Responsible Finance Forum

Calculating Transparent Pricing Tool

MFTransparency’s very popular “Calculating Transparent Prices” Tool is an Excel-based tool that can be used to analyze the cost of a particular loan product. This tool helps the users understand how various factors influence the total cost of a loan. It also enables cost comparisons between loans with different fee structures. The software is multi-lingual and may be configured on the opening screen.

The three main components of the Calculating Transparent Prices Tool are:

  1. APR Calculator, Simple Approach: This page serves as a good starting point to learn the basics of pricing factors. By inputting some commonly-used pricing factors, the software shows the APR at several different levels. The APR is the “Annual Percentage Rate”, US standard for transparent pricing. It is the most commonly quoted price in microfinance because it is close to the “portfolio yield” for the product.
  2. APR / EIR Calculator, Advanced Approach: This next section (pictured below) offers many more input options. It also calculates both the APR and the EIR. The EIR, or “Effective Interest Rate” is the approach used in most countries outside of the US that have legislation on transparent pricing, such as the European Union, Mexico, Peru, and Bosnia. The Advanced sheets also have a manual-input option, including an advanced calendar function allowing the user to put in the exact repayment schedule (precise dates and precise amounts), allowing the user to calculate the exact price of the loan.
  3. Cost Structure Data sheet: The final section of the tool provides several worksheets to help understand the challenge of keeping costs low for micro-loans. It allows the user to enter estimated delivery and maintenance costs for a specified range of loan amounts. This data is used to produce graphs and calculate a breakeven point.