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Prices and Profits: Who Watches Which, and How do they Relate? Chuck Waterfield SPTF Conference

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?

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Prices and Profits: Who Watches Which, and How do they Relate? Chuck Waterfield SPTF Conference

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  1. 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

  2. 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?

  3. 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

  4. Double Bottom Line –There is a balance between business and client Client MFI Adequate PROFIT Affordable PRICE Ideally, we seek a “win-win” in which both the client and the MFI benefit

  5. Double Bottom Line –There is a balance between business and client Client MFI Adequate PROFIT Affordable PRICE Costs Price Ideally, we seek a “win-win” in which both the client and the MFI benefit

  6. Double Bottom Line –There is a balance between business and client Client MFI Adequate PROFIT Affordable PRICE In Microfinance, neither of these are easy to understand! The depend on the PRODUCT Costs Price Ideally, we seek a “win-win” in which both the client and the MFI benefit

  7. Market Conditions and Profit Sources Price Product

  8. Market Conditions and Profit Sources Price Transparent Identical Product

  9. Market Conditions and Profit Sources Price Transparent Efficiency & Competition Identical Product

  10. Market Conditions and Profit Sources Price Transparent TextbookFiction Efficiency & Competition Identical Product

  11. Market Conditions and Profit Sources Hidden Price Transparent TextbookFiction Efficiency & Competition Identical Product

  12. Market Conditions and Profit Sources Hidden Deception Price Transparent TextbookFiction Efficiency & Competition Identical Product

  13. Market Conditions and Profit Sources Hidden Smoke & Mirrors Deception Price Transparent TextbookFiction Efficiency & Competition Identical Product

  14. Market Conditions and Profit Sources Hidden Smoke & Mirrors Deception Price Transparent TextbookFiction Efficiency & Competition Different Identical Product

  15. Cost and Price of a $300 loan is very different than for a $1000 loan

  16. High Prices do not necessarily mean High Profits

  17. Market Conditions and Profit Sources Hidden Smoke & Mirrors Deception Price Transparent TextbookFiction Controlled Confusion Efficiency & Competition Efficiency & Confusion Different Identical Product

  18. Market Conditions and Profit Sources Hidden Smoke & Mirrors Deception Price Transparent TextbookFiction Controlled Confusion Efficiency & Competition Efficiency & Confusion Different Identical Product

  19. Typical Price Curve from MFT

  20. Market Conditions and Profit Sources Hidden Smoke & Mirrors Chaos Deception Mass confusion Price Transparent TextbookFiction Controlled Confusion Efficiency & Competition Efficiency & Confusion Different Identical Product

  21. Market Conditions and Profit Sources Hidden Smoke & Mirrors Chaos REALITY Deception Mass confusion Price Transparent TextbookFiction Controlled Confusion Efficiency & Competition Efficiency & Confusion Different Identical Product

  22. Market Conditions and Profit Sources Hidden Smoke & Mirrors Chaos REALITY Deception Mass confusion Price Transparent TextbookFiction Controlled Confusion Efficiency & Competition Efficiency & Confusion OPTIMAL GOAL Different Identical Product

  23. Double Bottom Line –There is a balance between business and client Client MFI Adequate PROFIT Affordable PRICE Responsible Profit Targets Transparent Pricing

  24. Defining a Responsible Price

  25. Defining a Responsible Price

  26. Defining a Responsible Price

  27. Defining a Responsible Price

  28. 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

  29. Promoting Transparent Pricing in the Microfinance Industry MicroFinance Transparency is an NGO registered in the USA

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