Malawi. Microfinance pricing analysis. Date: September Executive summary

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1 Microfinance pricing analysis Malawi Date: September 2013 Loan Amounts Transparency Avg Full Clients MWK USD Index APR Number Percent <50,000 <$ % 57,462 17% 50,001 to 150, ,001 to 250, ,001 to 350, ,001 to 450,000 $129 to $385 $386 to $641 $898 to $1,154 $1,155 to $1, % 35,319 11% 71 81% 67,174 20% % 67,090 20% 89 69% 59,850 18% >450,000 >$1, % 45,735 14% Product Transparency Index Levels Between 0 and 25 Between 26 and 50 Between 51 and 75 Between 76 and 100 Total Transparent Pricing Practices Declining Balance Interest Products Clients Number Percent Number Percent 4 15% 1,691 1% 8 30% 80,758 24% 2 7% 35,585 11% 13 48% 214,596 65% ,630 Products Clients Number Percent Number Percent 10 37% 212,227 64% Executive summary The institutional level Pricing Transparency Index ranges from 20 to over 100 in Malawi. The transparency of prices is the highest for the region but still leaves much room for improvement. Approximately 65% of borrowers benefit from loans priced transparently, receiving microloans from products that have a Transparency Index of 75/100 or above. This transparency level is explained by pricing practices consisting of multiple price components: 64% of borrowers receive loans have an interest rate calculated using the declining balance method this is higher than most other countries in the region; fees are common, with 84% of borrowers paying at least one fee in addition to the interest rate; and 75% of borrowers must also purchase insurance with their loan. In addition, 46% of borrowers must provide compulsory deposits in order to access their loan. One Fee, or No Fee No Compulsory Insurance Required No Compulsory Deposit Required 22 81% 321,534 97% 15 56% 84,379 25% 4 15% 179,335 54% Data from 10 institutions, with 27 credit products and 332,630 active clients. Calculations based on 124 loan samples. Older data is used for institutions that did not provide refreshed data. Please note that all terms that are in italic and underlined are defined in the glossary. All data used in this report can be received in Excel format (available at info@mftransparency.org) In partnership with Planet Rating MicroFinance Transparency Paris Lancaster, PA USA t: t:

2 Context: Overall transparency of microfinance in Malawi Overall, transparent practice of microfinance in Malawi is mixed. Nine of Malawi s eleven microfinance institutions provided pricing data to MFTransparency in 2013, and ten institutions did within the past two years. One of the eleven MFIs submitted data to the MIX Market in the past year, and three more did within the past two years. Only two MFIs in Malawi have been rated, neither of which were rated in the past two years. Age of Data MFT MIX Ratings MFIs Borrowers MFIs Borrowers MFIs Borrowers < 1 year 9 82% 332,630 97% 1 9% 51,308 15% 0 0% 0 0% 1-2 years 0 0% 0 0% 3 27% 79,571 23% 0 0% 0 0% 2-4 years 1 9% 540 0% 3 27% 38,347 11% 1 9% 48,013 14% > 4 years 0 0% 0 0% 0 0% 0 0% 1 9% 51,308 15% Never 1 9% 8,500 2% 4 36% 172,444 50% 9 82% 242,349 71% Totals , , ,670 Note: This table includes all institutions who submitted data to MFTransparency, submitted data to the MIX in 2010 or later with greater than a one diamond rating, or did both. Institutions that may have been rated but did not disclose their data to either MFTransparency or MIX are not included. Name of MFI Number Clients Institution Age of Data (yrs) MIX Transparency Index Number % Type MFT MIX Ratings Diamonds Change 1 MARDEF 166,575 49% NGO 0.9 N/A N/A N/A OIBM 51,308 15% Bank CUMO 48,013 14% NGO FINCA 29,847 9% NGO N/A MLF MWI 22,768 7% NGO N/A FITSE 8,790 3% NGO N/A PRIDE-MWI 8,500 2% NBFI N/A 2.5 N/A 1 N/A. 8 FINCOOP 3,731 1% Coop 0.8 N/A N/A N/A CCODE 1,598 0% NGO 0.9 N/A N/A N/A NBS 540 0% Bank 2.8 N/A N/A N/A MRFC 0 0% NBFI N/A 1 75 N/A. Note: Pride-MWI did not submit data to MFTransparency but disclosed to the MIX within the past 2.5 years. The Institutional Transparency Index is the weighted average of the Product Transparency Indices for that Institution. / 2

3 Product pricing practices in Malawi With 65% of borrowers receiving a loan with a good Transparency Index (between 76 and 100), overall pricing transparency in Malawi is the highest in the region, as calculated by MFTransparency: 36% of borrowers receive loans where interest is calculated using a flat interest method, one of the lowest percentages in the region. 84% of borrowers pay fees in addition to the interest rate 46% of borrowers must provide compulsory deposits in order to receive a loan, a relatively low percentage for the region. 75% of borrowers must buy insurance with their loan, a relatively high percentage Price Components, Malawi Totals for this data analysis Products 27 Clients 332,630 Interest Method Declining Balance 10 37% 212,227 64% Flat 17 63% 120,403 36% Interest Rate Same rate for all loans for the product 22 81% 251,308 76% Different rates for different loans 5 19% 81,322 24% Fees No fees charged 9 33% 51,992 16% 1 Fee charged 13 48% 269,542 81% 2 Fees charged 5 19% 11,096 3% 3 or more fees charged 0 0% 0 0% Insurance No Insurance required 15 56% 84,379 25% 1 Insurance required 12 44% 248,251 75% 2 or more insurance products required 0 0% 0 0% Compulsory Deposit No Compulsory Deposit required 4 15% 179,335 54% Upfront Compulsory Deposit only 22 81% 153,241 46% Ongoing Compulsory Deposits only 0 0% 0 0% Upfront & Ongoing Deposits required 1 4% 54 0% Price Structure Including one price component 0 0% 0 0% two price components 10 29% 37,126 10% three price components 8 23% 241,454 63% four price components 9 26% 54,050 14% charging all four and using flat interest 8 23% 51,744 13% Products. charging Flat or UpFront Int 17 63% 120,403 36% charging Fees 18 67% 280,638 84% charging Insurance 12 44% 248,251 75% requring Compulsory Deposit 23 85% 153,295 46% Product Transparency Index Between 0 and % 1,691 1% Between 26 and % 80,758 24% Between 51 and % 35,585 11% Between 76 and % 214,596 65% Pricing and Transparency by Loan Amount Transp FullAPR Clients % Clients MWK <50, % 57,555 17% MWK 50,001 to 150, % 35,376 11% MWK 150,001 to 250, % 67,283 20% MWK 250,001 to 350, % 67,199 20% MWK 350,001 to 450, % 59,947 18% MWK >450, % 45,809 14% Note: Presenting data on 27 products, Filtered to: Exclude products with less than 50 clients, / 3

4 Pricing transparency by institution The transparency level of microfinance institutions in Malawi is ranked in the following four categories. Their Transparency Index results from specific pricing practices detailed below: Good transparency (76<TI<100): Three institutions have a high Transparency Index, with CCODE actually exceeding the theoretically perfect score of 100. This is due to a unique practice in which they charge a low declining balance interest rate and also rebate a portion of the interest back to the borrower in the first month. This results in a calculated interest rate that is lower than the advertised nominal rate. MARDEF also has an average TI of 100, but the individual sample TI s vary, with some being lower than 100 and others being higher than 100. FINCA also has a high transparency score and recorded one of the most improved transparency scores. Average transparency (51<TI<75): Two Institutions fall in this range OIBM and NBS. OIBM is an interesting case in that two products have high transparency indices, because they use declining balance interest, and two products have transparency indices below 50, because they use flat interest. This provides a useful demonstration of how even the same institution can charge interest two different ways on their products, leading almost certainly to confusion for the borrower when they see the stated interest rates inside the institution. NBS was the only institution to not provide refreshed pricing data in 2013, a factor important to note when comparing NBS data to the other MFIs. Poor transparency (26<TI<50): Three institutions have poor transparency indices. FITSE has a relatively high 20% compulsory deposit, combined with flat interest and two upfront fees. CUMO has flat interest ranging from 54% to 72% for the same product, with fees, mandatory insurance, and also requiring a small compulsory deposit. MLF MWI has flat interest, with no fees or insurance, but with a large compulsory deposit. Very poor transparency (0<TI<25): Only one institution falls in this group. FINCOOP s six products all have flat interest, all have additional fees, all require insurance, and all require compulsory deposits, ranging as high as 50% on four of the products. This level of compulsory deposit is extremely rare, and results in a dramatic increase in the true price. For example, a typical sample of their Mpaba loan has an APR (int + fee + ins) of 88%, but when the impact of the 50% compulsory deposit is included, the Full APR (int + fee + ins + dep) increases to 297%. Further explanation on the impact of compulsory deposits on the true price of a loan is available at Institution Transparency Index Total MF Clients Total MF Portfolio Avg Loan Balance Name Institution TI Rank Number Rank Amt (USD) Rank Amt (USD) Rank Country Totals 341,670 $18,211,654 $53 28 Loan Products # Active Loan Samples Data Status Age Data (mon) 1 CCODE ,598 9 $154, $ MARDEF ,575 1 $2,550,582 3 $ FINCA ,847 4 $3,752,103 2 $ OIBM ,308 2 $6,507,423 1 $ NBS $512,821 8 $ FITSE ,790 6 $649,408 6 $ CUMO ,013 3 $593,957 7 $ MLF MWI ,768 5 $1,556,644 5 $ FINCOOP ,731 8 $267,983 9 $ MRFC N/A $0 11 $ PRIDE-MWI N/A - 8,500 7 $1,666,667 4 $196 9 N/A - No Data Note: Active loan products are defined as loan products accessed by more than 50 borrowers. Low volume products (accessed by less than 50 borrowers) are not included in the pricing analysis. The Institutional Transparency Index is the weighted average of the Product Transparency Indices for that Institution. / 4

5 Transparency and loan amount The first in the pair of graphs below presents the prices quoted to borrowers in Malawi, in terms of the nominal interest rate. The second graph presents the prices paid by borrowers, using Full APR. The full APR includes all fees (both upfront and ongoing), insurances, taxes and compulsory deposits paid by the borrower. The trend on the first graph shows that the quoted interest rate increases as loan amounts decrease, increasing from 30% to 60-90%. Because of the relatively high pricing transparency in Malawi, this is a much more noticeable price increase than in other countries in the region. The second graph is therefore not dramatically different in shape, but the prices are higher, with prices on the smallest loans being in the 100% to 175% price range. / 5

6 Transparency and full cost The graph below indicates a strong association between a loan product s price and its level of pricing transparency. As Full APR increases, the corresponding Transparency Index value decreases. The Pricing Transparency Index is MFTransparency s scale for rating the level of transparency of a price. The Index can be applied at a range of levels country, institution, product and loan. The Index shows the percentage of the loan price that is communicated by the lender s nominal interest rate to the borrower. The higher the Pricing Transparency Index rating equals the more transparent the price, with a perfect score being 100. Quoted nominal interest rate 25% Example: x 100 = x 100 = 33 Full APR (int + fee + ins + dep) 75% The higher the price of a loan, the greater the likelihood is of those pricing being hidden through non-transparent interest rate calculation methods and by the addition of costs in other ways, such as fees. To put it another way, a product generating income of 30% for the institution has a quoted interest rate of close to 30%, is often calculated as declining balance, and has a Transparency Index of close to 100. A product generating 55% of income has a quoted rate of 30% but is calculated as flat, and has a Transparency Index of 50. A product generating 80% may have 30% flat interest, some fees and a compulsory deposit, resulting in a Transparency Index of 37. Some examples in Malawi include: CUMO s Masika product has a quoted interest rate ranging between 4.5% and 6.0% per month, is calculated flat, has a 3% upfront fee, compulsory insurance costing 2% upfront, and a relatively small compulsory deposit of 5%. The Full APR of these loans average 125%, and when compared to the annualized nominal rate of 54%, yields a TI of 43. FINCA s Village Banking product has a Full APR somewhat lower, averaging 107%. However, the product is advertised at 7.0% to 7.5% declining balance interest, no fees, a smaller 0.5% compulsory insurance, and 10% compulsory deposit. The annualized quoted rate of 84% compared to the true price of 107% gives a much higher Transparency Index of 79. MARDEF s Group loan demonstrates yet more complexity. The product is advertised at an interest rate of 28% per year, and it is calculated on declining balance. Due to the existence of long grace periods where interest is not charged for the additional days, however, the product yields an APR (interest only) averaging only 25%. The product has an upfront fee of 2.4%, compulsory insurance of 0.5% upfront, and no compulsory deposit. When the fees and insurance are added in, the resulting Full APR is 28%, resulting in a product with a Transparency Index of 100%, even though it has fees and insurance. / 6

7 Loan characteristics: Loan size Loan characteristics: Loan term Microloans in Malawi are defined as loans under MLK 500,000. The data presented here shows a clear correlation between the size of the loan and its price. The graph presents loans grouped by size. The size of each data point relates to the number of borrowers who have a loan of that product in that size. The larger the data point the higher the number of borrowers who have that loan. A large range in prices is seen in smaller loan amounts (50% - 300%), while larger loan amounts show less variation (10% - 100%). Most microloans in Malawi have a loan term less than 12 months. Prices fall as the loan term increases, consistent with the comparatively lower operating cost ratio for longer loans. Similarly to the effect of loan size, the graph below indicates that loans with shorter loan terms have a much wider range of Full APRs when compared to longer term loans. The Transparency Index shown in the tables for both loan size and loan term shows that the higher the Full APR of the loan, the less transparently the loan is priced. Larger loans and longer loans are priced more transparently and have lower prices. Loan Amt Ranges 1:<50,000 2:<150,000 3:<250,000 4:<350,000 5:<450,000 6:>450,001 By Segment # Samples Avg Price 136% 101% 81% 123% 69% 89% Transp Index Loan Term 1:<=4m 2:>4 and <=8m 3:>8 and <=12m 4:>12 and <=18m 5:>18 and <=24m # Samples :>24m Avg Price 184% 115% 132% 83% 16% 41% Transp Index By Segment The size of each data point relates to the number of borrowers who have a loan of that product in that size. The larger the data point the higher the number of borrowers who have that loan. / 7

8 Loan characteristics: Matrix of price by loan size and loan term Loan characteristics: Loan purpose The matrix presents the prices (Full APR) calculated using original loan documentation representing real loans given to actual borrowers in Malawi. The higher the price, the darker the shading is. In Malawi, the highest prices are seen on the top left of the matrix (smallest loans, shortest terms), and the lowest on the bottom right (largest loans, longest terms). This reflects the fact that the pricing of products partially depends on their level of operating expenses and that the operating expense ratio increases dramatically for smaller loans and for shorter loans. The vast majority of microloan products on offer in Malawi are designed for business purposes, with over 70% of total loan products designed for business specifically. Loans designed for general consumption, housing, education, and emergency purposes are very rare, although many loans designed for business may in practice be used for a wide array of purposes. The most expensive loans are aimed at emergency, any-purpose, and multiple-purpose loans. Housing loans presented the lowest priced loan by purpose, most likely due to the long term nature of the loan. Loan Amounts Loan Terms (in months) Purpose 1:Business 2:Housing 3:Consumer 4:Emergency MWK USD < >18 All terms <50,000 <$ % 64% 164%. 11% 140% 50,001 to 150,000 $129 to $ %. 200%. 21% 101% 150,001 to 250,000 $386 to $641 95%. 61%.. 78% 250,001 to 350,000 $898 to $1, %. 103%.. 103% 350,001 to 450,000 $1,155 to $1,282 71% % >450,000 >$1,282 82%. 93% 102%. 89% All amounts 140% 71% 124% 83% 23% 117% 5:Any Purpose 6:Mult Purpose # Samples Avg Price 97% 11%. 305% 178% 254% Transp Index By Segment There are some exceptions to the gradation trend of prices relative to loan amount and term. In uncommon combinations, the price shown may be taken from samples from a single product, as is the case here for the 6-9 month loan term. In this instance, the average price of this loan category drops because that one product has a relatively low price. As the category average is not calculated from a range of products this trend cannot be considered representative. / 8

9 MFI characteristics: Loan portfolio scale MFI characteristics: Institution type The majority of samples collected in Malawi were from institutions with a total portfolio of less than 1 million USD, with only one institution (OIBM) with a portfolio scale larger than 5 million USD. The data below shows a dramatic decrease in prices between the first portfolio-scale range and the following ones, with only a modest systematic drop in the average price for each segment. This could be attributed to efficiency gains created by the larger institutions and the resultant lower operating costs being passed onto the borrower in the form of reduced prices, however only one institution has a total portfolio of less than 0.5 million USD so this conclusion is difficult to draw. The majority of samples collected were from non-governmental organizations (NGOs), which are typically non-profit making and non-regulated. Cooperatives and banks form a smaller segment of the Malawian microfinance market. The highest range of prices is from FINCOOP, the only cooperative in the Malawi dataset. The Full APR is relatively high because of the very large 50% compulsory deposit required on several of their loan products. The two Banks (OIBM and NBS) have average prices and Transparency Indexes similar to the NGOs. In other countries, banks generally have larger loan amounts than NGOs, resulting in lower prices than NGOs. In this case, the banks are working in the same market as the NGOs. Portfolio Scale 1:<$0.5M 2:<$1.0M 3:<$3.0M 4:<$5.0M 5:<$10.0M 6:>$10.0M By Segment # Samples Avg Price 232% 64% 91% 83% 72%. Transp Index Inst Type 1:NGO 2:Coop 3:Bank 4:Rural Bank 5:NBFI 6:Other By Segment # Samples Avg Price 76% 232% 68%... Transp Index / 9

10 Pricing trends in Malawi A detailed table on pricing trends of each product is included in Appendix 3. Additional details are available by requesting the full TILT tables from MFTransparency at info@mftransparency.org. A close study of this table, along with other data and information presented in this report, illustrates why any general conclusions about pricing trends must be done with great care. It is far from easy to determine Are prices going up or down in Malawi? or Did the true price of this product really change? The main reasons for this include: Range in prices and the Spread Index: A product rarely has one true price. Prices of a product will vary due to the composition of the pricing components and how they interact with loan amount, loan term, grace periods, and other factors. The only loan product that has one universal Full APR is a loan with a declining balance interest rate and no other charges. Every other price factor complicates the price, sometimes quite dramatically. Examining the Pricing Table (Appendix 2) shows that the products in Malawi do not have very wide ranges in the Full APRs of the samples, relative to the spreads in other countries in the region. The Spread Index columns in that table are a valuable indication of how reliable the average price is for describing all loans in that product. For example, MARDEF s Group Loan has sample prices range from 25% to 31%, showing a Spread Index of 25 (calculated as (31-25) / 25). Inconsistent loan sample attributes: The graphs in this analysis report show the prices of every loan sample, but the tables summarize these prices into the average Full APRs. Comparing the average Full APR price of a product over time to identify change can potentially give inaccurate conclusions. The loan samples used for pricing calculations in the first round of data are not always identical to those used for the second round of analysis, varying in both loan amount and loan term amongst other attributes. Pricing components are sensitive to these loan sample attributes; for example, a large upfront fee will have more impact on shorter term loans than longer term ones resulting in a higher APR on shorter loans. A drop in the average Full APR seen in the tables may be due to a difference in attributes of the loan samples used for the pricing calculations in each year rather than due to a drop in prices. The most precise means of determining change in prices would be to take exactly the same loan, with exactly the same repayment schedule and calculate the Full APR last year and this year, and then to repeat that process with more samples. In actuality, if pricing conditions changed, it may well be that some loans have a lower price while some loans have a higher price within the same loan product. These are the realities when loan prices are not based solely on declining balance interest. Increasing loan sizes over time: An MFI may leave the price components of a product unchanged but shift toward gradually larger loan sizes, resulting in a lower Full APR. This is a common occurrence over time; a fact documented in other MFTransparency resources that disprove arguments that MFIs have lower efficiency ratios over time solely due to increased scale and increased competition. Drops in efficiency ratios (and sometimes accompanying drops in portfolio yield) are usually the result of increases in average loan balance. Click here for more information on this. The problem with averages: As highlighted above, determining the price change of a single product is complex, and when extrapolating to analyze the price changes of an MFI with multiple products, or price changes within an entire country, one encounters a large number of complex assumptions that must be taken into consideration. The same issues with Full APR also hold true for determining the average Transparency Index of a product and of an institution s blend of products. Those products with a high Spread Index have a wide range of prices and have a correspondingly wide range of Transparency Indices. MFTransparency is currently investigating adapting the Transparency Index accordingly in the future to provide a more accurate indicator of the range of transparency of a true microloan price. / 10

11 Appendix 1: List of participating institutions Institution Data Avg Loan Bal (Rank) Client Distribution by Loan Amount (Nat'l Currency) Status Number Prods Totals Less Than 50, , , ,001 More than Price by Loan Client Distribution Age (mon) Amt (USD) # 50, , , , , ,000 Amount Inst Dist Country Dist Country Total $53 Clients 333,170 57,555 35,376 67,283 67,199 59,947 45,809 Products: 28 Avg Price 116% 136% 101% 81% 123% 69% 89% Transp Ind # samples MARDEF $15 (3) Clients 166,575 33,315 49,973 49,973 33,315 9 Products: 1 Avg Price 28%. 30%. 26%. 25% # samples OIBM $175 (8) Clients 51, ,680 13,741 14,807 8,167 6,312 8 Products: 4 Avg Price 72% 78% 79% 73% 39% 67% 73% # samples CUMO $12 (2) Clients 48,013 19,679 14,167 14,167 9 Products: 2 Avg Price 108% 103% 125% 125%... # samples FINCA $126 (7) Clients 29,847 11,716 8,954 5,304 1,826 1, Products: 3 Avg Price 83% 94% 84% 86% 79% 71% 69% # samples MLF MWI $70 (4) Clients 22,768 19,887 2, Products: 3 Avg Price 112% 107% 121% 107%... # samples FITSE $74 (6) Clients 8,790 2,644 5, Products: 4 Avg Price 87% 85% 90%. 91%. 93% # samples PRIDE-MWI $196 (9) Clients 8,500 N/A Products: N/A Avg Price # samples FINCOOP $73 (5) Clients 3,731 2, Products: 6 Avg Price 232% 245% 212%. 209%. 206% # samples CCODE $402 (10) Clients 1, Products: 4 Avg Price 12% 13% 11%.... # samples NBS $974 (11) Clients Products: 1 Avg Price 38%.. 38% 38%. 38% # samples MRFC $0 (1) Clients 0 9 Products: 0 Avg Price # samples / 11

12 Appendix 2: Pricing per product Note: this table is a summary of pricing data collected for each MFI for all loans products provided to more than 50 borrowers. For access to all data, please info@mftransparency.org. Abbreviations: up stands for up-front; on stands for on-going. Inst & Product Target Group Loan Amounts Pricing (FullAPR) Nominal Interest Rate Fees Insurance Compulsory Deposit Institution Product NumClients % Tot Avg Bal Amt (Min) Amt (Max) Min & Max Avg APR Spread Transp Ind Current Descrip Current Description CUMO Fumba 790 2% $39 10,000 50,000 80%-80% 80% %, Flat 3% up 2.00% up 5.0% up CUMO Masika 47,223 98% $12 2, , %-125% 125% %-72.0%, Flat 3% up 2.00% up 5.0% up FINCOOP Mpamba % $150 6,000 1,500, %-297% 254% %-42.0%, Flat 3% up 2.00% up 50.0% up FINCOOP Mwai wa Mayi 1,240 33% $26 5, , %-178% 178% %, Flat 3% up 2.00% up 33.3% up FINCOOP Phindu % $44 5, , %-180% 178% %, Flat 3% up 2.00% up 33.3% up FINCOOP Pompopompo 122 3% $29 1,120 30, %-308% 305% %, Flat 3% up 2.00% up 50.0% up FINCOOP Umphawi % $93 5,000 1,500, %-304% 271% %, Flat 3% up 2.00% up 50.0% up FINCOOP Payroll % $124 5,000 1,500, %-291% 237% %, Flat 3% up 2.00% up 50.0% up FITSE Agric % $61 5, ,000 64%-70% 66% %, Flat 3% up 500 up None 20.0% up FITSE Agric % $117 5, ,000 63%-79% 69% %, Flat 3% up 500 up None 20.0% up FITSE Business 2 7,792 89% $66 5, , %-140% 121% %, Flat 3% up 500 up None 20.0% up FITSE Business % $573 5,000 2,000,000 91%-93% 92% %, Flat 3.50% up 500 up None 10.0% up 10% on FINCA Idv Business 2,221 7% $355 50,000 4,500,000 63%-71% 67% %-67.2%, Decl 1.50% up None None FINCA Village Bkg 20,635 69% $91 5, , %-118% 107% %-90.0%, Decl None 0.50% up 10.0% up FINCA Small Grp 6,991 23% $156 40, ,000 74%-77% 75% %, Decl None 0.50% up None MARDEF Group 166, % $15 150, ,000 25%-31% 28% %, Decl 2.40% up 0.50% up None MLF MWI Bridging 355 2% $279 65, , %-108% 107% %, Flat None None 20.0% up MLF MWI Irrigation 1,425 6% $82 18,000 80,000 46%-84% 69% %, Flat None None 10.0%-20.0% up MLF MWI Standard 20,988 92% $64 18,000 80, %-167% 159% %, Flat None None 10.0%-20.0% up NBS SME % $ ,000 1,500,000 38%-38% 38% %-36.0%, Decl 1%-3% up None None OIBM Agriculture 10,659 21% $ ,000 50,000,000 39%-39% 39% %-40.0%, Decl 2% up None 15.0% up OIBM Maziko 34,795 68% $47 140,000 2,800,000 91%-94% 93% %, Flat 3.50% up None 15.0% up OIBM Mzati 2,306 4% $724 50,000 1,000,000 92%-145% 106% %, Flat 3.50% up 250 up up 15.0% up OIBM Payroll 3,548 7% $371 15,000 4,000,000 35%-46% 41% %, Decl 3% up None None CCODE Business 139 9% $17 10,000 10,000 17%-17% 17% %, Decl None None 10.0% up CCODE Home % $12 20,000 20,000 11%-11% 11% %, Decl None None 10.0% up CCODE Sanitation % $153 40, ,000 11%-11% 11% %, Decl None None 10.0% up CCODE Water % $58 18, ,000 11%-11% 11% %, Decl None None 10.0% up / 12

13 Appendix 3: Pricing trend Note: this table is a summary of pricing data collected for each MFI for all loans products provided to more than 50 borrowers. The data is presented only for products for which data is available during the first and the second data collections. For access to all data, please info@mftransparency.org. Abbreviations: up stands for up-front; on stands for on-going. Inst & Product Number of Clients Transparency Index Spread Index FullAPR (Avg) Quoted Interest Rate Compulsory Fees Compulsory Insurance Security Dep Description Institution Product Change Change Change CUMO Fumba 6, % 80% 4% 60% FL 60% FL 3% up None 2.00% up N/A 5.0% up CUMO Masika 32,525 47, % 125% 17% 48%-72% FL 54%-72% FL 6% 3% up None 2.00% up 5.0% up 5.0% up FINCOOP Mpamba 9, % 254% 184% 32% FL 32%-42% FL / 10% 30% up 3% up None 2.00% up N/A 50.0% up FINCOOP Mwai wa Mayi 5,989 1, % 178% 105% 36% FL 45% FL 9% 30% up 3% up None 2.00% up N/A 33.3% up FINCOOP Phindu 4, % 178% 105% 30% FL 45% FL 15% 30% up 3% up None 2.00% up N/A 33.3% up FINCOOP Pompopompo % 305% 218% 36% FL 36% FL 30% up 3% up None 2.00% up N/A 50.0% up FINCOOP Umphawi %. 42% FL. 3% up. 2.00% up. 50.0% up FINCOOP Payroll %. 38% FL. 3% up. 2.00% up. 50.0% up FITSE Agric 1 1, % 66% 38% 48% FL 54% FL 6% 30% up 3% up 500 up None None 20.0% up 20.0% up FITSE Agric % 69% 29% 48% FL 54% FL 6% 30% up 3% up 500 up None None 20.0% up 20.0% up FITSE Business 2 1,100 7, % 121% -9% 48% FL 48% FL 30% up 3% up 500 up None None 20.0% up 20.0% up FITSE Business %. 42% FL. 3.50% up 500 up. None. 10.0% up 10% on FINCA Idv Business 1,202 2, % 67% -8% 42% FL 60%-67% DB Method 1,5000 up 1.50% up 1.50% up None None N/A N/A FINCA Village Bkg 16,129 20, % 107% -22% 60% FL 84%-90% DB Method None None 0.50% up 10.0% up 10.0% up FINCA Small Grp. 6, %. 78% DB. None. 0.50% up. N/A MARDEF Group 11, , % 28% -8% 15% FL 28% DB Method 2.40% up 2.40% up 0.50% up 0.50% up N/A N/A MLF MWI Bridging % 107% 4% 48% FL 48% FL None None None None 20.0% up 20.0% up MLF MWI Irrigation 1,361 1, % 69% -10% 57% FL 57% FL None None None None 10.0% up 10.0%-20.0% up MLF MWI Standard 19,891 20, % 159% -19% 60% FL 60% FL None None None None 20.0% up 10.0%-20.0% up NBS SME %. 24%-36% DB. 1%-3% up. None. N/A OIBM Agriculture 6,750 10, % 39% 3% 26%-27% DB 37%-40% DB 11% / 13% 2% up None None 15.0% up 15.0% up OIBM Maziko 29,921 34, % 93% 14% 36% FL 49% FL 13% 2.50% up 3.50% up None None 15.0% up 15.0% up OIBM Mzati 3,878 2, % 106% 24% 22%-30% FL 42% FL 20% / 12% 2.50% up ,5000 up 3.50% up 250 up None up 15.0% up 15.0% up OIBM Payroll 6,228 3,548 N/A N/A 41%. 25% DB 45% DB 21% 20% up 3% up None None N/A N/A CCODE Business % 17% 0% 24% DB 24% DB None None None None N/A 10.0% up CCODE Home % 11% -5% 12% DB 12% DB None None None None N/A 10.0% up CCODE Sanitation % 11% -6% 12% DB 12% DB None None None None N/A 10.0% up CCODE Water %. 12% DB. None. None. 10.0% up / 13

14 Glossary Compulsory Deposit - A requirement for borrowers to set aside funds as a condition on receiving the loan. Full APR This is the true price of the loan paid by the borrower in annualized terms. The full annualized percentage rate includes the impact of interest, all fees paid by the borrower (both upfront and ongoing), all compulsory insurances fees paid, all taxes and all compulsory deposits (sometimes called savings ) required from the borrower. Full APR = interest + fees + insurance + tax + compulsory deposit. The calculation is done on a discounted cash flow method and the result is annualized using a nominal annualization process (e.g., 1%/month x 12 months = 12% per year) rather than by compounding (e.g., 1% per month -> (1.01)^12-1 = 12.7%). Graph legend the legend at the top of each graph shows the number of data points present in each category shown on the graph. The legend changes for each graph. The figure in parentheses indicates the number of data points for that category. Interest rate: declining balance - Interest calculation based on the outstanding loan balance the balance of money that remains with the borrower as the loan is repaid during the loan term. Interest rate: flat method - Interest calculation based on the original loan amount throughout the loan term rather than on the money the borrower actually has. Low Volume Product Products with less than 50 borrowers are considered as low volume products, and are not included in the pricing analysis. Loan Sample these are examples of real loans given to actual borrowers. MFTransparency collects loan documentation (scans/print-outs of repayment schedules and loan contracts) from the microfinance institutions and uses these to calculate the price paid by the borrower. Loan Segmentation the size ranges used to categorize loans vary for each country but are consistent within the country. There are 6 segments of loan size, categorizing loans by their disbursement amount. For example if the biggest loan is 100,000 then the segments are: 1) loans under 8,000 (8%), 2) loans between 8% to 30,000 (30%), 3) loans between 30% to 50,000 (50%), 4) loans between 50% to 70,000 (70%), 5) loans between 70% to 90,000 (90%), and 6) between 90% -105,000. Microloan Credit products issued by microfinance institutions that fall under a specified size limit. Microloans are defined by their size rather than by other attributes such as loan purpose. The size limit varies for each country. Where country-specific legislation does not specify an upper size limit for microloans, MFTransparency determines a suitable maximum loan size in conjunction with other industry actors. MFI (Microfinance Institution) A financial institution or microfinance provider that has at least one micro-loan product. Nominal Interest Rate - The interest rate details as quoted by the institution to the borrower. This is annualized for the purposes of the analysis graphs. If a product is advertised with an interest rate of from 18% to 22% then the 18% figure is used in the calculations. Participation Rate - The market share (in terms of borrowers) represented by the institutions that have disclosed their transparent prices in the respective country. Product Eligibility - The characteristics that borrowers must meet in order to be eligible to receive a loan product; for example, if the loan is available to both males and females, if they need to be a salaried employee, if they need to be in a certain age range, etc. Portfolio Size - An approximation of the outstanding principle for all outstanding client loans, including current, delinquent and restructured loans, but not loans that have been written off or employee loans. Pricing Transparency Index - A scale for rating the level of transparency of a true price. The Index can be applied at a range of levels country, institution, product and loan. It is calculated as the nominal annual interest rate divided by the Full APR of that loan, e.g., a product advertised as 20% interest rate and with a Full APR of 50% would have a Transparency Index of 20% / 50% x 100 = 40. A perfect score is 100. For Institution and Country Indices, MFT generates weighted averages based on clients in each product. Product Purpose - The purposes for which the loan product can be used, for example for business (income generation) purposes, emergency purposes, consumption, education, housing, agriculture or multiple purpose loans. Size of data points (bubbles) each bubble represents the price of one loan sample. The size of the data point relates to the number of borrowers who have a loan at that size. For countries where MFTransparency does not have borrowernumber data, all data points are presented in uniform size. Spread Index Calculates how broad the range of sample prices are, calculated as (Highest Lowest) / Lowest x 100. A small number means a small range of prices for that product. Total Cost of Credit - Total amount paid by the borrower for the loan including all fees and other charges from the lender. Transparent Pricing Initiative Country-by-country projects that collect and disclose details of credit products on offer in each country, with a particular focus on disclosure of the prices paid by borrowers for these products. Details of these loan products are voluntarily disclosed by the microfinance institutions. / 14

15 Promoting Transparent Pricing in the Microfinance Industry Read more on Research papers and microfinance sector overviews are publicly available, contributing to the knowledge-sharing among microfinance practitioners, researchers and students Rating reports and country studies may be purchased per unit or through Planet Rating s subscription service during the 24- month period following their publication. After the initial 24-month validity, rating reports are made freely available in an effort to contribute to further transparency in the microfinance industry. To download our reports please create a free user account on Planet Rating s website, or contact us to learn more about Planet Rating s subscription service. rating@planetrating.com Read more on MicroFinance Transparency (MFTransparency) facilitates microfinance pricing disclosure, offers policy advisory services and develops training and education materials for all market stakeholders. Representing an industry movement toward responsible pricing practices, MFTransparency has worked in 29 countries, with pricing data submitted voluntarily by over 500 institutions representing loan products sold to nearly 50 million clients. Transparent Pricing Data visit the TILT (Truth in Lending Tables) Data Platform. Transparent Pricing Resources visit the Resources Library for educational content. Transparent Pricing Developments - visit the News & Features section of MFTransparency s website. info@mftransparency.org / 15