Author: Sam Mendelson


Q: We were here a year ago talking about the Responsible Finance agenda, the growth in recognition of transparency in pricing etc. What’s changed in the last year for you?

CW: MFT is celebrating its five year anniversary right now. As we look back, we can see there are three main stages. In the first stage – the first three years that we were operating – we were collecting pricing data by ourselves. We’d go into some countries as we had capacity too, but we were doing it alone.

Stage two was the last couple of years, during which we were working with three partners (Planet, the Pakistani Microfinance Network, and MFIN) who were collecting MFI pricing data in different markets. This gave us enormously greater reach and has allowed a deeper and richer analysis of pricing in different markets by different financial institutions.

But over these past five years, we now see so many other people working for organizations collecting pricing data. The Responsible Finance session today here at EMW shows the number of stakeholders involved – not to mention the various initiatives underway like the SPTF, Smart Campaign, MIX, UNPRI, and the social rating initiatives. And the long term research, headed up by the University of St Andrews looking at links between social performance/client protection and financial performance.

So there are many people working to drive the RF agenda, and MFT’s focus remains on analyzing pricing transparency, but we need to have the data. So MFIs do collection work for networks or associations who are also doing the same. This has great potential of course, but we have to avoid duplication.

Q: So what comes now?

CW: What comes now is stage three, which is talking with all the investors in the various networks, to encourage and facilitate the pooling of all this data, to maximize efficiency.

We can and need to broaden where we’re collecting data from beyond just the countries which MFT happens to be working in. We want to be able to look at any MFI and any market. This is how education about pricing is promoted, and is done in tandem with all the other aspects of RF, including client protection and SPM.

Q: Obviously, the most widely known microfinance issue outside the industry is the AP crisis in 2010 onwards. And within the industry, debate has surrounded the response of the Indian government to the problems in the MF sector there. What has been the effect of that crisis in transparency of pricing?

CW: Five years ago people were uninformed about the consequences of high interest rates, and the ways financial institutions hide real interest from vulnerable clients – overindebtedness being a common result of this. The AP crisis led to a lot of things, the most widely known being the price caps the RBI initiated there.

Regardless of the merits of pricing caps, there is a lot of other, very good legislation, which resulted from the crisis there, including the banning of flat rate loans, the banning of compulsory deposits tied to loans. So now, the interest rates presented to clients in India pretty much honestly reflect the true price.

Q: The RF session today looked at the multi-stakeholder research on the links between social and financial performance. And where there are clear correlations, and “virtual cycles”, as Microfinanza Rating described it, there is a lack of causal inferences which can be made. That is, we can’t say that social performance improves financial performance. Is this a problem?

CW: This is premised from the perspective of “How can I maximize my profit? And should I be nice to people, so they’ll become and remain my clients and help my financial performance”. I prefer to think of it the other way round. “I should be respectful to my clients, and how much, if at all, will it hurt my bottom line to do so?” The results suggest it probably does no damage, and quite possible helps financial performance.

I’m into protecting consumers, not being nice to them for PR reasons. But here’s the wrinkle: consumer protection movements in the developed world group consumers together to fight the businesses. Here, by contrast, we have businesses pushing consumer protection to protect ‘them’ (the clients) from ‘us’, the institution. This is an interesting phenomenon.

I’m not for self-regulation. I believe consumer protection is better when it’s mandated. You level the playing field where everyone has to do it; when everyone has to avoid overindebting clients.

Q: Are you optimistic about the RF space, then?

CW: I’m optimistic about SPM and client protection yes. It’s gaining ground, but not fast enough. And it’s easy to be mislead by the people at a conference or a session like this; it’s self selected stakeholders who are interested in all this. It’s the ones who don’t set foot here, who don’t care about anything other than profit maximization at virtually any cost, who I worry about. But we’ve come a huge way in only a few years, and pooling data, more transparent reporting in more places with more institutions, will be a good thing to come.

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