MF Transparency is a US-based non-profit organization that promotes pricing transparency in the microfinance sector. They have collected pricing data from over 400 institutions in 28 countries, representing over $14 billion in loans to 38 million clients. Their work includes data collection, training, and consulting with regulators on disclosure policies. The document discusses their efforts in the Philippines, including an upcoming data launch and technical assistance for participating MFIs. It also covers the Philippines' Circular No. 730 which aims to enhance loan transaction transparency through standardized disclosure of pricing information.
4. Who Benefits from Pricing Transparency?
Consumers:
◦ They get to know the real price – they can decide whether
they want to borrow
◦ They can decide between compeIng loan products or
MFIs based comparaIve data
MFIs
◦ They learn what the market price is, where they stand, and
can take steps to refine their pricing strategy
Industry
◦ Microfinance sector gets a database from which it can take
up issues with policy makers
5. Who Benefits from Pricing Transparency?
Funders and donors:
◦ They know what their client MFIs charge their customers,
and can choose their partners accordingly
Regulators
◦ Observe the prices prevailing in the market, sharpening
their ability to intervene specifically and refine policy
9. Updates on the Transparent Pricing
Ini?a?ve in the Philippines
• Data collecIon conducted from April to October
• Preview for parIcipaIng NGOs, rural banks and
cooperaIves ongoing
• Data launch scheduled for the first week of
December
• Delivery of technical assistance and training for
parIcipaIng insItuIons
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10. Par?cipa?ng MFIs
1st Valley Bank (formerly RB Kapatagan Valley) KGI (Kazama Grameen)
AJDFI (Ad Jesum Devt. FoundaIon, Inc.) KMBI (Kabalikat para sa Maunlad na Buhay, Inc.)
ASA Philippines FoundaIon Lorenzo Tan MPC
ASHI (Ahon sa Hirap) Mallig Plains RB
ASKI (Alalay sa Kaunlaran, Inc.) Milamdec Development FoundaIon
Banco San Enrique NWTF (Negros Women for Tomorrow Found.)
Bangko Kabayan Paglaum MPC
CanIlan Bank PBC (People's Bank of Caraga)
Caritas Salve Credit CooperaIve People's Center for Sustainable Development (PCSD)
CCT Credit CooperaIve RB Labason
CEVI (Community Economic Ventures, Inc.) RB Liloy
DSPI (Daan sa Pag‐unlad, Inc.) RB Montevista
ECLOF‐PHL Rizal Microbank
FCB FoundaIon, Inc. RSPI (Rangtay sa Pagrang‐ay, Inc.)
FMB (First Macro Bank) Rural Bank of Angeles (RBA)
GM Bank San Francisco Growth Enhancement MPC (SAFRAGEMC)
HSPFI (Hagdan sa Pag‐Uswag FoundaIon, Inc) Simbag sa Pag‐Asenso
JVOFI (Jaime V. Ongpin Found., Inc.) TSKI (Taytay sa Kauswagan, Inc.)
Kasagana‐Ka Development Center, Inc. (KDCI) TSPI Development Corp.
KaIpunan Bank Valiant RB
16. Sample Typical LOAN CONDITIONS
Loan Amount PhP 15,000.00
Bank Microloan Term & Freq. 24 weeks
Product Interest Rate/Method 2.5% per mo./Flat
Amortization Equal principal
OTHER CHARGES Upfront Ongoing
FEES
Service Charge 3.00%
Notarial Fee PhP 100.00
INSURANCE
Credit Insurance 1.00%
Life Insurance/MBA PhP 20.00
TAXES
Doc. Stamps/GRT 0.5% x Term
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17. Case 1: ShiQing to Declining Balance Without Reduc?on in
the Total Cost of the Loan
Flat Declining Balance
2.50% per mo. 4.613% per mo.
Quoted Interest Rate
30% per yr. 55.36% per yr.
Total Interest Paid: 2,076.92 2,076.92
Total Fees Paid: 400.00 400.00
Total Insurance Paid: 610.00 610.00
Total Taxes Paid: 37.50 37.50
Total Cost of Loan: 3,124.42 3,124.42
Total Months 5.6 5.6
Cost per month 562.33 562.33
Average Loan Balance 7,729.00 7,729.00
19. Implica?ons
Shin from flat to declining balance and maintaining
the level of the total cost of loan
• Shin from equal principal payments to equal
installments
• Increase in nominal interest rate to achieve the
same level of MPR/EIR
• The true price of the flat rate (4.613% per month) is
equal or close to the rate applied in the declining
balance method (4.613%).
21. Total Cost of Loan
(Flat vs Declining Balance)
Flat Declining Balance
Total Interest Paid: 2,076.92 1,081.73
Total Fees Paid: 400.00 400.00
Total Insurance Paid: 610.00 610.00
Total Taxes Paid: 37.50 37.50
Total Cost of Loan: 3,124.42 2,129.23
Total Months 5.6 5.6
Cost per month 562.33 383.22
Average Loan Balance 7,729.00 7,729.00
22. Implica?ons
Simple shin from flat to declining balance (Same
Quoted Interest Rate)
Decrease in the total cost of loan or the total
interest paid by the client
Decline in the true price of the loan from an MPR
of 7.10% to 5.03%
26. Constant Charges Generate Similar Prices
Across Different Loan Amounts
Term and Freq. 24 Weeks Loan Amount MPR
Nominal Interest Rate 4.613% per month
Method Declining Balance 3,000 PHP 6.13%
Upfront Fees 2.00% 8,000 PHP 6.13%
Upfront Insurance 1.00%
Upfront Taxes 1.00% 15,000 PHP 6.13%
30,000 PHP 6.13%
Prices across different loan
60,000 PHP 6.13%
amounts can be similar in the
current policy if the increase in 90,000 PHP 6.13%
charges are constant (charges as a 150,000 PHP 6.13%
percentage of loan amount).
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27. Examples from Other Markets
Bosnia – Sample Completed Template
27
SOURCE: Translated from Instruc?on for Applying Decision on
Unified Way of Calcula?ng and Expressing Effec?ve Interest Rate to
Loans
36. Case Study:
Standardized Loan
Documenta?on in
Bosnia
• EvaluaIon of policy
requiring disclosure of
EIR on repayment
schedules
• Impact on market:
o Overall greater level
of pricing disclosure
o Be=er understanding
of pricing
calculaIons
36
37. Immediate Effects of
Transparency in Pricing
• MFIs lowering prices for products priced high
relaIve to the market
• MFIs increasing their prices for products priced low
relaIve to the market
• Progress by regulators toward new policies to
protect clients and facilitate disclosure
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38. How does the Philippine industry
stand to benefit?
• Clients can make be=er decisions about borrowing
• InsItuIons can set prices based on knowledge of
market rates
• Policy can be determined according to a more
accurate understanding of the market
39.
Promo?ng Transparent Pricing
in the Microfinance Industry