Ladies and Gentlemen, Fellow Rural Bankers, and Microfinance Colleagues,
Welcome to the launch of the Transparent Pricing Initiative in the Philippines led by MF Transparency with sponsorship support from the Rural Bankers Association of the Philippines, and the Microfinance Council of the Philippines!
We see emerging economies strengthen institutional mechanisms to provide equitable economic growth for society, especially for its most disenfranchised citizens. These efforts hinge on principles such as truthful messages, ethical practices, and fair dealing.
These principles are most often visible in how businesses, especially financial institutions, employ accuracy in their marketing materials, open communication with stakeholders, and above-board dealings with their customers.
In banking, the “Truth In Lending Act” that is required to be posted in the bank’s premises is the most obvious legal expression of how accuracy, transparency, and fairness should be practiced. These same principles are true for all institutions whether they are a bank, NGO, credit cooperative, lending investor or a pawnshop.
The Philippines microfinance industry can generally be proud of their consumer protection practices, but we feel that pricing is an area we can improve on. As much as microfinance institutions want to provide an honest and accurate picture of pricing to our clients while stating the fees and nominal interest rate. The truth is that it is hard for our clients to have an accurate picture of the effective interest rate they are paying. In addition, clients are really not able to compare rates offered by various institutions.
But since our lending practices are already well documented, we cannot avoid the reality that price soon becomes an issue especially as competition is much more prevalent today than in the past. Sooner rather than later, we all need to face pricing questions from customers, regulators, and political leaders. They will ask tough questions about the industry’s pricing of its products, the truthfulness of its explanations, and its fairness to its customers.
I therefore welcome this initiative as a timely event to focus our minds on the impact of pricing issues on MFIs. We only need to look at other countries’ experience as they grapple with concerns about microfinance practices, especially the pricing of credit products and criticisms about the perceived profits being generated by financial institutions and MFIs trying to support the poor.
In short, the issue of pricing is symbolic of the industry’s need to be proactive and to show that we as an industry are committed to serve our customers in a highly ethical and open manner. By doing so, we are better prepared to overcome and address criticisms leveled upon the industry.
Some of these criticisms are often based on misunderstandings about the higher costs of servicing small loans that often necessitates higher interest rates. Though we understand the rationale for such pricing, the public may not. Therefore, we must rise to the challenge as we engage our community and educate them more about our practices and pricing.
So once more, I commend MF Transparency for bringing this issue front and center among rural bankers and other MFIs in the Philippines. We need to show that we as an industry continue to be concerned and interested in our clients and that we are willing to take proactive steps to demonstrate this commitment. Now is the time to make a good effort to become better partners to our customers. By demonstrating our seriousness in tackling these issues, we show to the world that the Philippines microfinance industry is at the forefront of change and remains among the best. We are now rated as the second best country for microfinance in the world, With this and other efforts to work together to support a healthy growth of the microfinance industry in the Philippines, may we be considered number 1 in the world!