Project Everest

Value Proposition

[UVP]: Microfinance II Malawi July 2019

Aim: Our aim is to offer sustainable and tailor made loans to village banks in Blantyre, Malawi. These loans aim to meet the requirements of individual village banks whilst meeting an acceptable level of risk for PEV in order to ensure a return on loan is likely to occur.

Risk Criteria: The Microfinance II Team developed a risk profiling criteria to determine the level of risk presented by each village bank. This criteria has four key metrics: interest rate, default rate, requirement to join the village bank, and incentive for members to repay loans. Additionally, village banks of differing sizes and locations should be profiled to ensure that our portfolio can be diversified to effectively manage risk. 

This criteria was used to create a credit score system that the Microfinance II Team utilised to determine the suitability of a village bank. This was used during a meeting to provide an on the spot valuation to determine whether the team should continue to offer test, or whether the level of risk was unsuitable to continue offer testing. The credit score system is also used by the team after meetings to evaluate which village banks are most suitable to form part of our investment portfolio (based on risk). 

This credit scoring system and criteria is outlined below. 

Minimum criteria for passing profiling

  1. Village bank interest rate: minimum 15% interest repayments

  2. Claimed default rate: approximately max 5%

  3. Requirement to join: no walk-ins and a minimum deposit greater than 0MWK

  4. Incentives for repay loans: heavy social pressure (open to interpretation)

Credit score criteria

A. Village bank interest rate

B. Claimed default rate

C. Requirements to join

D. Incentive to repay loans

Overall scoring criteria

  • < 8 = no offer
  • 8 - 11 = 20% - 25% (interest rate suitable to be charged by PEV)
  • 12 - 16 = 15% - 20% (interest rate suitable to be charged by PEV
  • 17 - 20 = 10% - 15% (interest rate suitable to be charged by PEV)

It should be noted that all village banks that scored higher than a 12 were initially offered an interest rate of 20% to begin our negotiations. Negotiations that occurred from this point were within our scoring criteria in an attempt to maintain an acceptable level of risk for PEV. 

Offer Testing: Village banks must be found to have suitable metrics that will help to diversify the level of risk in PEV’s investment portfolio to proceed to offer testing. Where an acceptable level of risk was found, the Microfinance II Team proceeded to offer testing. Village banks who successfully passed offer testing identified that they required additional capital to meet the demand of members for a loan and that they would be interested in receiving a loan from PEV. 

Social Utility: The loans that PEV are proposing are tailor made to suit the varying needs of different village banks. This ensures that the loan is suitable for the village bank, particularly in terms of size and interest rate, as it is important to safeguard against the amount being beyond the capacity of the village bank to repay. Additionally, members of village banks often own their own small businesses. The increased capacity for loans enables individuals to both develop and maintain their business operations, enhancing improved livelihoods for both themselves and their families. 

Members of village banks are commonly women. The injection of funds helps to empower women to grow their own businesses and support their families, particularly in circumstances where women have expressed they receive limited support from their husbands or are widows. As a whole, the granting of tailor made loans to village banks will empower and enable individual members to receive access to additional loans to better support local businesses, livelihoods and families.

Next steps: Our risk profiling criteria and offer testing offers a unique opportunity for village banks to sustainably increase their capacity in order to empower their members. The criteria enables PEV to determine which village banks are suitable to offer a loan to, which aims to act as a solution to the issue of inadequate access to finance.

Grace Blackford 6 months ago

Status label added: Value Proposition

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