Potential Actions for Signatories are based on recent industry examples, and are not intended to be used as a compliance checklist given digital financial services standards are still evolving. Rather, examples of potential actions should be used for a more comprehensive due diligence assessment, and an opportunity for Signatories to develop new products and solutions for customers. Signatories may test, refine and adapt current industry evidence so as to be more relevant to their digital financial services investments, business models, market context, among other factors.
Examples of potential actions:
Review financial indicators, analyze the correlation of high effective interest rates (APR/EIR) with high return
on equity (ROE) and assets (ROA), high NPLs/write-offs, low loan loss reserves, low administrative/distribution
cost of digital lending, etc.
Apply a combination of a market-based approach and a balanced return approach.
A market-based approach compares, from the customer’s point of view, the full
price (i.e. the Annual Percentage Rate (APR) or the Effective Interest Rate (EIR)), product features and
opportunity costs of the DFS provider’s credit product to alternative offers in the market, such as credit
products offered by banks, microfinance institutions (MFIs) and informal moneylenders.
Balanced returns is an approach that considers operating expenses and profits when determining pricing. Considering that pricing
decisions are based on cost of funds + operating costs + provisions + management’s choice of profit, the
objective is to balance the benefits for investors (return) with the benefits for customers (price). Balanced returns are particularly important for end-customers that are generally
vulnerable, low-income people. The more vulnerable the customer segment, the stronger the focus should be on balanced returns.
Review and consider the option of contractual agreements of interest rate reductions (gradually reducing the price paid by customers) based on the
investee’s financial projections.
Consider the following pricing rationale for pricing decisions: in the early stage of development and growth of
the investee, the initial cost of investment and operations may require relatively higher prices/costs. As
economies of scale are reached, operating cost decrease and profitability increases, these benefits can be
passed on to customers.
For savings products, encourage and support investees to provide real returns on the deposits of customers.