Principle # 4 – Responsible Pricing This presentation is made possible by the Smart Campaign www.smartcampaign.org Principle #4- Responsible Pricing [Introductions of facilitator(s) and participants]

Agenda Client protection principles Principle #4 in practice Participant feedback Tools for improving practice Conclusion and call to action This is the agenda for today’s discussion. We will begin by reviewing the seven principles of client protection 2

Client Protection Principles 1. Appropriate product design and delivery 2. Prevention of over-indebtedness 3. Transparency 4. Responsible pricing 5. Fair and respectful treatment of clients 6. Privacy of client data 7. Mechanisms for complaint resolution [Each principle is listed, along with how the Smart Campaign defines the principle]. These are the Seven Principles of Client Protection 1. Appropriate product design and delivery Providers will take adequate care to design products and delivery channels in such a way that they do not cause clients harm. Products and delivery channels will be designed with client characteristics taken into account.   2. Prevention of over-indebtedness Providers will take adequate care in all phases of their credit process to determine that clients have the capacity to repay without becoming overindebted. In addition, providers will implement and monitor internal systems that support prevention of overindebtedness and will foster efforts to improve market level credit risk management (such as credit information sharing). 3. Transparency Providers will communicate clear, sufficient and timely information in a manner and language clients can understand so that clients can make informed decisions. The need for transparent information on pricing, terms and conditions of products is highlighted. 4. Responsible pricing Pricing, terms and conditions will be set in a way that is affordable to clients while allowing for financial institutions to be sustainable. Providers will strive to provide positive real returns on deposits. 5. Fair and respectful treatment of clients Financial service providers and their agents will treat their clients fairly and respectfully. They will not discriminate. Providers will ensure adequate safeguards to detect and correct corruption as well as aggressive or abusive treatment by their staff and agents, particularly during the loan sales and debt collection processes. 6. Privacy of client data The privacy of individual client data will be respected in accordance with the laws and regulations of individual jurisdictions. Such data will only be used for the purposes specified at the time the information is collected or as permitted by law, unless otherwise agreed with the client. 7. Mechanisms for complaint resolution Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients and will use these mechanisms both to resolve individual problems and to improve their products and services. 3

Agenda Client protection principles Principle #4 in practice Participant feedback Tools for improving practice Conclusion and call to action Now let’s look closer at how institutions put principle 4 into practice. 4

The Principle in Practice: Responsible Pricing The Principle in Practice: Pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for the financial institution. Consider this: Financial sustainability is required to continue serving clients, but is not an end in itself. This is the Campaign’s definition of Responsible Pricing. An institution puts the principle into practice by ensuring that pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for the financial institution.

The Principle in Practice Price competitively Earn reasonable return Use profits to benefit clients Set prices that are not subsidized, are market oriented, and competitive within the country context. Earn a rate of return that supports operations and growth, and does not deviate significantly from peers. Invest a portion of the profits to increase value to clients, such as lowering interest rates or adding or improving products and services. The Smart Campaign has defined the following as indicators for how a financial service provider puts this principle into practice.

The Principle in Practice Do not pass inefficiencies to the client Set reasonable fees Compare efficiency to similar competitors and do not transfer inefficiencies to clients. Do not charge excessive penalties /fees for pre-payment, account closure or other services. For example, fees should not unreasonably compound debt nor prevent a client from changing providers. [Continued from previous slide] The Smart Campaign has defined the following as indicators for how a financial service provider puts this principle into practice.

Three important steps for responsible pricing Formalize pricing procedures for each product. Compare prices with similar competitors. Manage profitability targets and offer better value for the money These are three fundamental building blocks of responsible pricing. First, an institution should have formal pricing procedures for each product. This means that the institution knows how the price is set and reviews the price using the pricing procedure. Secondly, the institution should know how their prices compare with similar competitors, to understand how competitive their prices are in the local market. Third, the institution should have formal profitability targets and should manage toward these targets. The institution should also manage the goal of offering clients better value for the money.

Agenda Client protection principles Principle #4 in practice Participant feedback Tools for improving practice Conclusion and call to action Now, we want to hear from you. 9

Feedback from Participants Have you received training from your institution that highlights responsible pricing? What pricing procedures do MFIs commonly use? What effect does the competitiveness of the local microfinance market have on pricing? [At this point in the presentation, ask participants for their feedback on the information presented so far. Use these questions (or others that have come up during the presentation) to stimulate discussion.] Have you seen examples of irresponsible pricing?

Agenda Client protection principles Irresponsible pricing Principle #4 in practice Participant feedback Tools for improving practice Conclusion and call to action Now, let’s look at some of the tools that are available from the Smart Campaign to help practitioners improve on this principle. 11

Tools available from the Smart Campaign Technical Tools Getting Started Questionnaire: Self Assessment for MFIs Calculating Transparent Prices (MFTransparency) Putting Transparency into Practice: Communicating About Pricing Responsible Pricing State of Practice Technical Guide for Investors Samples and Case Studies Client Welcome Kit Loan Agreement for Small Business Clients from Crystal Loan Contract Summary Handout from MiBanco Transparent & Responsible Pricing at Mi-Bospo These, and dozens more tools are available for free on the Smart Campaign website. www.smartcampaign.org.

Agenda Client protection principles Irresponsible pricing Principle #4 in practice Participant feedback Tools for improving practice Conclusion and call to action 13

Summary Pricing, terms, and conditions must be responsible—affordable to the client, sustainable to the institution. Earning returns is the means to an end (serving clients in the long-term), and not an end unto itself. The Smart Campaign offers tools to help practitioners improve their practices in this area. Call to Action: What next steps can your institution take to make sure that your prices are affordable to clients and sustainable for the institution? [Read the summary on this slide]   [Use the Call to Action question, and any of the questions below, to stimulate discussion among participants]. How could one or more of the “good practice” examples be implemented in your institution? What other solutions have you seen (or would like to see)? Have you seen a similar (or different) practice in your institution or elsewhere?

Thank you! Endorse the Smart Campaign. Visit www.smartcampaign.org Sign up to receive news and information. What’s next? Download the Getting Started Questionnaire and conduct a client protection self-assessment. Thank you! Email us! comments@smartcampaign.org