More Reflections on Transparency (not about Kiva)

In July, I blogged about MFTransparency, which Chuck Waterfield founded to "combat...confusing and predatory pricing" in microfinance. The core idea is to express the various charges and fees in a single number, what I have been calling the Annual Percentage Rate (APR) and MFTransparency says is the Effective Interest Rate (EIR). (Read the Wikipedia entry to become more confused.) MFTransparency has just released its first data sets, for Cambodia and Bosnia & Herzegovina. One visit helps you understand why the data were so long in coming: it was clearly a big job. MFTransparency got good data and has presented it well.Two old thoughts, then one new:

• Are there moves to bring these effective interest rates to borrowers' eyes so they can spot predatory pricing? Or are mostly people like you and me seeing them?
• Has thought been put into whether EIRs are the most effective way to convey costs to borrowers? The study by Marianne Bertrand and Adair Morse makes me doubt they are. They found that quoting an APR of 400% had less impact on payday loan takers in the United States than telling them that borrowing $300 repeatedly, two weeks at a time, for 3 months would cost $270 in interest.
• I compared MFTransparency's results with the nearest analog on the MIX Market, "gross portfolio yield," which is basically how much money a microcreditor takes in as a percentage of average loans outstanding. GPY depends directly on interest rates, but can be reduced by defaults and other factors. Indeed, MFTransparency's figures are generally higher, sometimes substantially so. For ACLEDA, Cambodia's largest microcreditor, MFTransparency's calculated rates are 35.2--39.9%/year, compared to just 23.3% on the MIX. This makes me wonder whether analyses of microcredit interest rates based on MIX Market data are too sanguine. For my draft chapter 7, and inspired by the reassuring CGAP analysis of MFI interest rates, I crafted a graph (below; let me know if it is confusing) showing the distribution of microcredit interest rates using inflation-adjusted MIX figures. No region's median inflation-adjusted GPY exceeds 25%, which is not much more than my credit card charges. Most of the CGAP report's conclusions probably stand---for example, interest rates probably really are falling, and gross profiteering appears rare---but I do wonder whether I need to adjust the language in my draft chapter to convey that rates may be significantly higher than this graph suggests.