Microfinance Practice: Re: [MFP] MicroFinance Transparency's transition plan

Thank you all, for your comments and desire that transparency continues. Let me stress some key points in the original notice and explain our assessment in more detail:

The challenge is not having a website to post prices; the challenge is getting pricing data to publish.

MFT will provide tools whereby the industry can collect data, but the industry has to collect the data. MFT has partnered with 13 different organizations in the industry over the past 3 years as they worked to collect pricing data for publication. Not a single one of the 13 found this to be an easy task. It can be done, but it takes a lot of time, a lot of effort, and it costs money. All three of those are scarce commodities. That is the reality.

MFT tools will be available for funders and networks to collect data for internal use, as many are doing now. We hope and expect that will continue.

MFT tools can be used to provide pricing certification reports, as are currently being done for a small number of MFIs who request these reports from us.

But country-wide, current pricing data has not been attainable except in isolated instances over the last couple of years. MFT couldn't do this, even with our expertise and committment, and it is highly likely that the challenge can be handed over to another party and achieved. That is the reality.

We'll be publishing more about this in the coming months, as well as providing tools and approaches all of you can use to continue advancing on this critical issue. As you will see in those materials, MFT describes three levels:

Level 1 - Calculating prices: We do this now. Lots of us do this now, not just MFT. We have learned the importance of doing it, and we have tools to do this. Success.

Level 2 - Evaluating prices: Once calculated, we need to evaluate the prices and make decisions. The industry does not yet have an agreed-on process for this. MFT will be sharing some proposals for this. We need more success on this level.

Level 3 - Publishing prices: This is the "Transparency" level. It's the hardest part. We should still strive for this level, but we should recognize the importance and value of the first two levels and ensure we remain solid on those two levels while we explore if the industry can achieve broad-based commitment to practicing full transparency. National truth-in-lending regulation can help achieve this third level in isolated countries. Without regulation, we believe there are few countries where this can be achieved.

Chuck Watefield

CEO, MFTransparency

On Mar 18, 2015, at 11:53 AM, Chris Linder daoudakeita@yahoo.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:

I am sorry to see this as well. Way too much work to go...but thank you for bringing the industry this far, Chuck and team!

I agree with Calvin; the resource should continue to have a home - be it RFILC or another source. I believe there were discussions with Mix in the past (and maybe others??) - what about Mix, MF Gateway, SEEP, or SPTF? Maybe MFC-Poland? Can we set aside any previous sources of impasse and make sure this source (and ideally the activities too) lives on?

Chris Linder

Chris Linder
Washington, DC
Linked-In

On Wednesday, March 18, 2015 5:33 AM, "'Miller, Calvin (AGS)' calvin.miller@fao.org [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com> wrote:

Dear Colleagues,

I love the quotes from Srinivasan "we are basically honest - but we will be transparent when the truth is convenient"and from Chuck "We'd rather not lie, but we really don't want to tell the truth either."  It can be called "convenient truth" and it not what we as parents want to expect from our children nor from institutions, but as Chuck and Srinivasan note, it is common. But, we all know it gets many organizations and people in trouble when truth in information become selective.

I am sad to hear of the non-continuation of the important role of MFT. The role it has had in exposing, training, servicing as a reference benchmark and in influencing policy improvements have been substantive and will continue to influence and help guide the industry. Chuck's passionate and expert leadership in this, and the dedication of all of the team, have been exemplary.

I certainly hope there will be a new home for the MFT. Depending on the options available, we could consider some relationship or housing within the Rural Finance  and Investment Learning Centre (RFILC) www.ruralfinanceandinvestment.org website. Please note the name and URL change and request for all readers to re-register to this site, the newly remade former Rural Finance Learning Centre website. The old site and URL are still active but not updated and that URL will be re-directed into the new one soon.

Best regards,

Calvin Miller
Senior Officer and Group Leader,
Agribusiness and Finance
Food and Agriculture Organization of the UN
Vialle delle Terme di Caracalla,
Rome, Italy 00153
Tel. 39-06-570-54469 Mobile 39-348-141-1108
Skype: roamingromer
www.FAO.org
www.ruralfinanceandinvestment.org

From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com]
Sent: 18 March 2015 09:00
To: MicrofinancePractice@yahoogroups.com
Subject: Re: [MFP] MicroFinance Transparency's transition plan


Dear Dick, Chuck
The surprise in resistance to transparent prices for me has been from some investors and industry networks. A positive surprise is the overwhelming response that MFT got from a large market - India. Disappointments have been where regulators did not want prices to be published after all the hardwork was done. Overall the feeling that "we are basically honest - but we will be transparent when the truth is convenient."
Regards
Srinivasan
On 18 Mar 2015 12:58, "Chuck Waterfield waterfield@microfin.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com> wrote:

Hello Dick,

We'll be working on some analysis of the data to answer these sorts of questions, but I can tell you that in being part of the dialogue with 600 MFIs over the past 7 years there appears very little inverse correlation of transparency to legal issues but more the reverse. There tends to be more transparency in countries where transparency is an obligation (and you need some legal requirements for transparency if you have price caps).

The choice to be transparent is more of an ethical decision when there are no laws demanding transparency. And then one's preference to be ethical gets fbound together with the reality that one's true prices are two, or three, or four times higher than what you have been telling the world. So an MFI can feel "We'd rather not lie, but we really don't want to tell the truth either." (There are interesting examples of MFIs who charge flat interest on their smallest loans and declining balance interest on their larger loan balances - it is hard to deny that this is anything but a way to make the price to the poorer clients not look so high.)

I would say the biggest factor in the decision to be transparent or not is how big the difference is between what you say your price is and what your price really is. MFTransparency calculcates that and calls it the Transparency Index (where 100 is a perfectly transparent price). And, because those hidden prices tend to be very high prices, there is a secondary correlation between "really high prices" and "reluctance to be transparent".

To see just how messy pricing can become, take a look at the data we collected on Ghana. This link gives you access to the full report, and I've posted an executive summary right here.

http://www.mftransparency.org/resources/microfinance-pricing-report-ghana/

Executive Summary
·         The institutional level Pricing Transparency Index ranges widely from 16 down to 99 in Ghana. Twenty-four products showed improvements in their Transparency Index between 2011 and 2013, while 18 products had less transparent prices.
·         Only a small minority of borrowers benefit from loans priced transparently as 2% of them receive loans which Transparency Index is above 75/100.
·         This low level of transparency is explained by pricing practices consisting of multiple price components: 95% of borrowers receive loans which incur interest calculated using a flat interest method; 95% of borrowers pay fees in addition to the interest rate; 70% of borrowers pay a compulsory insurance fee; and 84% must provide compulsory deposits. The few MFIs with a good Transparency Index use declining rates and a limited number of fees.
·         Microfinance pricing data collected in Ghana shows that the true prices increase on smaller loans. As true prices rise, the interest rate communicated to the borrower becomes less indicative of the true price and therefore, the corresponding Transparency Index value decreases. Inversely, larger and longer term loans are priced more transparently.
In summary, what I say is that the industry has painted itself into a corner. Industry strategists advocated that hiding our prices would be a good thing. So many MFIs started hiding their prices. The world caught on to what they were doing, but reversing the process by relying on voluntary participation of MFIs is a very difficult and slow process and will never get universal participation.

Chuck

On Mar 18, 2015, at 1:24 AM, 'Meyer, Richard' meyer.19@osu.edu [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:

Chuck: Have you noticed if resistance to transparency has been greater in places where there are interest rate caps, so the MFIs have had to resort to many other types of fees to increase their yields and cover costs? Has it also been greater in countries where interest is a bad word or not permitted? Dick

From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com]
Sent: Tuesday, March 17, 2015 6:49 PM
To: MFP
Subject: [MFP] MicroFinance Transparency's transition plan

Dear colleagues,
We much appreciate the continual support many of you have given to MicroFinance Transparency since we launched in 2008. We have been inspired by the clear industry-wide commitment to the principles of transparent pricing. Thanks to all of us working together, the industry has made impressive progress over these 7 years – transparent pricing on 1,800 loan products sold by 530 MFIs to 52 million clients. Working together, we all accomplished more than expected, and to our knowledge we did more than any other industry to voluntarily practice pricing transparency.
Yet the MFT board has asked me to communicate their decision that MFT's role in pricing transparency will be ending in a few months.  Despite the broad desire to practice transparency, the successes we had did not come easily. Among MFIs, hesitation to participate and decisions to decline participation were common. The hurdles were many. For some, there was reluctance to be in the transparent minority; for others, there was fear of public criticism, the struggle to submit yet one more report to an external agency, and the challenge of understanding the technical nature of the requested information.
In our last months, there are three final steps for MFT:
First, we are revising and documenting our pricing tools and releasing them to the industry so that others may use them.  Our methodology can continue to be built into decision making and reporting procedures for funders, networks, raters, and analysts.  However, new prices won't be published on the MFTransparency website.  The industry will need to determine if there is any possible new home for any new data collected, or if that data will only be managed internally by the institutions collecting it.
Second, we are finishing our work on a new "Balanced Pricing Analysis" and will also make that available for organizations to incorporate into their evaluation and decision-making processes.
Finally, we are preparing a set of articles and reports that pulls together the rich lessons we have learned from seven years of collecting and studying pricing data.
Again, we thank all of you for your support over the past years. Together we worked towards the organization's mission to be the leader in microfinance product pricing transparency by promoting public disclosure and education. Although much work remains, we see countless examples of positive change. We see pricing a major topic of conversation in every conference, where before it was never discussed and rarely understood. We have frequent examples of MFIs changing their pricing to make it more transparent. We have felt a part of the movement to recognize those MFIs committed to the hard decisions necessary to seek a price that balances the needs of their business with the needs of their clients. We will continue to work with you, even if not through MFT.
Fond regards on behalf of the board and staff of MFTransparency,

Chuck Waterfield
CEO, MFTransparency