Project Everest

Experiment Results

[Experiment Result]: Microfinance II Malawi - Offer Test: Building Risk Portfolio - July 2019

Experiment Design Post:

Lean Phase: UVP

 Assumption: Village bank risk can be diversified, where characteristics included in each village bank’s profile are appropriate indicators of risk. These characteristics include:

  • Village bank interest rates (min. 15%)
  • Claimed default rate (approx. max. 5%)
  • Requirement to join bank (min. deposit required)
  • Incentive to repay (heavy social pressure - open to interpretation)

 Results: The Microfinance II team developed a profiling criteria to assist in determining the level of risk of each village bank. This criteria has four key metrics: interest rate, default rate, requirements to join the village banks, and incentive for members to repay loans. Whilst conducting this experiment and developing the profiling criteria, our team determined that ‘number of members’ would not be a relevant metric. This was based on the fact that we wanted to interview and offer test village banks of differing sizes to ensure our portfolio could be diversified to effectively manage risk.

This criteria was used to create a credit score system that Microfinance II used to assess the village banks during meetings to enable team members to make an on the spot decision as to whether the meeting should proceed to Offer Test 2.  The credit scoring system and the criteria it is based on are outlined below.

 Criteria for passing profiling 

  1. VB interest rate:

    1. Min 15% interest repayments

  2. Claimed Default rate:

    1. Approximately max 5%

  3. Requirement to join:

    1. No walkins

    2. Min deposit > 0

  4. Incentives for repay loans

    1. Heavy social pressure (open to interpretation)

 Credit Score









Overall scoring criteria

 < 8 = no offer

8 - 11 = 20% - 25% (interest rate charged by PEV)

12 - 16 = 15% - 20% (interest rate charged by PEV)

17 - 20 = 10% - 15% (interest rate charged by PEV)

 *Note: All banks that scored higher than a 12 were offered 20% to begin negotiations. A score between 17 and 20 meant that PEV were open to providing interest rates below 15% should these village banks offer a counter proposal.*

Based upon this, the team determined that Tithandizane, Titukulane 2, Mtendere, Chisomo 1, Titukulane 3, Umodzi village banks were suitable to proceed to offer test 2. 

Below is a breakdown of the results of all village banks that were successfully offer tested.

 Tithandizane credit score breakdown: 

  • Criteria A: 3
  • Criteria B: 5
  • Criteria C: 3
  • Criteria D: 5


 Titukulane 2 credit score breakdown:

  • Criteria A: 5
  • Criteria B: 5
  • Criteria C: 3
  • Criteria D: 2


 Mtendere credit score breakdown:

  • Criteria A: 3
  • Criteria B: 5
  • Criteria C: 2
  • Criteria D: 2


 Chisomo 1 credit score breakdown:

  • Criteria A: 5
  • Criteria B: 4
  • Criteria C: 0
  • Criteria D: 2


 Titukulane 3 credit score breakdown: 

  • Criteria A: 3
  • Criteria B: 4
  • Criteria C: 0
  • Criteria D: 2


Umodzi credit score breakdown: 

  • Criteria A: 3
  • Criteria B: 2
  • Criteria C: 4
  • Criteria D: 2


 Tikondane credit score breakdown: 

  • Criteria A: 1
  • Criteria B: 5
  • Criteria C: 0
  • Criteria D: 1


 Banks deemed to represent too great of a risk to PEV (based on initial screening conducted from the previous teams meeting minutes) or not met with and thus did not proceed offer test 2 include: Tikondane, Alina Fe, Tiyanjane, Chisomo 2, Titukulane 1, Silk Bank, Nancholi Market, Nkoka, Malilo. 

 Validated Learning: These results match the hypothesis as the team was able to develop a credit scoring system that could be used to diversify and mitigate risk for PEV. Microfinance II met with and successfully offer tested seven (7) village banks. Of these, six (6) village banks were found to have suitable metrics to diversify PEVs portfolio, which is success point for proceeding to offer test 2.

 The Microfinance II team was able to obtain data on the key metrics, discussed in the results, that allowed the team to diversify the portfolio and mitigate risk. A key element to hitting the success point for the experiment came from the leniency of the credit scoring mechanism. Microfinance II understood that each village bank is slightly different and a ‘one size fits all’ approach would likely skew the results. To mitigate this, the scoring system was created to give each bank the best possible chance to proceed to offer test 2. However, despite this, the credit scoring system made it very clear if a village bank was suitable for diversifying PEVs portfolio or not.

 The results of this experiment mean that the team should move to offer test 2, after which UVP should be validated.

 Next Move: The next experiment to be conducted is Offer Test 2.

edited on 22nd July 2019, 12:07 by Lachie Haddow

Grace Blackford 6 months ago

Status label added: Experiment Results

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