Pricing data for microfinance loans from 82 microfinance institutions in India is now available in the public domain, along with a detailed analysis of the dataset and what it implies in the context of responsible lending, globally.
The Micro Finance Institutions Network (MFIN) sponsored the “Transparent Pricing Initiative in India” in early 2010, along with Standard Chartered, Citi Foundation, and the Michael & Susan Dell Foundation. The initiative was one of the earliest projects undertaken by MFIN since its inception in December 2010. The project coming to fruition is a big step forward in MFIN’s ongoing efforts to promote greater transparency in pricing data. Easy availability of interest rate data is key to promoting greater competition and consumer protection in the industry, and will help bring down interest rates, over time. “Pricing transparency has been a key component of the MFIN agenda. We are very pleased that pricing data on our members is now completely in the public domain and all stakeholders now have the opportunity to get a complete and accurate picture of interest rates in the industry,” says Mr. Alok Prasad, CEO of MFIN.
The study was conducted by Micro Finance Transparency, an international non-governmental organization founded in 2008 that analyzes pricing data for microfinance products globally and has been instrumental in pushing the global microfinance industry towards greater pricing transparency. The initiative was launched in April 2010 and the majority of the data collection process was completed by September, clearly demonstrating the industry’s commitment to transparency. The decision to participate and share pricing data was absolutely voluntary. Data collected from participating institutions account for approximately 80% of the estimated total Indian market measured by gross loan portfolio and 77% of active borrowers.
To reflect the various practices and standards currently used in India, the MFTransparency dataset employs several variations of the Annual Percentage Rate (APR) formula used globally for Truth-in-Lending. The average APR (interest + fees + deposit) for privately-owned for-Profit MFIs in India is 32.22%, for publically-traded for-Profit MFIs it is 29.99%, and is 33.95% for not-for-profit MFIs. Analysis also reveals that Indian MFIs have considerably lower operating costs even at smaller loan sizes, as compared to other mature microfinance markets such as Bangladesh, Mexico, Cambodia, Phillipines and Bolivia. The complete data is shared on the MFT website (www.mftransparency.org) along with a detailed analysis of the dataset, as well as explanations of the calculations used and their relevance in the Indian microfinance market. MFTransparency will present the analysis of the data as well as other findings of the “Transparent Pricing Initiative in India” at an industry conference in Mumbai on February 25, followed by an internal conference held by MFTransparency, the Reserve Bank of India (RBI) and the College of Agricultural Banking (CAB) in Pune on February 28.