Project Everest

Revenue Stream

[Revenue Streams]: Microfinance II Malawi July 2019

Background information

The Microfinance II Team aims to offer loans to village banks that have been assessed to be at a safe or acceptable risk level for PEV to invest in. In July 2019, we successfully provided loans to two village banks - Titukalane 2 and Thandazani. Titukalane 2 received a loan for 300,000MWK, with a 15% interest rate and a leasing cost for the Google Pixel of 20,000MWK. Additionally, Tithandizani received a loan for 500,000MWK, with a 20% interest rate and a leasing cost for the Google Pixel of 20,000MWK. Both village banks and PEV signed a formal contract for this loan, which outlined the responsibilities of both parties, including submitting accounting information and interest repayments.

Current revenue - interest repayments from village banks

The current revenue stream for this project is generated through interest repayments from the loans provided to village banks. The interest rate is negotiated between PEV and the village banks over numerous meetings. It is based on the capacity of the village bank to repay the interest combined with consideration for the level of risk PEV is undertaking in offering the loan (as based on our risk profiling metrics and criteria).

Loan repayments occur in two transactions over the five month loan period. The repayment is received from the village bank to PEV through a transfer using Airtel money. The first repayment occurs at the four month point, and the final repayment occurs at the five month point (which is also the end date for the loan period). Our team determined that these two points were most viable to reduce risk, as based on our analysis of the accounting records and procedures of the village banks. Village banks have their highest level of capital and liquidity later in their banking cycle, which significantly increases the likelihood of repayment occurring when compared to attempting to enforce a monthly repayment schedule. 

For example, the loan contract with Tithandidzani commenced on 24 July 2019. The village bank received a loan for 300,000MWK, with requisite interest repayments totalling 100,000MWK and the leasing of a Google Pixel for 20,000MWK, making the total amount repayable 620,000MWK. The first repayment is 170,000MWK, repayable on 11 November 2019, and the second repayment is 450,000MWK, repayable on 16 December 2019. The second repayment coincides with the closing of the banking cycle and is the end date of the loan contract. If the village bank cannot meet the first repayment date, PEV may enforce a final repayment date of 16 December 2019 for the entirety of the loan.

Also, it should be noted that if a default occurs, all members of the village bank will be held to be liable. PEV has the right to use the emergency funds of the bank to cover the missing repayment amounts and will have first access to the funds of the village bank at the end of the banking cycle. This effectively safeguards the revenue stream and significantly reduces the level of risk undertaken by PEV.

Grace Blackford 5 months ago

Status label added: Revenue Stream

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