BSP’s New Rules on Interest Rates Promote Transparency

The new rules by the Bangko Sentral ng Pilipinas (BSP) (Circular No. 730, Series of 2011) that seek to promote transparency in loan prices by requiring all banks to charge interest based on the outstanding balance of a loan at the beginning of an interest period, and to quote the effective interest rates of loan products in their loan documents and marketing materials. The new rules will take into effect on 1 July 2012.

According to BSP, loan pricing transparency will protect consumers, promote healthy competition, and enable smooth and orderly functions of the entire financial system. This new policy will be applied to all institutions that offer credit in the Philippines including credit NGOs, credit cooperatives, lending investors, pawnshops, as well as banks.

To allow banks and other microfinance institutions to better understand their effective interest rates, MicroFinance Transparency has launched Transparent Pricing Initiative for the Philippines.  The aim of this initiative is to provide an opportunity for rural banks and other microfinance institutions to exchange information, standardize pricing practices and demonstrate their commitment to transparent and responsible pricing.

This opportunity allows banks to submit their data and obtain a comprehensive analysis of their effective interest rates and to graphically determine their rates in relation to other institutions in the market place.  Rural banks will clearly benefit by participating in the initiative because by doing so they will obtain access to the details of pricing of the rest of the players in the market prior to their prices being made public. With the full knowledge of the position of their products relative to others in the market, rural banks and other microfinance institutions will be able to compete effectively and fairly in the microfinance market.  This will also provide a more standardized method for clients to compare interest rates among various institutions.

Participating rural banks will enjoy other benefits by participating in the initiative as well. Banks that participate in the initiative will be certified as internationally-recognized transparent microfinance institutions by MicroFinance Transparency. They will also receive a certificate which can be displayed in their offices as well as a seal of transparency that the bank may freely use in their marketing materials and website.