Project Everest

Proposed Experiment

[Proposed Experiment]: SoCon Malawi - Improving Accounting to reduce interest rates for Malawian business owners - July 2018


We have done some surveys of small business owners around the Blantyre and Limbe markets to validate our customer segment. We have come to the consensus that there is a big stigma against borrowing a loan, at least from a financial institution, due to a fear of debt. This stigma stems from two major reason: 1) High interest rates and 2) no collateral. Another fascinating revelation we found from conducting our surveys is that the marketplace is a very collectivist society. So shop owners are very comfortable operating in perfect competition (sell identical goods) to the stalls next to them. If a customer is after a specific product and the stall owner is out of stock, they will send the customer to another shop that will have one.


Experiment summary

I believe both issues can be solved by having a formal statement of their accounts that they can take to the bank to show that their business is worth investing in, thereby reducing their risk premium (therefore reducing their interest rate). Although these business owners are more educated in business operations and financial management than their rural counterparts, there are gaps in their knowledge that inhibit them from running their business effectively; the major one being a system to manage their accounts, assets and income. What I am proposing is an application that will help them manage all these factors of business more effectively. Eventually we could use this information to build and assess a credit score. From there we could issue them a loan ourselves, recommend a commercial bank/ private financial service (potential partnership opportunity) or maybe act as an intermediary financial provider (good way to establish a presence as a Microfinance entity here in Malawi). This experiment will most likely stretch over a large time frame (1-3 years) but the process would give PEV great insight into the trading and micro financing environment in Malawi.


What needs to be validated (assumptions)

That people want to further their accounting knowledge/ improve business productivity (i.e. that demand for the product is present)

That people have a gap in accounting knowledge that we could fill (I.e. how people manage their book keeping/ money)

That people are happy with their current account management system/ business operations (again confirming there is a demand for the product)

That the banks will assign a higher credit score or a lower risk profile to business that have a formal statement of their accounts

Assessing any other gaps in their business knowledge (such as good and bad debt, maintaining profitability, diversifying their products, effective marketing etc.)


Blocks to successful validation

The major issue we found was that to successfully validate the assumptions above, we would need access to the business owners bookkeeping. This can be a very personal thing to ask of someone and they wouldn’t give us access to their records unless we give them something in return.

Another block is that people are busy running their business’, they might have limited time to consider how to improve their operations and account management.

Commercial banks can be very strict about protocol and answering our questions about risk analysis may prove difficult (FMB refused to talk to us unless we had a letter of recommendation/ employment from PEV).


Validation methods

I believe the most effective way to validate our assumptions and get around the blocks listed above would be by providing a free consulting service to 5 businesses. This gives the business owners something of value, making it more likely for them to give us access to their books. If we develop a close relationship with them it can also give us an insight into the way all the other businesses in the market operate. From there it becomes a lot easier to analyse things like supply and demand of different businesses/ products, cultural behaviour involving trade etc. Another gain we get from developing these relationships with business owners is that we have a potential testing grounds for our product, once it has been fully developed.


Other thoughts

What happens when it becomes apparent there are significant gaps in a person's overall business knowledge that can’t be solved with a consulting service?

This is where we could provide an education program to fill these gaps. This could address the basic business concepts such as accounting, marketing, finance, customer and portfolio management. The problem with running an education program, is that it’s not scalable and cannot be operated while out country.

A possible way to mitigate this issue might be to franchise the program, where we’ll provide free workshops to people willing to educate others (this might be what occupies majority of the team's time in country). These workshops will include the franchising arrangement. They can then run the workshops while we’re out of country for a fee, and send us dividends on a monthly basis. We can promote a positive image for Project Everest in the community as educators if we let them use our brand as well. To stop them from misusing our brand we would have to maintain a close relationship with them, which can be done by assuring them we will come back in the future to make updates to the program (improving on it gradually).


What are your thoughts?

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

Rose Martin Jul 23, 2018

Hello guys!

I'm super interested in all your thoughts regarding financial education, especially in an accounting sense. In terms of the blocks that you identified, here are my thoughts;

I identified the block of looking at a businesses current accounting/financial information a couple of weeks ago when we started our month, but this actually didn't seem to be as much of an issue in Fiji as I originally thought. I think what's most important is to look at what the value proposition is for the client of participating in your experiment, and to be cautious and careful when communicating this.

So for example; for our experiment we wanted to collect client's financial data for 5-days after we conducted a training session with them. The reason we collected this data for 5-days was to see whether or not they could implement the learning they had gathered from the training session, and apply them to their own lives. Thus, the value prop for the client here is that we don't want this to just be a 'one time training session', but we want to make sure that what we are teaching is actually useful to them, and it is a chance for them to reach out for 5-days after the session to ask any questions or clarify anything that they don't understand, while simultaneously we are getting the information we need to validate our experiment.

Thus I do think providing something 'in return' is necessary, but its equally important how you frame it to the client, and sell its benefit to them in the long-term.

Also, regarding your block about limited time to change their accounting preferences/ways of bookkeeping - my suggestion would be to keep it as simple as possible for them. This way, they will be able to implement something small, which still benefits them and doesn't take too much time. For example, we created an extremely simple income statement worksheet that looks similar to a general ledger but is more user-friendly. This is all we wanted them to fill out, which made it easy to do and clear to read and see the benefit of. In my opinion, you don't need them to be filling out and updating perfect accounting records every day, but there are ways of getting people to fill out something simple which shows their willingness to learn and adopt new styles of record-keeping.

I hope this helps in terms of ways to mitigate these blocks, and keep me updated on how this ideation goes regarding education! Well done guys you seem to be smashing it and keep the ideas coming!


Reply 3

Seif Zakri Stacey Jul 25, 2018

Thank you rose! We have validated that there is a gap in their professional business knowledge (especially accounting) through personal surveys and seeing the way they operate first hand, we validated by confirming that their problems are a lack of access to capital and financial security. We have also cross referenced this with information we’ve gathered from major banks here in Malawi, they do not loan to the market stall owners and when they do they charge high interest rates because they do not provide any formal financial statements. The process of implementing accounting methods is something I have given some thought to as well. I was thinking of dedicating 2 weeks to a month purely on the consulting service. Why I wanted to dedicate so much time to this is because it is imperative to properly analyse their record management in place, give effective education and monitor it in practice. I think you are correct though, it needs to be a gradual transition and introducing simpler statements would be more efficient to achieving a full understanding of the concepts we are conveying to them :)

Reply 1

Rose Martin Jul 25, 2018

Yes I completely agree that we do need to dedicate time to this in order to see whether it is affective. After all, asking people to change the way they run their business isn't a small feat, and it would be interesting to know just how much time was needed in order to get people to implement systems such as this long-term. Keep the ideas coming!

Reply 0

View all replies (2)

Mallory Dobner Jul 24, 2018

I really like this idea! I think it is super important to educate individuals and businesses on the ways that good book keeping can benefit them. Something else that I think could be good would be education around financial projections, and the ways that a loan can benefit the business with a large cash injection now, rather than the smaller cash injections of usual business.
From what I've seen you are right with the reasons that businesses think they don't want loans, but I also feel an aspect is that they don't understand the benefits that a loan can bring. Whilst I think the day to day running of the business is an important aspect to focus on, I think it should only take maybe 2/3 of the workshop, with the other 1/3 focusing on the future, and the way to use the loan effectively. Part of this might be giving some ideas around what the loan could be used for e.g. buying more of the same stock vs. buying a new form of stock that is slightly more expensive, or digitising their accounting, and then showing the business the projections of investing in these areas vs. their projections if they don't have the loan.

Reply 2

Seif Zakri Stacey Jul 24, 2018

Thanks Mal! I haven’t gotten around to documenting the specifics of the education/ consulting program but digitising their accounting is definitely an integral part of it. Teaching them about the benefits of stock diversification and proper product testing is a great point, when I organise the critical action for the future I will include this!

Reply 0

Rose Martin Jul 25, 2018

Hi Mal!

I think your point about content is super valid! One way I see this happening is yes, as you say digitising accounting; but having this in a way that they can input data in a very user-friendly way, and an algorithm will automatically spit out an output which can provide them, and us, with information. This information could be things like financial statements, or as you say, things like financial projections as well. But having this coded all on a digital platform means that we don't necessarily need to train them or 'educate' them on all that much, if we can get a software that does a lot of the hard work for us.

These are just some thoughts, but I like where you're going with it and it will be interesting to look more into in the future!

Reply 0

Samantha Orum Jul 27, 2018

I'm loving this thread of ideas!
Also through a digital platform that could be used daily to input their daily costs, sales, or weekly purchases for the business, we could have a thorough understanding of their financial summaries over time.
This could be used to present to banks, or if we give out microloans, to assess the customers risk, and thus determine and interest rate. One thing we have been finding with the banks here in Malawi, is that some banks just won't give loans to small businesses that work in the markets because they don't have collateral or a way to show the financial summary of the business.

Reply 2

View all replies (3)

Andrew Vild Aug 13, 2018

Status label added: Proposed Experiment

Reply 0