projecteverest

Proposed Experiment

[Proposed Experiment]: SoCon Malawi - Tapping into the potential of Education program and Microfinancing model run by NAYO in Malawi (1/2) - July 2018

by
Riddhima
Riddhima | 8 months ago | in Knowledge Base

The projects in Malawi work in close association with NAYO, Nancholi Youth Organization, a Non-governmental Organization assisting 26 villages in the small rural district of Nancholi providing social, nutritional and educational support.

On 17th July,2018 and 19th July,2018 the Social Consulting Team interacted with the management staff of NAYO to get a better understanding of the microfinancing model managed by the organization. From the meeting it was inferred that NAYO provides small loans of 20,000 MWK to groups of 12 people (240,000 MWK per group) at an interest rate of 15%. The maximum period of repayment is 6 months, with each payment being made monthly, but can be done faster depending on the customer (Some customers prefer finishing the repayments in 3 months). All the payments are collected by cash, so it becomes easier for NAYO and the customer to follow a monthly payment system.

These loans are only provided to volunteers of NAYO, assisting them flourish in their respective businesses and have a chance at a better lifestyle. Another compulsory requirements for the candidates is that they are required to attend a 3-day financial training before receiving the loan money.

 A group loan is adopted by NAYO to reduce the risk of default and the members of the group act as a guarantor for each other. Since these villages are a close-knit community circle with high significance given to social pressure, village chiefs act as a supervisor for the loans. The microfinancing model is comparatively new for NAYO and only 2 group loans have been lent out in 4 villages till date. The repayment of one group is complete and another group is still paying their debts.

The following pain points were identified from the interactions with NAYO:

-          Lack of access to funds

NAYO obtains most of its funds through grants and fundraisers and the ability of lending money is highly dependent on the amount of grants available at the time. This makes the loaning system unreliable and inconsistent.

-          Lack of financial education

NAYO has an education program in place for the groups borrowing the loan. This program provides basic financial literacy to the candidates on how to save and invest money for their businesses. However, due to the limited human resources (only one person is training the groups), the outreach of this program might be limited. The efficiency of the education program still needs to be verified.

Proposed Experiment

The experiment proposed here acts as a test to understand the viability of microfinancing in the rural/fringe urban areas of Blantyre district through NAYO. From this method we can empower an existing model of microfinancing along with testing the grounds to set up a large-scale microfinancing system to meet the demands of the customer.

  1. Education Program

A major challenge faced by the candidates taking loans by NAYO is the inability to make good use of the loan money. Candidates are new to the markets and lack the required education to understand the intricacies of setting up a business. Being unable to set up successful businesses can lead to them not being able to pay back the interest rates and defaulting.

Hence, a comprehensive education program can help reduce the risk of default by training the candidates on how to conduct a business. NAYO provides a 3-day training for the candidates interested in the loans. On the first day a member of NAYO explains the loan agreement details and utilize the next two days in providing training to the candidates on how to do their business. It includes training them on basic record keeping, supply chain and an understanding of the demands of the market.

Assumptions

Some of the assumptions used for the program are as follows:

-          The learning model adopted to teach the candidates business in 2 days is holistic and engaging to ensure they are able to set up successful business models.

-          The candidates can absorb the material taught to them and implement the learning into practicality.

-          The training program reduces the risk of default by teaching the difference between good debt and bad debt.  

-          Candidates are eager to learn and there is a general demand for the education program in the focused customer segment.

Validating the assumptions

         I.            We currently have 2 groups of 12 people (24 individuals from different village demographics) that have already received these microloans on behalf of NAYO and they can help provide validation to some of these assumptions. Some questions validating the above-mentioned assumptions are:

-          Did you find the education program conducted by NAYO productive towards conducting your business? If you had a business before the education program, how do you do your business differently now?

-          Did you learn well through the group learning in a classroom environment or do you prefer one on one methodology? 

-          Have you made profits from your business by following the strategies suggested in the program?

-          Do you enjoy learning the underlying strategies on how to run a business? Would you recommend the program/loan model to a friend or family?

Due to the close collaboration of Project Everest and NAYO, the Social Consulting Team has access to the details of all the 24 customers. A one on one interview with the 24 people who have taken the loan can be beneficial to better understand the usefulness of the education program.

       II.            An examination at the end of the training program to test the proficiency of the candidate on the content learnt over the 2 days can be correlated to their performance in the respective businesses. A direct comparison between the test results with the performance of their business can provide the qualitative information on the efficiency of the education program.

     III.            Comparison in the way business was conducted by them before and after the education program/loan. Information on the changes made by the candidate for their business after the training program and the subsequent profit or loss can establish the performance of the education program. 

A clearer understanding of the demand and method of supply of the education program can help Project Everest identify the gaps and provide the required solutions.

How PEV can do it?

If gaps are identified in the education program run by NAYO, Project Everest can help develop a business module for microfinancing for the organization. This module should be designed keeping in mind the customer segment and should be tailored according to their requirements. The module can include basic training on loans, conducting business, bookkeeping, profit and loss statements and knowledge on supply chain.

If, however it is found that the education program is already comprehensive and meets the requirement of the customers, Project Everest can assist with the outreach and scalability of the program. Some of the methods which can increase the scalability of the education program are as follows:

-          Digitalizing the education program

Providing a digital platform for the modules would ensure that the learning can reach a larger number of the population without the requirement of human labour. This would ensure minimum input cost with the maximum outreach. 

-          Training of NAYO staff

Project Everest can develop a program which training can be provided to NAYO volunteers and staff who can then hold workshops with prospective candidates. This can enable faster supply of the program.

 

After the education program, the second part of the experiment would be for PEV to invest into the microfinancing model run by NAYO. The second part will be posted separately. Please leave your comments and thoughts below. Thanks for taking the time to read through to the end :)

 

 

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

Rose Martin 8 months ago

Hello!

I'm loving this post and find it interesting to hear about the landscape for Microfinance in Malawi. I think a lack of financial education is something that many SoCon teams have found to be a problem, and a potential place where we can step in and find a gap.

What we've tried to steer clear from in Fiji this month is providing training that doesn't give a direct output to something that can help us, as a Microfinancer, reduce the risk of someone applying for a loan. I think it's easy to get caught up thinking of all the business modules you can write up that may be useful, or that people may enjoy; but they may not actually reduce risk or be useful.

What we've tried to do with our MVP this month is stick to financial literacy for now, and we've made our 'training' not just one workshop, but a follow up experiment to see whether or not clients are able to actually implement these functions in their own businesses. We require participants to send us their financial business transactions in our income statement worksheet for 5-days following our workshop, to see whether or not this is easy to implement.

While this has been useful and is a good way to track whether or not this training actually 'works', what we have found most difficult is thinking of similarly accurate ways of tracking training that is perhaps less numerical; for example educating on supply chain as you mentioned in this post.

So my question is this;
How would you plan to measure whether or not training modules are actually useful, or actually help to reducing risk of a client applying for a loan? And how long do you see this process taking?

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Riddhima 8 months ago

Hi Rose,

Thank you commenting and bringing forward some valid points for the education program.

I strongly agree with the concept of requesting business transactions statements as a means of understanding the actual effectiveness of the program. This can illustrate the learning a candidate has and their ability to convert that learning into practicality.

Something like supply chain or marketing strategy can be tricky as they are hard to measure and can be subjective.Probably tracking their business activities(where they are buying their supplies from, where are they selling their supplies to)can be a method of understanding what the candidate has learnt through the education program. Another method could be hiring business consultants from the country itself who understand the business aspects way better and can provide personal assistance to the candidates.

A final method of tracking is to invest some capital in a controlled environment to analyse the behaviour of the customer segment. What Social Consulting, Malawi is thinking (the second part of the above experiment), is to invest small amounts of capital on group loans with NAYO over the coming 3 months of project (December, January, February). If we can accumulate the process of education program, giving out loans and repayment in 3 months we can have sufficient data points to test the usefulness of the education program and to observe if people make good use of the loans. Observing how the candidate is investing their money and performing in their business can be directly correlated to their application of learning from the education program. Obviously, if funds are being committed it needs to be done in a very controlled environment where the team understands all the variables they are dealing with. I am currently working on the second part of the post and will be posting it soon.
I hope I was able to put my point forward clearly. Please provide your comments. :)

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Rose Martin 8 months ago

Hi Riddhima,

Thanks for your reply!

I understand completely what you mean with testing things like supply chain and marketing, but I just worry that it may be too costly, or labour intensive to test these things and their effectiveness on a large scale. As you say, they are quite subjective, and undertaking activities such as hiring business consultants may be costly and difficult. Obviously these are assumptions I'm making - and it's something my team and I have been trying to flesh out this month as well and look into.

I think partnering with NAYO is a really interesting experiment and could give you some interesting insights. I think a couple things to think about are 1) making sure the content that NAYO is teaching is something that you think will be beneficial and/or similar to something that you would implement if you were to go into education yourself, and 2) looking to compare this experiment with others not undertaking the education program, to see if there is a difference in terms of their risk of paying back loans.

I'm interested to see the second part of this post and talk more about this!!! And good luck finishing off your month!

Rose

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Mallory Dobner 8 months ago

I think an interesting experiment for the future would be to compare a series of workshops performed over a period of time, say once a week for four weeks, to the three day workshop that covered the same amount of modules. I think it would be interesting to see the different rates of knowledge absorption and implementation of aspects into a business if you were to give someone everything at once vs. over a period of time where you allowed them to ask questions and have follow up sessions.
This would obviously be more labor intensive and thus more viable for once the system is digitised, but an interesting and what I would see as important comparison.

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Andrew Vild 8 months ago

Status label added: Proposed Experiment

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