Transparency and Responsible Pricing in Microfinance: an IFC Event in New Delhi Keeps the Conversation Going

> Posted by Hema Bansal
Hema Bansal is the India Manager of The Smart Campaign.
Last week I attended a roundtable on “Toward Transparent Reporting for Responsible and Inclusive Finance” organized by the International Finance Corporation in New Delhi.
The participants offered many insights into transparent and responsible pricing, one of The Smart Campaign’s key areas of focus.
Many MFIs in India don’t know their Effective Interest Rate, and many have higher EIRs after considering all costs associated with a loan: interest rates, fees, insurance, and security deposits, said Narasimhan Srinivasan, board member of MFTransparency. The adjustment of security deposits in the final loan installments further complicates the EIR calculation.
MFIs have long shown discomfort about disclosing their EIR. The Smart Campaign’s client protection assessments have uncovered several reasons for this:

  • Such disclosure has never been an industry norm
  • MFIs are generally apprehensive about being singled out and catching the media’s attention
  • Most of all, MFIs fear being at a market disadvantage in an environment where competitors don’t follow full disclosure norms

Nevertheless, 58 MFIs have submitted their data to MFTransparency, apparently feeling that initiatives on transparent pricing will enable them to understand the topic better and help set benchmarks for responsible pricing.
Networks such as Sa-Dhan use return on equity (ROE) as a proxy indicator to determine responsible pricing. But the ROE approach is only one among several, including comparative transparency, that stakeholders use to determine responsible pricing.
Networks and other stakeholders like SIDBI are beginning to recognize and discuss the importance of responsible pricing. While appropriate credit pricing standards can only emerge over time as the microfinance industry scrutinizes pricing data, it’s great to see these actors taking small initial steps towards determining what’s responsible – and what’s not.
Flickr credit: Jeff Belmonte