> Posted by Leah Wardle
Last week, MFTransparency hosted the first “African Microfinance Pricing Transparency Leadership Forum” in Nairobi. The meeting was one of the more unique and encouraging microfinance events I’ve ever attended. About 130 regulators and policymakers from 24 African countries participated in spirited debate and idea sharing on the controversial issue of pricing transparency, and how to better regulate and support microfinance providers.
The meeting itself was a real success in that turnout was high and discussion was energetic—policymakers from all over Africa care enough about pricing transparency to assemble themselves for three intense days—awesome! But the real triumph was the general agreement that service providers in our industry are not naturally incentivized to be transparent with clients, and regulators and policymakers play a vital role in making sure transparency is a priority.
Policymakers concluded that they:
1. Must create a level playing field in their respective countries, namely through standardized pricing calculation and disclosure requirements. This priority emerged through a discussion of the opaque pricing practices endemic to most countries and how few institutions want to be the first to self-regulate. A minister from the DRC told us about how his government has started requiring microfinance providers to state their prices as both the effective interest rate and the nominal interest rate. Additionally, all microfinance providers must publish these rates in the national newspaper so that consumers can compare prices and providers are incentivized to offer competitive rates.
2. Face challenges when setting disclosure requirements. What level of detail should providers disclose to clients? Effective lending rate calculation, total cost of credit, a breakdown of all the fees involved, and penalties for non-repayment were all considered important to disclose. But should regulators stipulate how the information is disclosed (wording, formats, when the information is disclosed, etc.)? And how do governments regulate disclosure and sanction bad practices with limited resources? A banker from Zambia pointed out that many clients don’t know they should demand transparency and few will report non-transparent behavior by providers. A guide to communicating about interest rates with clients, from MFTransparency and the Smart Campaign can be found here.
3. Have a role to play in building the financial literacy of citizens. Participants acknowledged that standardized pricing and disclosure aren’t terribly effective if clients don’t know how to use or interpret the information. The Bank of Uganda (BOU) plans to partner with the Ministry of Education and Sports to provide a minimum of financial education in schools, colleges, and universities. As the BOU representative reminded her peers, “an enlightened consumer is the regulator’s best friend.”
In small groups and plenary discussions, I watched as policymakers carefully considered bright ideas from their peers and resolved to bring them back to their home governments. In an address to the participants, Chuck Waterfield, founder of MFTransparency, pointed out that microfinance institutions hold power over clients, and with that power imbalance comes a responsibility to protect the interests of the weaker party. What I witnessed among African policymakers is that they are keen to fulfill their own responsibility for empowering their citizens to make informed financial decisions.
For a great resource on this topic, download CGAP’s Consumer Protection Regulation in Low-Access Environments: Opportunities to Promote Responsible Finance
Image credit: MFTransparency