Tanzania Data Launch

Hosted by

MFTransparency

Webinar

January 23, 2012

Promoting Transparent Pricing in the Microfinance Industry

enabling APR & EIR Program

enabling Africa to Price Responsibly and Educate on Interest Rates

Sponsored by the MasterCard Foundation

Eight countries in 18 months: Malawi, Uganda, Rwanda, Ghana, South Africa, Tanzania, Zambia, Mozambique

Transparent Pricing Initiative in Tanzania

Tanzania is the seventh country in the enabling APR & EIR Program to be selected for the Transparent Pricing Initiative.

MFTransparency conducted a transparency workshop in Dar es Salaam on June 10th , 2011 to launch the Tanzania Initiative.

The enabling Africa to Price Responsibly & Educate on Interest Rates Program is a client protection effort of unprecedented scale in Africa, covering Malawi, Uganda, Rwanda, Ghana, Tanzania, Zambia, South Africa and Mozambique.

This initiative includes three major components: the collection and publication of pricing data, training on pricing transparency, and the development and dissemination of educational materials.

Transparent Pricing Initiative in Tanzania

The enabling APR & EIR Program is sponsored by:

Thank you to our local partner in Tanzania:

Participating Institutions

Transparent Pricing Initiative in Tanzania

Participating MFIs

BRAC Tanzania

Tujijenge Tanzania Ltd

Better Life for Tanzania-BELITA

FINCA Tanzania Ltd

F&K Finance Ltd

K-Finance Ltd

Opportunity Tanzania

Participating MFIs

Sero Lease and Finance Limited (SELFINA)

Youth Self Employment Foundation (YOSEFO)

Mwanga Community Bank

Fanikiwa Microfinance Company (Ltd)

Mbinga Community Bank

National Microfinance Bank (NMB

Victoria Finance Ltd

Type of Institution (14 Institutions)

7.14%

64.29%

28.57%

Publicly traded for profit

Privately-owned for profit

NGO

Regulated vs. Unregulated

• 4 institutions regulated, 10 institutions unregulated

28.57%

71.43%

Regulated

Unregulated

Product Pricing Analysis

Loan Purpose (30 products)

12% 6% 3% 3%

58%

18%

0%

10%

20%

30%

40%

50%

60%

70%

Housing Emergency Consumer Education Business AnyPurpose

Pe

rce

nta

ge o

f P

urp

ose

s

Purpose as a Percentage of Purposes

Eligibility

0.00%

26.67%

73.33%

0.00%

Product Eligibility

Must be asalariedworker

Must own ahome

Must run abusiness

Specific agegroup (youth,elderly)

10%

90%

Gender Focus

Women only

Either

Lending Methodology

48.39%

48.39%

3.23%

Individual

Solidarity

Village Banking

Other Services Offered

28.81%

27.12%

22.03%

5.08%

6.78%

10.17%

0% 5% 10% 15% 20% 25% 30% 35%

Credit Education

Credit Insurance

Group Meetings

Business Training

TA Visits to Workplace

Other Training

Percentage of services offered

Other Services Offered with Loan Product

Repayment Frequency

5.88%

29.41%

5.88% 2.94%

50.00%

5.88%

0%

10%

20%

30%

40%

50%

60%

Daily Weekly Every twoweeks

Quarterly Monthly Single Endpayment

Percentage of frequencies

Repayment Frequency

Reasons for Variations in Price

9 products have a range of interest rates

11.11%

11.11%

22.22%

22.22%

33.33%

Branch Location

Client profile/Clientrisk

Length of time asclient

Loan size

Others

Interest Calculation Method

3.33%

96.670%

Declining Balance

Flat

Fees & Insurance

All products (100%) have a fee

19% of all fees are for the purpose of insurance

100%

0%

Products with a Fee

Fee

No Fee

81%

19%

Fee & Insurance

OtherType ofFees

Insurance

Fees & Insurance

88%

12%

Disbursement vs. Ongoing Fees

Disbursement

Ongoing

48.84%

51.16%

Disclosed on Repayment Schedule

Disclosed

Notdisclosed

Compulsory Savings 21 products out of 30 require compulsory savings

Of the 21 products that require savings, 2 disclosed the amount of compulsory savings on the repayment schedule

For 7 products, borrowers control savings internally

70.00%

3.33%

26.67%

Compulsory Savings

Required forall loans

Required forsome loans

Neverrequired

38.10%

61.90%

Compulsory Savings by Type of Institution

NGO

Privately-owned forprofit

Pricing Calculations

Interest Rate Calculations

Interest Fees Insurance Security

Deposit

APR (Interest + Fees + Insurance) X X X

APR (Including Security Deposit) X X X X

EIR (Interest + Fees + Insurance) X X X

EIR (Including Security Deposit) X X X X

APR Ranges by Institution Type

67.94% 68.65%

28.56%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

NGO Privately-owned 'For-Profit'

Publicly-traded 'ForProfit'

APR by Institution Type (Weighted Average, Minimum and Maximum)

APR (Int + Fees + Insurance)

APR Ranges by Loan Purpose

Business Housing Emergency Consumer EducationAny

Purpose

Minimum APR 49.9% 57.7% 90.2% 67.6% 67.6% 67.6%

Maximum APR 59.5% 62.5% 90.6% 78.2% 78.2% 88.6%

Weighted Average APR 53.2% 59.1% 90.4% 71.3% 71.3% 75.1%

53.2% 59.1%

90.4% 71.3% 71.3%

75.1

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

AP

R (

Int

+ Fe

es

+ In

sura

nce

)

APR by Product Purpose

APR Ranges by Rural/Urban

Rural Urban Both

Minimum 79.7% 44.2% 56.1%

Maximum 89.7% 52.4% 63.7%

Weighted Average APR 82.9% 47.5% 58.6%

82.9%

47.5% 58.6%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

AP

R (

Int

+ Fe

es

+ In

sura

nce

) APR by Geographic Focus

MFTransparency Interactive Price Graphs

Price Graphs APR (Int + Fees + Insurance)

Products with > 50 Active Borrowers

Products with > 50 Active Borrowers Loan Amount < 5,000,000 UGX

Products with > 50 Active Borrowers Institution Type: Private For-profit

Products with > 50 Active Borrowers Institution Type: NGO

Products with > 50 Active Borrowers Institution Type: Public For Profit

Products with > 50 Active Borrowers Purpose: Business

Products with > 50 Active Borrowers Purpose: Education

Products with > 50 Active Borrowers Purpose: Consumption

Products with > 50 Active Borrowers Purpose: Housing

Products with > 50 Active Borrowers Interest Calculation Method: Flat

Products with > 50 Active Borrowers Interest Calculation Method: Declining Balance

Summary Institution cost structure: Every institution 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.

Limitations of portfolio yield: If we do not analyze costs and prices on a product-by-product basis, our overall portfolio yield may be positive, but some individual products not profitable. This can cause sustainability problems in the future.

Remember: Each product is unique and requires a distinct pricing strategy.

Recommendations

Loan Documentation: Considerations Client perspective

•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?

•Shows the expected cash flow for the client

•Should disclose all charges made at disbursement and during the loan term

Repayment schedule

Standardization

•At the local industry level, lenders and other stakeholders should define a standard interest rate calculation and loan documentation system

•Standardization allows for comparison across competing loan offers from the perspective of the client

Resources: Recommended Repayment Schedule Template

General Recommendations

Loan documentation

• Communicate as much information on both repayment schedule and contract

Interest rate calculation method

• Switch from flat to declining balance to enhance transparency

Technical assistance

MFTransparency provided assistance to implement these changes, but more effort is needed to continue to progress.

Thought: Microfinance in Tanzania

•Many mirofinance providers are considered out of the main stream financial services system in Tanzania

•To foster an enabling regulatory environment ,Central Bank should further focus on increasing financial access for the active poor , financial stability, and consumer protection

Regulation and supervision

• Local Networks when founded on good values with a clear vision can provide a cohesive voice and point of reference for all stakeholders in the local industry.

• Local network needs more support from all stakeholders in the local industry

Local Network

•At the local industry level, lenders and other stakeholders should define a standard interest rate calculation and loan documentation system

• Standardization allows for comparison across competing loan offers from the perspective of the client

Standardization

Promoting Transparent Pricing in the Microfinance Industry