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Costing and Pricing of Financial Services

This toolkit is designed for use by microfinance institutions to enable them to conduct a full costing of their products and thus improve their efficiency and future business planning. It was developed with a leading Ugandan MFI and then tested with a large savings bank in Kenya, offering a wide variety of products. It was found that the basic procedures and principles were relevant to both large and small institutions.

The toolkit is in two parts. Part I explains the concept and a method of allocation based costing, using the simple and most commonly applied model of allocating each line of the Income and Expenditure Account to individually to products. Part II explains different pricing strategies. It explains the link between costing and pricing of financial services and shows how sustainable interest rates can be set. Illustrations are used throughout to clarify different pricing strategies.

To accompany the toolkit, MicroSave-Africa make available a spreadsheet with a worked example of allocation based costing for the Salama Microfinance Company. You can change variables in this to see how they affect the outcome of the costing exercise. There is also a sample costing report and a paper on Product Costing in Practice – The Experience of MicroSave-Africa.

The toolkit can form the basis of a training workshop and to facilitate this, MicroSave-Africa have provided a Costing Course Overview and a Trainer’s Manual in the form of a set of PowerPoint slides.

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