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MicroFinance Transparency was an international non-governmental organization founded in 2008 and closed in 2018 with the purpose of facilitating transparent markets through the dissemination of true cost information and educational resources to enable all market stakeholders to understand and promote pricing transparency. MFTransparency represents an industry movement toward transparent practices and responsibility. Based in the United States, the group has organized transparent pricing efforts in 28 countries on four continents. A full list of our country projects is available in the Pricing Data section.

 

MFTransparency seeks to facilitate transparent pricing, working to ensure that financial institutions’ pricing practices allow borrowers and other industry stakeholders to understand the full costs of borrowing. We promote the use of consistent truth-in-lending formulas (generally referred to as Annual Percentage Rate (APR) and Effective Interest Rate (EIR)) as standards for communicating prices that include all charges to the borrower and enable comparison between different loan products. Our vision is an industry operating with knowledge and understanding of the pricing dynamics in the market, where a range of stakeholders can make informed decisions and responsible pricing practices are in place. For more information on transparent pricing visit the Resource Center.

The primary role of MFTransparency was to provide all stakeholders in the microfinance industry with clear, accurate, comparable information about the prices of microloans. We did not pass judgment on any prices we see, nor did we directly encourage institutions to decrease or increase their prices. Instead we focused on making microloan pricing information available and educating all stakeholders on how to use this information to make more responsible decisions for the betterment of the microfinance industry as a whole. By showing rates in their specific country context, including descriptive information and developing educational materials for different stakeholder groups, our aim was to equip all industry stakeholders with the tools they need to evaluate the data for themselves.

The mainstream public media was already making efforts to report the level of prices typically charged in microfinance. What was little known just a few years ago is now more publicly-available knowledge, but there is little explanation or understanding of why microfinance prices are higher than previously believed, nor why there is significant variation in prices among different institutions. MFTransparency was not “breaking the silence” that we have had for some twenty years about true prices. Rather MFTransparency was creating a forum for the industry to report – in a clear, consistent and fair fashion – what actual prices are and why prices in competitive microfinance markets need to be higher than in commercial finance.

 

Partly motivated by the lack of pricing transparency in microfinance, combined with a limited understanding of the delivery cost challenges of micro-loans, well-intentioned politicians and regulators in a number of countries have chosen to use regulation or legislation to overly-limit prices charged by financial institutions. We believe this is a mistake and was not the purpose of MFTransparency. We supported truth-in-lending legislation, but we opposed simplistic price cap legislation. We provided analysts, donors, investors, journalists and others with accurate, consistently calculated, information that allows them to draw informed conclusions.  You can learn more about the limitations of pricing caps here.

 

Regulators and politicians often get involved in placing ceilings where industries are not self-regulating. Without accurate and complete information, ceilings will be established “by feel” rather than through educated study, often resulting in unintended consequences. In our experience, politicians and regulators are encouraged to see that MFTransparency and other initiatives focused on client rights come from within the microfinance industry and are positive steps toward a self-regulating industry.

 

See our Resources Center and News area for more information about policy and regulation.

Social investors are among the first sponsors of MFTransparency country projects and are some of our strongest supporters throughout the data collection process. Experienced funders of microfinance institutions understand the need for pricing transparency, and those looking to enter the market tend to feel much more comfortable doing so when they know the prices being charged to borrowers.

 

Microfinance investors empowered with pricing information are able to better align their beliefs and their financial institution partners’ pricing policies where previously no such parity was possible. The graphical nature of the way prices are presented on the MFTransparency website enables investors to quickly identify if a price of 40% is low, medium, or high for that loan size in a given country. We believe that pricing transparency will actually encourage, not discourage, microfinance investment.

 

Click here for a list of all the funders that have endorsed MFTransparency

Without transparency about prices, fair competition is not possible and therefore free market forces cannot act according to theory.  MFTransparency sought to address this market distortion by providing transparent, open communication about the true cost of the product, a valuable component necessary to free markets and currently virtually absent in microfinance. Our ultimate goal was to provide essential information necessary for healthy free market conditions.

The Microfinance Information eXchange (MIX) collects data for the microfinance industry on the institution level, and MFTransparency collects data on the product level. We work closely together and try to integrate our data as much as possible. For example, we have coordinated to ensure that we use the same names for all microfinance institutions in our databases and have come up with a standardized product typology. We share information, and we’re streamlining our data collection processes to ensure that we are not repeating efforts or adding a reporting burden for microfinance institutions. We also include widgets connecting the profile of a microfinance institution on the MFTransparency website to their profile on the MIX website.

MFTransparency and the Smart Campaign are separate client protection initiatives but we work together closely. The Smart Campaign has put forth a set of seven Client Protection Principles. MFTransparency was an implementer of the principles on transparency and responsible pricing. The industry had come together to reach a consensus on what are the most important principles to work by, and MFTransparency was actively helping to put those around transparency and responsible pricing in place. Similarly, we partnered with the Social Performance Task Force and the MIX to provide the indicator of transparent pricing to their social performance assessments of financial institutions.

 

Transparent pricing is the right of all involved in the microfinance industry. MFTransparency sought to engage the broad range of stakeholders in our work to promote transparent pricing. In each country where we implemented the Transparent Pricing Initiative, we partnered with different stakeholder groups, including financial institutions, networks, regulators, funders, industry support organizations, journalists and other microfinance industry client protection initiatives. Underlying our work with each of these stakeholder groups was our aim to improve the provision of financial services to microfinance clients.  The ultimate goal of these partnerships was to ensure that once we have disseminated product pricing data and educational materials for a given market the local actors of that market will be equipped to further their progress of implementing transparency. Making prices available is only the first step. To ensure a sustainable impact, new standards for communicating prices must be established, the flow of information between local actors must increase and the dialogue on how best to implement transparency for a strong market must continue.

 

For more information on how we work with different stakeholder groups, please see the MFTransparency Partners overview.

While MFTransparency sought to engage the broad range of microfinance industry stakeholders in our work to promote transparency, we were not officially a membership association. We collected and disseminated information, provided training and education and raised awareness of transparent pricing issues and advocated for transparency, involving a range of industry actors in the process.  Through our in-country Transparent Pricing Initiatives, participation in industry events internationally and contribution to other client protection initiatives, we offered a wide range of opportunities for microfinance industry actors to get involved in our work. To learn more, please see the MFTransparency Partners overview.

MFTransparency believed that in order to develop an enabling environment for transparency all actors in the microfinance ecosystem must be engaged. We worked with a range of industry actors in different ways. Through the Global Transparency Pricing Initiative, microfinance service providers of all types including NGOs, banks and cooperatives could participate by submitting their microloan pricing data. Networks could contribute by partnering with MFTransparency in hosting training workshops and coordinating data collection efforts. Funders could sponsor country Initiatives and encourage their financial institution partners to submit their product pricing data to MFTransparency. More information, including ways for other industry support organizations to participate in the Global Transparent Pricing Initiative was available in the MFTransparency Partners overview.

There were numerous factors that helped determine the pricing of microloans, including regulation, cost of funds, levels of competition, currency, operating costs and the broader economic and political framework of the country within which a microfinance institution operates. Due to this complex combination factors, we believed that prices could be best understood from within their specific country context.  Not only is it minimally useful to compare the prices of microloans in Malawi to those in India, it may actually be detrimental to the development of the industry to make comparisons that do not take into account all of the important contextual factors. Rather than attempt to determine a fair price for microloans in general, it is much more productive to consider what a responsibly priced microloan looks like in Malawi, for example. Furthermore, what is the market rate for a business loan in Malawi vs. a school fees loan? A loan offered in an urban area of Malawi vs. a rural area? These are just a few of the contextual and descriptive data points we included alongside the quantitative prices for microloans published on our website. Our goal was to educate, not just provide information, and we believed that by evaluating prices within their country contexts local markets stand to benefit most from transparency.

The most important reason that financial institutions should become transparent is that it is the right thing to do. Microfinance clients deserve to know the true prices of the products offered to them, just like any other consumer.  However, becoming transparent can be difficult because there is such a lack of transparency in most microfinance markets. No financial institution wants to be the first to reveal their true prices. This is why MFTransparency publishes data for entire country markets at once, creating a conducive environment for transparency.

 

Not only is being transparent the right thing to do for the clients, it is the right thing for the institution as well. Financial institutions that participate in the Transparent Pricing Initiative gain a competitive edge in their local market. They have the opportunity to view the market data before anyone else. They also gain recognition throughout the international microfinance industry, including from funders and technical assistance providers, for this show of commitment to client protection and transparency. All financial institutions who participate in the Transparent Pricing Initiative receive a certification of their prices, represented by a certificate to be displayed in the financial institution’s offices and a Seal of Transparency to be included on their website and other marketing materials. Participating financial institutions also receive training and educational materials on how to calculate prices and implement transparent prices effectively, all tailored to their specific needs.

 

More information on How Financial Institutions Can Benefit from the Transparent Pricing Initiative

In each country where we worked, MFTransparency began our in-country operations with a training workshop open to all industry stakeholders. Through this workshop we provide training on the calculation of transparent prices, ways of effectively communicating prices to clients and how institutions can use MFTransparency resources to strengthen their knowledge of pricing. Following these workshops we also met with institutions one on one and offer training to groups of staff members upon request. These meetings were an opportunity to discuss the pricing of specific loan products and how the Transparent Pricing Initiative relates specifically to that institution’s work. Through training and the free educational resources we provided, MFTransparency helps to build technical capacity for price-setting, pricing calculations, communication of pricing through loan documentation and other means, understanding the pricing landscape in a given market and reporting to various industry agencies on pricing.

MFTransparency sought to promote transparent pricing in microfinance by engaging all actors in the microfinance ecosystem. We believed that truly transparent markets can only occur through the combined efforts of financial institutions, regulators, funders, networks, industry support organizations, researchers, journalists and other industry stakeholders. By offering training and educational materials, publishing transparent prices, facilitating dialogue and promoting standards for regulating and practicing transparent pricing, MFTransparency hoped to build an industry in which all actors benefit from transparency.

 

In terms of engaging clients directly, MFTransparency developed a universal pricing education package, aimed at consumers of microloans. Using proven financial education models, these resources have been developed to be tailorable to different country contexts and local needs. These are free to be used by any party interested in educating consumers on pricing.

 

View the Consumer Education Resources in our Resources Centre.

MFTransparency’s approach to working with regulators is focused on education rather than advocating specific policies. In each country where we have worked we have offered specialized training and educational materials to regulators to help support their understanding of how pricing works in microfinance and provided them with tools to make informed policy decisions to support the specific needs of the microfinance markets they supervise. We shared examples with regulators on policies that we have observed throughout the world, so that policymakers can learn from each other’s experiences in developing effective pro-poor policy for pricing disclosure, tailored to the characteristics of the markets they supervise. Our goal was for our work to complement existing policy and any projects underway, to fit within the current approach to developing policy that discourages exploitation while encouraging outreach to the very poor. We saw our role as that of a third party actor helping to facilitate discussion and collaboration within local microfinance markets, and involving regulators in this process is one of the cornerstones of our approach.

 

See our Resources Center and News area for more information about policy and regulation

MFTransparency did work with policymakers to put in place pricing disclosure policy as one step toward facilitating an environment for transparent pricing. Policymakers must be educated about pricing transparency in microfinance in order to develop effective policies.  Pricing disclosure policy that does not put prices in the proper context or support them with descriptive information does not necessarily equate with transparency. Microfinance service providers should be involved in the process of developing these policies, and once they are in place should receive education on how to implement them properly. Furthermore, many microfinance service providers fall outside the remit of their country’s regulatory authority, yet still account for a substantial portion of the microfinance activity. Truth in lending regulation that does not include these organizations will be minimally effective. This is why a more holistic approach, combining policy with education, training, and communication, is necessary for true transparency.

Endorsers of MFTransparency signify their commitment in principle to the following components of MFTransparency’s mission:

• Facilitate the collection and dissemination of transparent microcredit product pricing information
• Educate stakeholders and enhance their understanding of microcredit product pricing

This is an indication of the support for and value of the work that MFTransparency does by a broad range of stakeholders in the microfinance industry.  Endorsements can be done as individuals or on behalf of an organization.

 

MFTransparency is not able to monitor the actions of its endorsers to verify that they uphold the principles of transparency.  Therefore endorsements should be seen as a reflection of the endorsers’ view of MFTransparency, not necessarily as an indication of the level of transparency of the endorsers’ own practices.

 

Grameen Bank’s Dr. Muhammad Yunus and Elizabeth Littlefield, former CEO of CGAP, as well as more than 900 industry professionals and organizations have committed to transparent pricing by endorsing MFTransparency and its initiative. Please visit the Endorsers section to add your name to the list.

By signing the MFTransparency endorser statement, individuals or organizations state their support in principle to the mission of MFTransparency to facilitate the collection and dissemination of transparent microloan pricing information and educate microfinance stakeholders on transparent pricing. Anyone can sign this statement. Only microfinance institutions who have submitted their microloan product pricing data to MFTransparency, completing the process to allow their prices to be published, receive certification of the transparency of their pricing in the form of a Certificate and Seal of Transparency. Whereas endorsers signify their support of MFTransparency’s principles and activities, the Certificate and Seal of Transparency signify MFTransparency’s certification of use of transparent pricing practices by the microfinance institution receiving them.

MFTransparency used an Excel-based survey tool to collect information on microloan product pricing from financial institutions. This tool is standardized across countries with adjustments made for specific market characteristics such as language, currency and geographic divisions. Financial institutions complete this tool, with the help of MFTransparency Research Associates, and then submit information about sample loans. This includes copies of real repayment schedules and loan contracts for loans given to actual clients. It is through these samples that MFTransparency is able to verify the information entered into the Excel tool. We use the real repayment schedules in all our pricing calculations, so they are based on the actual scheduled cash flow of the borrower. Following the initial submission, MFTransparency undertakes a data review process and each financial institution has the opportunity to preview their pricing data before it is published on our website.

The duration of the data submission process depends on how many products a given institution has, but typically does not take more than a few hours of work done by a senior credit official. Financial institutions can schedule time to meet with MFTransparency Research Associates over Skype to get assistance with the process, which can save a substantial amount of time.

MFTransparency uses a different definition of “microloan” in each country where we work. Where there is an official definition, designated by the regulatory framework for the national microfinance market, we adhere to that definition. In cases where there is no official definition MFTransparency determines a maximum amount for “micro” loans based on research and interviews with leading players in the industry. We typically focus on income-generating loans to non-salaried individuals, though this requirement depends on the consensus view of microfinance in each given market.

In order to communicate prices in a transparent way, they should be standardized, accurate and accompanied by thorough, clear loan documentation. In countries where no legislation establishes a transparent pricing formula, MFTransparency promotes the use of the Annual Percentage Rate (APR) as the best standard way of communicating pricing. These calculations take into account the client’s cash flow throughout the loan term, including fees, savings requirements and other charges, and enable comparison across products. We also advocate that institutions use the declining balance interest rate method rather than the flat method. In terms of documentation, we recommend that all clients receive repayment schedules that clearly communicate all repayment terms and fees. Loan contracts should be written in the local language and read out loud to clients as necessary. Loans should be accompanied by training, for financial literacy, credit management and running a business.

APR (Annual Percentage Rate) and EIR (Effective Interest Rate) are both methods for communicating prices in annual terms, thereby enabling accurate comparison between loans of different terms. APR, the standard in some countries such as the United States, does not take into account the effect of compounding whereas EIR, the standard in countries such as those in the European Union, does take compounding into account.

 

It is important to understand that both approaches agree on the figure for the price for a shorter period of time, such as a month.  However, when annualizing that monthly figure, the compounding effect results in a larger annual figure than the nominal approach.  Compounding results in a slightly larger figure for low interest rates, but as the monthly rate grows, the difference between the annualized APR and the annualized EIR become much larger.

 

For example, a monthly rate of 4% results in an APR of 48%, but  an EIR of 60%.

 

Further explanation of APR and EIR, including formulas and calculation, is available here.

MFTransparency publishes several rates for each sample loan published on our website. We publish one price using the official or widely accepted national rate. We also publish a price that includes all costs to the borrower, including fees, insurance, security deposit requirements and any other compulsory charges. Each rate calculated for a given country dataset is explained on that respective country page.

 

The official MFTransparency formula, used in all country datasets, is available here.

Accuracy is one of the paramount values of MFTransparency. Accuracy starts with the financial institution’s staff, who know the products best, following a simple questionnaire and submitting loan repayment schedules to MFTransparency where they are verified by the MFTransparency team.  All the prices MFTransparency publishes on our website come directly from actual repayment schedules for each product offered by the financial institutions. All repayment schedules are provided directly from the financial institution in order to confirm accuracy of the information. We ask for supplemental basic product information as well. Analysts review all data through a thorough cleaning process, and cross-checking data with information available from other sources.

 

Every repayment schedule used to calculate the reported Annual Percentage Rates (APRs) and Effective Interest Rates (EIRs) is available on the MFTransparency website for all to see. Financial institutions and other organizations may contact us at anytime if they feel the data is incorrect. We work in partnership with the financial institutions, and we insist on mutual commitment to transparency and honesty. Financial institutions are able to update schedules whenever their prices change, and we do regular, systematic follow-ups and reminders to ensure that data is kept current.

In the absence of true pricing information, the industry has commonly used portfolio yield as a proxy for true price.  However, portfolio yield is a flawed measure for several reasons.

 

Portfolio yield (interest and fee income divided by average loan portfolio) is calculated with the institution in mind. The APR is calculated with the client in mind.  The true price of a loan must consider financial costs other than just interest and fees

 

Portfolio yield can be a reasonable proxy for pricing in some specific cases, but when prices differ among the products sold by the institution, portfolio yield is insufficient. When an institution offers multiple products to varying market segments, all priced at different amounts, the average portfolio yield becomes highly misleading for understanding what clients are actually paying. A financial institution with an average portfolio yield of 30% can be charging 25% on one product and 80% on another product. The APR is an accurate, objective measure of what the client is legally required to pay at the moment the loan contract is signed.

 

MFTransparency has built the first database of microloan pricing data in existence.

MFTransparency believes that true transparency involves communication of both Total Cost of Credit and APR/EIR. Total Cost of Credit is the total amount that a borrower pays to access a loan. While it does communicate the amounts that a borrower is expected to pay during the loan term, it does not take into account the borrower’s cash flow during the loan term and therefore does not adjust for factors like grace periods or seasonal payments. It also does not enable comparison between loans of different terms, essentially making comparisons between loans impossible. MFTransparency believes that borrowers should receive information about the Total Cost of Credit of a loan and that they should also receive information about the APR and/or EIR. Total Cost of Credit and APR/EIR are both ways of communicating price, but on either one on its own is not enough to constitute transparency.

MFTransparency invites all microloan providers to participate in each of its country projects, including NGOs, banks, cooperatives and any other types of institutions that sell microloans. We do not publish data for non-bank microfinance service providers in a given country without inviting the banks that sell microloans to participate as well. The idea behind our approach is to create an enabling environment for transparency. No one institution or group of institutions should be made to become transparent before the others. In a non-transparent market, this would put the transparent institutions at a competitive disadvantage. For this reason we publish pricing data for all actors in a given microfinance market simultaneously, creating an environment in which all stakeholders benefit from transparency.

MFTransparency believes that pricing data must be accompanied by contextual and explanatory information in order to be effectively implemented and constructively discussed by industry players. Supplemental information we publish alongside APRs and EIRs include:

Loan terms. For every sample loan on our website we break the APR and EIR into interest rate, term, fees, insurance, grace period, security deposit requirement, etc.

Descriptive information. Every price we calculate also includes information about the intended purpose of the loan product, the target client population, additional services included with the loan and the type of institution offering the product.

Analysis. With the launch of each new country dataset MFTransparency includes analysis of the main dynamics of that country market, including dominant pricing practices and methods of communicating prices to clients.

Country survey. Each pricing dataset is accompanied by a market report explaining the broader context in terms of political and macroeconomic factors as well as local industry characteristics.

View our live Pricing Data for examples of these different types of information.

All prices calculated on the MFTransparency website are the cost of borrowing from the perspective of the borrower. This is in keeping with the industry-accepted standard definition of price. Therefore, the rates that MFTransparency calculates do not take into account differences in cost of funds. However, we do include information about the type of institution offering each product as a proxy for cost of funds. In a given market commercial banks may tend to have a different cost of funding than NGOs, for example, so by knowing the institution type users of the dataset can implicitly take this factor into consideration.

Consistent with Truth-in-Lending legislation globally, our APR formula calculates what the client is legally required to pay assuming the client respects the contractual repayment schedule. Clients who fall behind in payment may pay higher fees, but these are not considered part of the APR formulas legislated in countries with truth-in-lending laws.  The price stated is always the price if the client follows the conditions of the contract.

 

For more information about APR and EIR calculations click here

For each country dataset, MFTransparency publishes multiple price calculations, with different cost components.  Whenever possible, we do also collect security deposit information and include that in the calculation of the price labeled APR/EIR (int fee ins tax dep).

 

Security deposits are left out of the price calculation in formal regulations of many countries, but is a very serious loophole which can be exploited to dramatically increase the true cost of the loan to the client.

A core feature of MFTransparency’s methodology is publishing pricing data with descriptive and contextual information to allow users to better understand it. With this goal in mind, we have chosen to use great care when comparing prices between countries.  Loan amounts should be benchmarked relative to the GNI per capita of the country.

MFTransparency is focused on facilitating transparency, not judging which prices are too high and which are too low. We collect and publish microloan pricing data to create a picture of the microfinance market in a given country as a whole, so that microloan providers can begin to evaluate their own prices relative to others in the market. Further, we believe that there is no one “ideal” price. Prices depend on a multitude of factors, including loan purpose, target population, additional services included with the loan, etc. To evaluate the price of a given loan it must be considered in the context of the local market and compared with other similar loans.

MFTransparency has primarily focused on credit products to date. All prices currently published on the website are for credit products. This focus has allowed us to hone our data collection and publication methodology. However, we do believe that the same principles of transparency should apply to the pricing of all financial products and include them in our discussions with industry actors around the world.  We hope the industry will soon begin applying the methodologies developed by MFTransparency to other financial products.

Once an institution has submitted pricing data to MFTransparency they are expected to update this information any time they make changes to their pricing structure. While MFTransparency invites institutions to submit updates at any time, we require that all institutions confirm each quarter if their prices are unchanged, and if not to update their data. All loan samples published on the website include disbursement and repayment dates so viewers can easily know the age of the data.

MFTransparency believes that conveying the non-financial aspects of loan products is equally important as communicating the quantitative components of pricing. We take care to accurately portray each product both on our website and through our analysis.

 

On the website, the page for each loan product includes descriptive information about the loan terms and target client population, including the purpose of the loan, any additional services included in the price, and to what extent the product is directed toward urban/rural and female/male borrowers. We also provide space for each financial institution to describe their product in their own words, highlighting any unique features they feel may not have been captured by our questionnaire.

 

In our analysis we include observations of good practices in terms of transparent communication of pricing. We often highlight financial institutions with exemplary practices through case studies and as speakers at industry events. If the loan documentation used by your institution includes features we’ve highlighted as best practices, visitors to our website can observe this directly by viewing the sample repayment schedules we upload along with each microloan product. The education and training that MFTransparency provides to a range of industry stakeholders helps develop an understanding of the pricing information we publish, both in quantitative and descriptive terms.

 

For examples of how we incorporate this information into our pricing datasets please view our live Pricing Data pages

MFTransparency publishes all information that we are authorized by the financial institution to publish through the legal agreement included in the data collection tool. This information necessarily includes all terms affecting the cash flow of the borrower, including charges and rebates, as the cash flow is what MFTransparency uses to calculate the true price of each sample loan. Financial institutions that employ terms to improve their borrowers’ cash flow during the loan period typically benefit from this disclosure as their prices tend to be lower in comparison with those of their competitors. This is both a marketing opportunity as well as a way for financial institutions to demonstrate their pricing sophistication. In promoting pricing transparency, MFTransparency aims to facilitate fair competition among microfinance service providers, and those with the most advanced pricing terms tend to be most successful in a competitive environment.