Project Everest

Experiment Results

[Experiment Result]: Microfinance II Malawi - Profiling Village Banks - July 2019

Experiment Design Post: https://projecteverest.crowdicity.com/post/2005350

Lean Phase: Customer Segment 

Assumption: Village banks are willing to meet with PEV and discuss their operational procedures, including collateral requirements, interest rates and capacity to loan.

Results: 

  • The Microfinance II Team contacted 10 village banks throughout July 2019.
  • Since July 2018, PEV has contacted 15 village banks in the Blantyre region.
  • The Microfinance II Team determined that there were 7 village banks that PEV had previously held meetings with that we did not need to collect additional data from as we held sufficient data to profile their operational procedures. 
  • 8 village banks were successfully profiled by the Microfinance II Team in July 2019. This occurred through attending meetings with these village banks. 
  • In total, PEV has profiled 15 village banks in the Blantyre region.

Validated Learning: These results match our hypothesis that village banks would be willing to meet with PEV to discuss their operational procedures, as we successfully held meetings with 8 village banks and 7 village banks had previously met with the Social Consulting Team. In total, the Microfinance II Team collated information on the operational procedures of 15 village banks in the Blantyre region. 

We were able to obtain data on the operational procedures and capacity to loan of village banks through our profiling. Village banks are informal financial structures that join members of the community. These structures empower individuals to invest their savings into the village bank and this pool of funds is used to distribute funds amongst the members. Village banks commonly hold weekly meetings which run for one to two hours. These meetings start and end with a prayer. The meetings involve a fee stage, a repayment stage, a loan allocation stage, and a share deposit stage. The capacity of village banks to offer loans is dependent on the level of shares that are deposited. However, loans are commonly allocated on a ‘first in, first served’ based as there is inadequate access to capital to meet demand. 

We also obtained data on collateral requirements. Most village banks do not have collateral requirements, but instead have different requirements to join, which is subject to change at the start of each six month banking cycle. The different requirements we have observed are a joining fee that is paid at the beginning of the banking cycle; purchasing a chitenje; owning a house in the village; or no fee/requirement to join.

The village banks we have interviewed commonly apply a simple interest rate of between 10% to 30%, with a significant majority applying a rate of 20%. The loan, plus interest, must be repaid before the bank closes at the end of the cycle. Once the total amount is repaid, the interest repayments made by the member are returned, which creates a unique system of forced savings. This effectively means that the village banks are using an interest rate of 0%, as no profit is retained.

Next Move: The next experiment to be conducted is Offer Test 1.

Grace Blackford 6 months ago

Status label added: Experiment Results

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