We encourage and support investees to apply fair, risk-based and transparent pricing for all financial products and services that is affordable to consumers while allowing for investees to be sustainable and provide balanced returns to investors. We strive to reassess and balance fair prices paid by customers and the return generated for investors/investees, based on a broader assessment of the risks impacting the DFS ecosystem, which includes: customers, providers and financial markets sector. For savings products, investors encourage and support investees to provide real returns on the deposits of customers.
- 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. For example, triple digit interest rates (APR or EIR) coupled with high, double digit
ROE as well as double digit PAR 30 can be an indication of unfair or irresponsible practices.
- Apply a combination of two approaches to fair and responsible pricing: the market-based approach and the
balanced returns approach. The 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. The balanced returns
approach considers operating expenses and profits when determining fair 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). The principles
of fair pricing and balanced returns are particularly important in DFS, as the end-customers are generally
vulnerable, low-income people. Both investors and providers have a special responsibility to balance the
benefits for the institution with the benefits and risks for the customers. 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.