Microfinance Institutions (MFIs) have been cautioned to refrain from denying clients detailed information about charges for financial products they (MFIs) offer.
Rita Ngarambe, the Executive Secretary of Association of Microfinance Institutions in Rwanda (AMIR) noted that MFIs should emphasise transparency by availing detailed information, to their clients, about the terms and conditions of loans, implications of interest rates and the application of late fees and penalties.
“Financial institutions are responsible for making sure that they communicate a product’s true total cost, along with its applicable terms and conditions, in a way that clients can understand, given educational and language considerations,” she said during the financial education workshop funded by Microfinance Transparency in partnership with AMIR.
Financial education aims at helping the customers to understand the meaning behind price charges for different products offered by MFIs and SACCOs and also ensuring suppliers of financial services fix prices responsibly.
Ngarambe noted that the principle of transparent and responsible pricing rests on the assumption that clients are capable of making smart financial decisions when they have access to and understand all the necessary information.
“It is the role of MFIs and SACCOs to provide financial education to their clients and potential customers,” she said, adding that; “This is inline with client protection principle on transparent and responsible pricing.”
To achieve affordable pricing, experts in microfinance banking believe that there is need for financial institution to set affordable prices while enabling them (financial institution) to operate sustainably.
“MFis should put all their product charges in a simplified language, if possible in local language which everyone can understand and be able to have choice on what MFI can use,” Job Opar, a consumer protection consultant
Jean- Pierre Mugabo, a client with a microfinance, said that due to the urgent need for loans to finance businesses, there is a tendency to avoid questioning fearing that it would delay the process of acquiring the loan.
Nevertheless, Jessica Massie, a consultant on microfinance transparency said that one out of three people who access MFIs do not know the interest rate of their current loan, while many clients always need the loan immediately after they apply for it.
She added, ‘Average borrowers feel they have paid a bribe or a fee when financial Institutions charges penalties”.
She noted that there is need through financial education to create a long term change in the financial sector.