexibility, and even affordability and convenience in the long term.
If the medicine that the RBI decides to prescribe to alleviate problems of over-indebtedness comes with a list of negative side effects, at which point are the side effects worth the cure? Read the rest of this entry »
> Posted by Courtney Piper
Pricing transparency is at the core of the Smart Campaign’s Client Protection Principles. But interest rates are often difficult to understand, calculate, and compare due to variables including associated fees, commissions, savings requirements, and different methods of calculating interest.
In keeping with the Smart Campaign’s goal of ensuring that pricing, terms, and conditions of financial products are transparent and adequately disclosed in a form understandable to clients, this is the first in a series of posts providing some fundamental concepts — including a review of some common practices and definitions of basic terms — to keep in mind.
Annual Percentage Rate and Effective Interest Rate
The most common and comparable interest rate is the APR (annual percentage rate), also called nominal APR, an annualized rate which does not include compounding. The United States Truth in Lending Act requires disclosure using the APR, and it is used as a standard rate in many other countries.
The APR can be calculated by multiplying the periodic interest rate (say 2 percent per month) times the number of periods per year (in this case 12). Where n equals the number of periods per year and i equals the periodic (in this case, monthly) interest rate, then APR can be calculated as:
APR = i * n; or, using our example: 2% * 12 = 24%
The EIR, or effective interest rate, also known as effective APR, effective annual rate (EAR), or annual equivalent rate (AER), takes into account the effect of compounding. Read the rest of this entry »
> 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…
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