Paper
The Need for Pricing Transparency in Microfinance
Ensuring a new level of understanding and openness
2 pages
This paper highlights the need for transparency in microfinance.
Commercial lenders in many countries are required to state true product pricing using standards such as the annual percentage rate formula mandated 40 years ago in the U.S. Such laws help consumers make informed decisions regarding loans that seem to have the same price, but are actually priced differently. In contrast, the true price of microfinance products has rarely been accurately measured or reported. The paper states that:
- Microfinance growth requires openness about costs of lending and prices charged to cover those costs;
- Microfinance can displace moneylenders only if it ensures that its clients have clear information about cost of their loans;
- Non-transparent pricing in microfinance has evolved due to lack of single market interest rate for microloans and difficulties for MFIs to move to transparent pricing;
- Campaign for Client Protection and MicroFinance Transparency are initiatives that address pricing transparency in microfinance.
The paper states that an industry-wide effort to adopt transparent pricing is essential to the long-term survival, growth and effectiveness of the microfinance industry.
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