Proposed Experiment

[Proposed experiment]: SoCon Malawi - Membership With Village Banks - July 2018

Kurt Michl
Kurt Michl | 7 months ago | in Knowledge Base

As discussed in the post specifically on the topic of Village Banks, these organisations are proving to be an extremely effective way for members to generate capital from their savings, and gain access to further capital through microcredit distributed  within these groups. More information and context can be found (and will be useful to understand this idea) by following the link

We have had quite a lot of interaction with these village banks, and each time we have walked out with new ideas, and a clearer understanding on why they are so successful. 

The idea:

This idea goes against the grain in the ways we have been thinking, as it is not so much about providing something, but rather about existing in current conditions with a positive effect. When I say that we should not reinvent the wheel, what I am referring to is the idea that village banks already have systems in place that are effective within their scale, and they can effectively service their own members to some extent. We have been thinking of ways we would replicate this, or use this to construct a business model. These ideas can be found by following the links:

This idea is not to provide anything to these village banks, but rather to become a member. Project Everest Ventures could become a member in multiple different village banks, by depositing an amount as a contribution to be loaned out to other members of the village bank. Over 6 months (accounting period), this amount would generate capital at a rate of 20% per loan. If it is working capital for the entire duration of 6 months (if it is continuously loaned out) which is a far assumption seeing as demand for loans is always in of excess of supply (see post on Village banks), then the amount would triple over six one-month loan periods. 

PEV may have to pay the membership fees of MK 300 per week to gain access, though it may likely be negotiable if there are conditions on our membership such as not being eligible for a loan, and being co-treasurer. By holding the position of co-treasurer we would gain access to all records immediately, as well as a clear understanding on how the money is actually managed. We may also see inefficiencies that could be improved for these village banks, which could open up potential future business lines.

Incentive for PEV

there are many incentives encouraging a membership with these village banks. Most obviously, it gives us direct exposure to microcredit markets in Malawi with a very large customer base. It also allows us to avoid any marketing or set up. Most importantly, it all but guarantees a larger return on investment, which means that it can be sustainable. It will also help the village banks and all of the other members.

Incentive for Village Banks

A recurring theme with the village banks has been that they don't have access to enough capital. They cannot provide enough loans to everyone who needs one each week, and the loan sizes are too small to make large scale change for any individual. An investment from a member with capital would be beneficial in this regard. Another incentive is that the village banks are extremely interested and excited to help each other learn and improve their lives. We may be able to educate them in the role of treasurer/co-treasurer on how to manage finances more effectively. These are the two major pain points we have highlighted (capital and education) and this proposal would likely be able to alleviate these stresses to some degree. 

Proposed experiment 

We approach several (at least 5) village banks in Nancholi, were there are over 20 and we have had meetings and begun to establish relationships with three of them. We make the proposal that we would like to become members and we would not want to take a loan. We would be contributing a sum (it could be once off, or on a periodic basis) and helping oversee the record-keeping. at the end of the six-month period we would collect our interest. It may be incentivised to the Village banks that a portion of our interest profit could be commissioned to them, though it would be preferable to act just like any other member. 

We have several other proposed experiments, so this one could be a stand alone or a control for another experiment. A very natural solution would be to combine this business model with the one detailed in the post "Selling Credit- worthiness"

The budget would look something like 5 x $ 100 AUD for a six month long experiment.

 Let's not reinvent the wheel, lets get more wheels. We can build to a car, and eventually a fleet of semi-trailers.  

This idea is brand new, but I would really appreciate your thoughts. 

I believe it could become a really effective MVP for December team to set up. 



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

Seif Zakri Stacey 7 months ago

This is an effective method to measure things like default rates and loan/ repayment frequencies with minimal risk. A question I have about the scalability of the experiment is would you hire agents or are you implementing some sort digital platform? If its the prior would the associated agency costs come under this $100 budget?

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Kurt Michl 6 months ago

You raise a good point Zak. As far as scalability goes I think that there are a few different ways this could look. This would depend on how the interest from village banks and from commercial banks.
However in the short term, and in the context of an experiment, agency costs will be unavoidable as there will need to be a lot of face-to-face.
To be considered in the future.

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Samantha Orum 6 months ago

Love this idea Kurt! This is something that could be really exciting to implement at the start of summer and track for the first 3 months of the term.

I'm curious as to what other objectives or insights we could gather from this experiment; maybe we could ask the treasurer to collect additional information during the bank meetings, such as asking what the loans are being used for (good or bad debt)? Or get an understanding of how they currently help each other improve their business?

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Andrew Vild 6 months ago

Status label added: Proposed Experiment

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