prices and profits: who watches which, and how do they relate? chuck waterfield sptf conference
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Promoting Transparent Pricing in the Microfinance Industry. Prices and Profits: Who Watches Which, and How do they Relate? Chuck Waterfield SPTF Conference Panama June 2013. Prices or Profits?. Fair prices and Fair Profits… which drives which? - PowerPoint PPT PresentationTRANSCRIPT
Prices and Profits: Who Watches
Which, and How do they Relate?
Chuck WaterfieldSPTF Conference
PanamaJune 2013
Promoting Transparent Pricing in the Microfinance Industry
Prices or Profits?• Fair prices and Fair Profits… which drives which?• Can you have fair prices and unfair profits? Or
unfair prices and fair profits?• Which aspect do clients and MFIs focus on?• Which should we focus on when determining
responsible practice?
Double Bottom Line –There is a balance between business and client
Client
MFI
Ideally, we seek a “win-win” in which both the client and the MFI benefit
Double Bottom Line –There is a balance between business and client
Client
MFI
Ideally, we seek a “win-win” in which both the client and the MFI benefit
Affordable PRICE
Adequate PROFIT
Double Bottom Line –There is a balance between business and client
Client
MFI
Ideally, we seek a “win-win” in which both the client and the MFI benefit
Affordable PRICE
Adequate PROFIT
Price
Costs
Double Bottom Line –There is a balance between business and client
Client
MFI
Ideally, we seek a “win-win” in which both the client and the MFI benefit
Affordable PRICE
Adequate PROFIT
Price
Costs
In Microfinance, neither of these are easy to
understand! The depend on the PRODUCT
Pric
e
Product
Market Conditions and Profit Sources
Pric
e
Product
Identical
Tran
spar
ent
Market Conditions and Profit Sources
Pric
e
Product
Identical
Tran
spar
ent
Efficiency & Competition
Market Conditions and Profit Sources
Pric
e
Product
Identical
Tran
spar
ent
Textbook FictionEfficiency & Competition
Market Conditions and Profit Sources
Pric
e
Product
Identical
Tran
spar
ent
Hid
den
Textbook FictionEfficiency & Competition
Market Conditions and Profit Sources
Pric
e
Product
Identical
Tran
spar
ent
Hid
den
Textbook FictionEfficiency & Competition
Deception
Market Conditions and Profit Sources
Pric
e
Product
Identical
Tran
spar
ent
Hid
den
Textbook Fiction
Smoke & Mirrors
Efficiency & Competition
Deception
Market Conditions and Profit Sources
Pric
e
Product
Identical Different
Tran
spar
ent
Hid
den
Textbook Fiction
Smoke & Mirrors
Efficiency & Competition
Deception
Market Conditions and Profit Sources
Cost and Price of a $300 loan is very different than
for a $1000 loan
High Prices do not necessarily mean High Profits
Pric
e
Product
Identical Different
Tran
spar
ent
Hid
den
Textbook Fiction
Controlled Confusion
Smoke & Mirrors
Efficiency & Competition
Efficiency & Confusion
Deception
Market Conditions and Profit Sources
Pric
e
Product
Identical Different
Tran
spar
ent
Hid
den
Textbook Fiction
Controlled Confusion
Smoke & Mirrors
Efficiency & Competition
Efficiency & Confusion
Deception
Market Conditions and Profit Sources
Typical Price Curve from MFT
Pric
e
Product
Identical Different
Tran
spar
ent
Hid
den
Textbook Fiction
Controlled Confusion
Smoke & Mirrors
Chaos
Efficiency & Competition
Efficiency & Confusion
Deception Mass confusion
Market Conditions and Profit Sources
Pric
e
Product
Identical Different
Tran
spar
ent
Hid
den
Textbook Fiction
Controlled Confusion
Smoke & Mirrors
Chaos
Efficiency & Competition
Efficiency & Confusion
Deception Mass confusion
REALITY
Market Conditions and Profit Sources
Pric
e
Product
Identical Different
Tran
spar
ent
Hid
den
Textbook Fiction
Controlled Confusion
Smoke & Mirrors
Chaos
Efficiency & Competition
Efficiency & Confusion
Deception Mass confusion
REALITY
OPTIMAL
GOAL
Market Conditions and Profit Sources
Double Bottom Line –There is a balance between business and client
Client
MFI
Affordable PRICE
Adequate PROFIT
Transparent Pricing
Responsible Profit Targets
MFI’s Costs
Defining a Responsible Price
+ MFI’s Choice of Profit
MFI’s Costs
Defining a Responsible Price
= Price Set by the MFI
+ MFI’s Choice of Profit
MFI’s Costs
Defining a Responsible Price
What Price Can the Poor Afford?
= Price Set by the MFI
+ MFI’s Choice of Profit
MFI’s Costs
Defining a Responsible Price
Moving Forward• Transparent Pricing• Insist on transparent pricing of all responsible MFIs• Urge regulators to require transparent pricing of all
lenders• Continue to study and learn from true prices
• Responsible Profit Targets• Determine thresholds for responsible profit• Make the system simple, requiring little more than
financial statements• Use as an initial hurdle for additional certification of
responsible practice
Promoting Transparent Pricing in the Microfinance Industry
MicroFinance Transparency is an NGO registered in the USA