Project Everest

[Proposed solution]: SoCon Malawi - Selling Creditworthiness - July 2018

by
Kurt Michl
+1
Submitted by
Kurt Michl | Jul 20, 2018 | in Knowledge Base

Over the past few weeks in Malawi, we have gained some knowledge on informal institutions we are calling village banks. They operate as a savings fund which provides microcredit to its members in the aim of generating savings for the fund, and it's members. There is a detailed explanation on how these institutions work in the post about the village banks; https://projecteverest.crowdicity.com/post/572973.

An idea that was generated from the discussion on the village banks post is an original idea that strays from the concept of micro-finance which we have been following. 

Such a small percentage of the Malawian population have access to a formal bank account (18% in 2017) and even fewer have access to formal lending (6% in 2017). Therefore, there is not really any credit history for the vast majority of the population, and certainly no accurate credit-rating. Because of this, banking institutions and for-profit MFIs offer loans with high interest rates, which are inaccessible to most. 

On top of this, there is a large interest in attaining capital for investment into businesses if it were offered at a cheaper rate, or with more fitting terms. We may be able to clear up this lack of credit information with the help of the village banks records.

We have gained access to three village banks records, and they are very clear and very simple. It clearly shows individuals ability to save, to borrow and to repay money. If we assume that all village banks have such clear accounting systems (though they are basic), and that village banks are widely spread across Malawi, with more than 20 in our study focus area of Nancholi, each with 30-60 members. 

If we were able to gain access to these historical records (which are hardcopy records, and possibly kept by the treasurers), and we found a clear way to digitise these files, there  may be a possibility to market this data to banks and MFIs. This would possibly allow for such institution to offer loans which are more suitable (with lower interest rates), and extend their reach into communities which would have been previously unreached. 

If this became viable, it would be in our best interest to incentivise these village banks to record their transactions digitally. That could take the form of providing basic computers or tablets with excel capability for example. 

 

The steps in working towards this are to establish with the banks wether or not credit information on unexposed populations would have some value for them, and wether it is something they would potentially pay for.

In conjunction with this we would also need to meet with several village banks to see if it would be possible for us to gain access to their records, and any past records they would have as well. 

If it was going to be valued information, it would be potentially interesting to assess if a USSD based survey would be useful in gaining more information on how current loans on offer fall short for 94% of the population. this information could also be marketed to lending institutions. 

 

However, in the immediate timeframe, I think it would be interesting to assess the viability of digitising the credit data on the records of these village banks for a sample of 5 village banks. We would then present this information to a series of MFI or commercial banks to scope out their value. This should be done in conjunction with the experiment outlined in the post about village bank membership; https://projecteverest.crowdicity.com/post/578369

Even if they banks don't value the collated credit information it will still be very useful for our future projects in SoCon. 

 

edited on 5th September 2018, 23:09 by Justin Hakeem

Andrew Vild Aug 13, 2018

Kurt,

I think this is a very interesting concept in theory and would definitely act as a proposed solution for a *section* of a business model.

Aspects we need to look into are:
- financial value of the data we are providing to MFIs
- social value of providing the data to MFIs - will they give a competitive rate? Will they enable "good debt", how will they respond to those who default?
- are MFIs going to compete with or make Village Banks obsolete (bringing it all back to social value of them having this information)
- cost of the hardware to the village banks (or PEV), cost of training how to use the hardware & software, cost of treasurers making errors in their records and the accuracy of data
- value of the proposed data to PEV and the opportunities it provides us with respect to creating a Microfinance Business and any associated opportunity cost of providing to MFI.

Interested in your thoughts. I will need to look into creating an alternative tag for "proposed solution" as opposed to just "solution"

Reply 0

Andrew Vild Aug 13, 2018

Status label added: Proposed Solution

Reply 0

Share