Promo-ng Transparent Pricing in the Microfinance Industry. Rwanda Data Launch. Hosted by MFTransparency and AMIR

Transcription

1 Promo-ng Transparent Pricing in the Microfinance Industry Rwanda Data Launch Hosted by MFTransparency and AMIR Webinar September 27 th, 2011

2 enabling APR & EIR Program enabling Africa to Price Responsibly and Educate on Interest Rates Sponsored by the MasterCard FoundaEon Eight countries in 18 months: Malawi, Uganda, Rwanda, Ghana, South Africa, Tanzania, Zambia, Mozambique

3 Transparent Pricing Ini;a;ve in Rwanda Rwanda is the third country in the enabling APR & EIR Program Transparency workshop in Kigali on December 10 th, 2010 to launch the Rwanda Ini-a-ve. This inieaeve includes three major components: CollecEon and publicaeon of pricing data Training on pricing transparency Development and disseminaeon of educaeonal materials

4 Transparent Pricing Ini;a;ve in Rwanda The enabling APR & EIR Program is sponsored by: Thank you to our local partner in Rwanda:

5 AMIR Opening Remarks

6 Par;cipa;ng Ins;tu;ons

7 Ins;tu;ons Par;cipantes

8 Transparent Pricing Ini;a;ve in Rwanda Par;cipa;ng MFIs Amasezerano Community Bank COOPEC Comicoka COOPEC Zamuka COOPEDU COOJAD Duterimbere IMF Goshen Finance S.A IMF Inkingi Par;cipa;ng MFIs Rwanda Microfinance Limited Union des CLECAM Wisigara Umutanguha Union of Savings and Credit CooperaEves (UCU) Urwego Opportunity Bank Vision Finance Company S.A Zigama Credit and Savings Society

9 Type of Ins;tu;on (14 Ins;tu;ons) 36% 21% CoOp NGO Other 7% 36% Privately- owned 'For- Profit'

10 Regulated vs. Unregulated All 14 insetueons are regulated 0% Regulated Unregulated 100%

11 Product Pricing Analysis

12 Loan Purpose (63 products) Percentage of Purposes 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Purpose as a Percentage of Purposes 42% 18% 11% 12% 9% 7% Business Housing Emergency Consumer EducaEon Any Purpose

13 Loan Purpose (63 products) Number of Purposes per Product 80% 73% Percentage of Products 70% 60% 50% 40% 30% 20% 10% 10% 13% 5% 0% >3 Number of Product Purposes

14 Eligibility Product Eligibility Gender Focus (Eligibility) 18% Must be a salaried worker 3% 3% Women only 78% Must own a home Must run a business 94% Men only Either

15 Lending Methodology 4% 30% 66% Individual Solidarity Village Banking

16 Other Services Offered Other Services Offered with Loan Product Other Training 3% TA Visits to Workplace 9% Business Training 23% Group MeeEngs 10% Credit Insurance 21% Credit EducaEon 34% 0% 5% 10% 15% 20% 25% 30% 35% 40% Percentage of services offered

17 Repayment Frequency 60% 56% 50% 40% 30% 20% 10% 13% 7% 13% 11% 0% Weekly Every 2 weeks Monthly Quarterly Single end payment Percentage of frequencies

18 Reasons for Varia;ons in Price 16 products have a range of interest rates 24% 10% 12% Branch office locaeon Client profile/client risk Length of Eme as client 10% 17% Loan size Purpose 15% 12% Collateral Other

19 Interest Calcula;on Method 51% 49% Declining Balance Flat

20 Fees & Insurance 60 products (95%) have a fee 28% of all fees are for the purpose of insurance Products with a Fee 5% Fee & Insurance 95% Fee No Fee 28% 72% Other Type of Fees Insurance

21 Fees & Insurance Disbursement vs Ongoing 0% Fees Disclosed on Repayment Schedule 10% 100% Disburseme nt Ongoing 90% Disclosed Not disclosed

22 External Insurance - Fee Parameters Out of 32 products with insurance charges, 20 are charges paid to insurance companies using a matrix of determinants to calculate the amount paid by each borrower Determinants of insurance charge to borrowers: o Loan amount o Loan term o Age of borrower

23 Compulsory Savings 40 products out of 63 require compulsory savings Of the 40 products that require savings, 13 disclosed the amount of compulsory savings on the repayment schedule For 4 products, borrowers control savings internally 36% 10% Compulsory Savings 54% Required for all loans Never required Required for some loans Compulsory Savings according to Type of Ins;tu;on 33% 8% 22% 37% Coop NGO Privately- owned for profit Other

24 Pricing Calcula;ons

25 Interest Rate Calcula;ons Interest Fees Insurance Taxes Security Deposit APR (Interest + Fees + Insurance) X X X APR (Including Taxes & Security Deposit) X X X X X EIR (Interest + Fees + Insurance) X X X EIR (Including Taxes & Security Deposit) X X X X X

26 APR Ranges by Ins;tu;on Type APR (Int + Fees + Ins) 160% 140% 120% 100% 80% 60% 40% 20% 00% 19% APR by Ins;tu;on Type (Weighted Average, Minimum and Maximum) 60% 27% 56% CoOp NGO Other Privately- owned For- Profit

27 APR (Int + Fees + Insurance) APR Ranges by Product Purpose APR (Int + Fees + Ins) 160% 140% 120% 100% 80% 60% 40% 20% 00% Business APR by Product Purpose 39% Housing 16% Emergen cy 24% 25% 21% 21% Consume r EducaEo n Any Purpose Minimum APR 10% 13% 13% 13% 13% 13% Maximum APR 155% 102% 155% 155% 72% 111% Weighted Average APR 39% 16% 24% 25% 21% 21%

28 APR Ranges by Geographic Focus APR (Int + Fees + Ins) APR (Int + Fees + Insurance) APR by Geographic Focus 160% 140% 120% 100% 80% 60% 63% 56% 40% 20% 23% 00% Both (50/50) Rural Urban Minimum 13% 10% 15% Maximum 102% 130% 155% Weighted Average APR 63% 23% 56%

29 MFTransparency Interac;ve Price Graphs MFTransparency Graphiques Interac;fs de Tarifs

30 Price Graphs APR (Int + Fees + Insurance) Graphiques Tarifaires TIA (Int + Frais + Assurance)

31 Products with > 50 Ac;ve Borrowers

32 Products with > 50 Ac;ve Borrowers Loan Amount < 2,000,000 RWF

33 Products with > 50 Ac;ve Borrowers Ins;tu;on Type: Privately- owned for- profit

34 Products with > 50 Ac;ve Borrowers Ins;tu;on Type: NGO

35 Products with > 50 Ac;ve Borrowers Ins;tu;on Type: Coopera;ves

36 Products with > 50 Ac;ve Borrowers Purpose: Business

37 Products with > 50 Ac;ve Borrowers Purpose: Educa;on

38 Products with > 50 Ac;ve Borrowers Purpose: Consump;on

39 Products with > 50 Ac;ve Borrowers Purpose: Housing

40 Products with > 50 Ac;ve Borrowers Interest Calcula;on Method: Flat

41 Products with > 50 Ac;ve Borrowers Interest Calcula;on Method: Declining Balance

42 Summary Ins;tu;on cost structure: Every insetueon has a unique cost structure which requires a unique pricing strategy. Product cost structure: Different loan products can have significantly different cost structures. It is therefore necessary to look at each loan product individually when assigning loan prices. Limita;ons of porbolio yield: If we do not analyze costs and prices on a product- by- product basis, our overall pornolio yield may be posieve, but some individual products not profitable. This can cause sustainability problems in the future. Remember: Each product is unique and requires a disenct pricing strategy.

43 Recommenda;ons

44 Loan Documenta;on: Considera;ons Client perspeceve It is important to always consider the true price of a loan from the point- of- view of the client How much money does a client have to spend in order to access a loan? Repayment schedule Shows the expected cash flow for the client Should disclose all charges made at disbursement and during the loan term StandardizaEon At the local industry level, lenders and other stakeholders should define a standard interest rate calculaeon and loan documentaeon system StandardizaEon allows for comparison across compeeng loan offers from the perspeceve of the client

45 Resources: Recommended Repayment Schedule Template

46 General Recommenda;ons Loan documentaeon Communicate as much informaeon on both repayment schedule and contract Interest rate calculaeon method Switch from flat to declining balance to enhance transparency Technical assistance MFTransparency is happy to provide assistance to implement these changes

47 MFTransparency is currently pilo;ng a in and We collaborate with our local partners to adapt these materials to the local context and implement them successfully. The educaeonal resources we will develop for Malawi and Rwanda will also be adapted to the unique context of other countries

48 Ques;ons & Answers

49 Ways to Get Involved Endorse MFTransparency. More than 870 individuals and organizaeons have signified their support in principle of MFTransparency's mission by becoming an endorser. Add your name to the list: hrp:// Educate about transparent pricing. MFTransparency develops and disseminates educaeonal resources covering a range of topics related to transparent pricing. These materials are all available free of charge through the Resources Library on our website. Par;cipate in country projects. We work with government agencies, networks, associaeons, donors, investors, academics and other stakeholders in every project country and always welcome new partnerships. MFIs can also acevely parecipate by submitng their data when MFTransparency launches the Transparent Pricing Ini-a-ve in their country.

50 Promo;ng Transparent Pricing in the Microfinance Industry