principle #2 transparent and responsible training presentation to post
TRANSCRIPT
Principle #2 – Transparent and
Responsible Pricing
This presentation is made possible by the Smart
Campaign
www.smartcampaign.org
2
1. Client protection principles
2. Principle #2 in practice
3. Effects of non-transparency and the client perspective
4. Participant feedback
5. Practitioner lessons and good practices
6. Conclusion and call to action
Agenda
3
1. Avoidance of over-indebtedness
2. Transparent and responsible pricing
3. Appropriate collections practices
4. Ethical staff behavior
5. Mechanisms for redress of grievances
6. Privacy of client data
Client Protection Principles
4
1. Client protection principles
2. Principle #2 in practice
3. Effects of non-transparency and the client perspective
4. Participant feedback
5. Practitioner lessons and good practices
6. Conclusion and call to action
Agenda
5
Pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for the financial institution.
Transparently disclose, in a form understandable to clients:
• Pricing• Terms• Conditions (including interest charges,
insurance premiums, all fees, etc.)
Transparent and Responsible Pricing: Principle in Practice
Transparent
Responsible
Transparent pricing is a pre-condition to responsible pricing.
6
1. Client protection principles
2. Principle #2 in practice
3. Effects of non-transparency and the client perspective
4. Participant feedback
5. Practitioner lessons and good practices
6. Conclusion and call to action
Agenda
7
Lack of transparency affects the client and the MFILack of transparency Effects
Client… MFI…
Client does not understand the
maintenance fees for her savings account.
Client is not awarethat she receives only
three free ATM withdrawals before
incurring fees.
Client believes that if she does not file an insurance claim, the
premium will be returned to her.
1
2
3
…sees that her savings have
decreased and thinks the bank has
robbed her.
…is demoralized and does not trust ATM transactions.
…concludes that insurance is a rip-off when she does not have the premium
returned.
…loses business when client tells others about her
experience.
…loses benefit of investment in new
technologies.
…finds that products intended to add value
and attract clients actually have the opposite effect.
8
I can easily understand the interest rate and compare it to other institutions.
I received the loan amount as stated in my contract. I know my installment amounts and when payments are
due. I’ve never had unexpected: late fees, early payment fees, or
account activity fees, changes to my interest rate or loan terms.
I understand my responsibilities for delinquent group members.
I know my outstanding debt and the amount in my savings account.
I always have the opportunity to ask questions during my interactions with the institution.
Can your clients agree with the following?
Client Perspective
9
1. Client protection principles
2. Principle #2 in practice
3. Effects of non-transparency and the client perspective
4. Participant feedback
5. Practitioner lessons and good practices
6. Conclusion and call to action
Agenda
10
Feedback from Participants
Have you received training from your institution that highlights transparent and responsible pricing?
What effect does the competitiveness of the local microfinance market have on transparent and responsible pricing at institutions?
Have you seen examples irresponsible pricing and/or lack of transparency?
How do institutions set their prices?
11
1. Client protection principles
2. Principle #2 in practice
3. Effects of non-transparency and the client perspective
4. Participant feedback
5. Practitioner lessons and good practices
6. Conclusion and call to action
Agenda
12
[Write your points for the presentation here:]• Points• Points• Points• Points
Lessons from Practitioners
13
Follow truth-in-lending laws and required APR or effective interest rate calculation formulae.
Work with the client to understand the price of her loan and all of its terms and conditions.
Also disclose: insurance premiums, minimum balances, all fees, penalties, linked products, third party fees, and whether any of these can change over time.
Provide loan contracts that show an amortization schedule that separates principal, interest, fees; and defines the amount, number and due dates of installment payments.
Train staff to communicate effectively with clients.
Give the client time to review all documentation prior to the sale.
Good Practice Indicators: Institutions with Transparent Pricing
Does your institution follow good practices for these transparent pricing indicators?
14
Are competitive in the marketplace.
Do not subsidize prices.
Favor long-term relationships with clients to short-term profits.
Do not charge customers for their own inefficiencies.
Ears a reasonable rate of return to support operations and grow, while allowing the customer to do the same.
Do not charge excessive pre-payment penalties or account closure fees.
Invest a portion of their profits to increase value to customers, such as lowering interest rates or adding or improving products and services.
Good Practice Indicators: Institutions with Transparent Pricing
Does your institution follow good practices for these responsible pricing indicators?
15
Good Practices: Design, Process, Feedback
16
Good Practice: Financial Literacy for Improved Transparency
17
Example of Good Practices from Bosnia-Herzegovina
Tip: Have loan officers read through contracts with clients before the client signs.
Organization requires loan officers to read through contracts with clients and ask them questions to ensure that clients:• Understand the terms• Accept the terms
Practice
MFI learns where to revise
contracts to make them
clear; clients are not mis- or
under- informed
Outcome
18
1. Client protection principles
2. Principle #2 in practice
3. Effects of non-transparency and the client perspective
4. Participant feedback
5. Practitioner lessons and good practices
6. Conclusion and call to action
Agenda
19
Summary:• The Smart Campaign has developed six principles of client
protection, one of which is transparent and responsible financing.• Pricing, terms, and conditions must be transparent (fully and
clearly disclosed) and responsible (affordable to the client, sustainable to the institution).
• Failing to be transparent and responsible turns clients off from using an institution’s products and therefore endangers business.
• Good practices are available to help institutions improve in this area.
Conclusion
Call to action
• What next steps can your institution take to make sure that clients understand your products, as well as their own rights and responsibilities?
20
Join the Campaign and Endorse the Principles of Client Protection
Have questions? Want more information?Contact the Smart Campaign
Email: [email protected]
Thank you!