Tailored trainings on Pricing in West Africa: Improving Pricing Practices at Institutional Level

During the past few months MFTransparency, has been offering direct trainings and technical assistance to MFIs participating in The Transparent Pricing Initiative in West Africa. Following the data collection and analysis phase, all institutions that completed the data submission process were contacted one by one in order to preview their Taux Effectif Global [1] (TEG), the formula used by BCEAO to calculate effective interest rates in the WAEMU region. This process sparked many questions from institutions and generated interest in better understanding the calculation method we used. To best address these questions, we offered the possibility for MFI staff (management, field and branch level) to be trained on the following topics:

• Transparent pricing calculation: throughout the project in West Africa, we noticed that the TEG calculation was a challenge for many institutions. For some, the difference between their nominal rate and the TEG was also not clear.
• Pricing strategies: this session highlighted the importance of a product’s cost structure in price setting.
• Transparency in loan documentation aimed at enhancing communication of prices to borrowers.

Trainings were tailored according to each institution’s context and needs. A total of 35 institutions of Benin, Burkina Faso, Mali, Senegal and Togo benefited from these trainings and technical assistance sessions at no financial cost.

One common concern of most institutions was the fear of appearing more expensive if they disclose their TEG to their clients. Not everyone was aware that it is already required by the regulation [2] in the West African Economic and Monetary Union. Overall, these training sessions generated interesting debates and discussions among the participants and at the same time, allowed a better understanding of pricing from the borrower’s perspective. For most of the attendees, it was the first time for them to discuss the topic of pricing transparency in relation to their institution’s practices.

Some significant changes have been reported by MFIs as a result of these training activities. To name a few, one Senegalese institution, Mutuelle d’Epargne et de Crédit de la Zone de Yoff (MECZY), reported to have made the decision to switch from the flat to the declining balance method for calculating the interest rate of its loan products. Other institutions in the process of adopting a new management information system (MIS) requested MFTransparency’s input to improve the template of the repayment schedules they provide to borrowers. Such concrete improvements in transparent pricing practices at the institutional level, both in terms of pricing setting and disclosure, are welcome and encouraged.

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by Melina Djre

[1] The TEG mirrors the Annual Percentage Rate formula including interest payments and fees used by MFTransparency. It does not consider the effect of compounding interest.

[2] Article 60 of the Microfinance law states the obligation of transparency in financial services pricing. In addition, Articles 23, 31 and 33 of BCEAO Decision 397/12/2010 respectively restate the obligation of pricing transparency and pricing disclosure toward clients.