Project Everest

Problem

[Problem] Village Banks

The Problem and Background:

Village Banks in Malawi are informal institutions that work whereby villagers come together to guarantee each other’s loans by providing capital to the bank to be invested. Village Banks are an interesting customer segment for the Social Consulting teams because they have incredibly low default rates, and thus could be an interesting institution to leverage to provide sustainable financial access to Malawians. In Malawi these village banks are used by many villagers and the Social Consulting team has proven that villagers prefer to put their money into a village bank because:

  • Distance to formal institutions is too far
  • Formal credit institutions require collateral which customers served through village banks do not need
  • Interest charged by formal credit institutions is too expensive,
  • Village banks understand the needs of the customers, unlike formal credit institutions.

The problem, for village banks, is not all of their customers have access to loans, they have customers who have a loan, but want a bigger one, and the village bank wants access to more capital as they claim to have insufficient funds. This lack of insufficient funds occurs because village members do not always have the disposable income to put into the fund in order to be loaned out, and there may be a lack of opportunity to obtain these funds from other institutions such as FIs.

The data gathered from the 8 village banks interviewed in December 2018 show:

  • 43% of village banks have customers that want a loan but don’t have one,
  • 57% of village banks have customers that have a loan, but want a bigger one,
  • 73% of village banks claimed that they have insufficient funds and want access to more capital.

The Opportunity

Clearly what this data shows is that there is an opportunity for PEV to potentially assist village banks in accessing greater amounts of capital from alternative sources outside of their traditional channel of funds from village members. This value is something that needs to be tested moving forward, along with the potential to utilise assets that the village bank currently holds such as access to paper-based records of village member profiles and profiles of those who have obtained loans.

 

Rose Martin 3 months ago

Status label added: Problem

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