Tools & Resources Loan Contract Summary Handout (Mibanco)

Loan Contract Summary Handout (Mibanco)

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Mibanco also provides clients with a loan contract summary so that clients can easily and efficiently understand the most pertinent points of their full loan contracts. Mibanco uses this tool to verbally review the contract highlights, including the loan information, insurance costs/benefits, early repayment fees, and obligations of the guarantors.

Mibanco, Peru 

Mibanco_logoIntroduction

As noted in Principle 2, Transparent and Responsible Pricing, financial institutions must transparently and adequately disclose the pricing, terms, and conditions of financial products (including interest charges, insurance premiums, all fees, etc.). Transparent pricing is a pre-condition for responsible pricing.

Transparency includes clear communication with clients at every service point—from promotion of a product, to signing a loan contract, to closing an account.  One service point that is particularly important is the signing of the loan contract. Clients can become confused by the legal and financial jargon often used in loan contracts. To adequately protect clients, institutions must deliberately design and use plain language loan contracts that meet the following criteria:

  • The contract offers a clear description of terms, conditions, interest rate, and fees.
  • It includes an amortization schedule that separates principal, interest, and fees, and defines the amount, number, and due dates of installment payments.
  • It uses clear and simple language that will not confuse or mislead the customer.
  • It does not use fine print or legal jargon that is not commonly understood.
  • It is appropriate to the financial literacy of the intended user.


This Tool
As in many countries, Peruvian regulation requires regulated institutions to use very specific legal terminology in loan contracts.  Mibanco Peru complies with this regulation and as a result, requires clients to sign lengthy loan contracts. However, as an addition service to clients, Mibanco also provides clients with a loan contract summary so that clients can easily and efficiently understand the most pertinent points of their full loan contracts. Mibanco uses this tool to verbally review the contract highlights, including the loan information, insurance costs/benefits, early repayment fees, and obligations of the guarantors. The client then signs the document and takes away a copy for their own reference.

Many institutions—particularly regulated institutions—are required by law to include ample legal and financial disclosure in their loan contracts. When contracts are lengthy and complex, they may be intimidating or confusing to clients. If an institution cannot avoid lengthy loan contracts, The Smart Campaign suggests they also provide clients with a shorter document that summarize the most important points of the loan contract. This summary document should be written in simpler language that the client can understand. Regulated institutions should “think outside the box” to create a better and more understandable value offer for their clients.

The Smart Campaign encourages institutions to download and review this document, and to use it as a “good practice” example for creating or improving their own loan contract summaries. This PDF document includes annotations that highlight several of the most important aspects of the loan contract. Simply click on the yellow note boxes to reveal the notes.

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