> Posted by Robin Ratcliffe
I’m in Nairobi, Kenya, this week attending the Africa-Middle East Regional Microcredit Summit. Wednesday I participated as a panelist in a session entitled “Transparency in Interest Rate Pricing and Other Efforts Towards Consumer Protection” along with MF Transparency’s Chuck Waterfield, Fabian Kasi, CEO of Finca Uganda, and Bilha Maina from the World Bank’s Financial Sector Deepening team in Kenya.
What struck me most during the session is how over the last year we have experienced a growing consensus around the core Client Protection Principles now endorsed by close to 1,000 organizations and MF professionals in 99 countries. It is clear that central banks, advocates for financial inclusion, microfinance investors, and MFIs themselves recognize that our clients deserve – and want – information on the cost of financial services offered displayed in a way in which they can easily compare options.
The question in my mind, however, is just how do microfinance clients prefer to receive that information?
After eight years heading Finca Uganda, Fabian Kasi declared that rather than an interest rate, their clients definitely want to know the total cost of their loan, with all fees or other commissions wrapped into a single price. If a client is borrowing 1,000 (of whatever currency) for six months, Fabian says they want to know the amount of their monthly payment and the total cost of the loan. Transparent pricing is not enough, however. The loan documentation should be in language understandable to clients; it should be read to them if they are illiterate. And, clients and MFIs both benefit from borrowers’ understanding the overall risk and responsibility of their taking on a loan.
We still have a lot to learn. The Smart Campaign is slated to conduct client research later this year to learn more about which principles are the most important to clients and how they best receive information. I’m happy to our readers’ thoughts on this, too.