Project Everest

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[Idea/Concept Not Complete]: SoCon Fiji - Further Kickback Loan Testing - July 2018

This month we have been looking at a number of solutions to combat the inaccessibility to finance in the Fijian community. After empathising and surveying villagers, we analysed our findings to determine the possible solutions that would provide value to the local Fijians.

Current solution

This month we looked at testing the loan process; looking at HOW to provide loans, ideating the best methods to monitor repayments, and looking at the preferred methods of collection.

This month we tested the loan process by providing a loan for the buka stoves sold by the Fuel Assessment team. It was identified that the villagers were having trouble coming up with a lump sum payment of sixty dollars for the buka stove, and our solution to this was the payment plan for this customer segment. We set a flat interest rate of 8% which was significantly lower than the interest rates offered by local banks and microfinancing institutions. This eased the financial burden of those who were seeking to purchase the stove. Since the online digital repayments system has not yet been created, we offered these loans and collected the repayments in cash.

Another customer segment that we identified this month were farmers who required loans to purchase farming equipment, as well as people aspiring to start their own small businesses but lacked the finances to do so. We were able to test the kickback loan (see Ineke’s post) with the farmers to incentivise them to pay on time and to alleviate the financial burden of a loan by removing the uncertainty premium once the loan was collected. The farmers are using these loans to hire tractors and pay for labour on their farms.

Proposed solutions moving forward

To further test the loan process we need to start giving loans to our other customer segments including small-business owners.

Our main proposed solution is to provide loans using methods that are both convenient and scalable to our customer segments. We have been testing mPaisa as a form of mobile money to repay loans. This will allow us to reach our customers who are unbanked, most of these customer lying in the farmers customer segment. It removes the need for individuals to start their own bank account, many of whom do not have the finances to start one. From our surveying of farmers, we were able to deduce that 26.7% of farmers were unbanked, and hence this is a major customer segment.

Another way to reduce risk is to provide training to individuals to ensure they can convey financial information required to assess their risk. If we can provide training that lets attendees produce their own financial statement at the end of the training period, we can use that to assess their risk. Since farmers and people seeking to start their own business tended to not have a financial history and financial documents, these were customer segments that we aim to provide loans to in the future. To see what was done this month on training, see Rose’s post here (link the post).


edited on 6th September 2018, 00:09 by Justin Hakeem

Wade Tink Jul 27, 2018

The parts that are related to your solution are:
"a flat interest rate of 8%" Why did you choose that rate? How did you calculate the risk?

What is the capital amount you provided?
What was the loan period?
What information did you require of the customer before you provided the loan?
Guarantor required? Individual or pooled loan?
Customer segment details (by linking to another post)
Payment details and timings?
"Offered these loans and collected the repayments in cash" How long did that take? Is it viable?
How many loans did you offer? (This could be part of a results post on that specific experiment)
What is the default rate? Issues you encountered with the solution as it stands?

Same information on the farmers would be great as well.
With all this information have you validated the findings? Is there statistical significance in the results- what is assumed versus known?

ALSO- please edit the post instead of creating another one. Thanks.

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Benedict Tan Aug 11, 2018

In terms of the loan structure, I'm just wondering, since micro financing is about helping alleviate poverty, would it be viable for initial loans for a given customer, to be offered at a very low interest rate (perhaps even zero), with the aim of gathering information on credit history?

This means that initially, customers only need to worry about paying back the loan (late fees should apply but they should ensure that farmers/customers wouldn't be severely affected by them), indicating their likelihood of defaulting.

Any successive loans will have their rates determined by the lateness of repayment of the initial loans. Would this be a possible strategy to consider for next time?

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Rose Martin Aug 13, 2018

This idea is super interesting. But I think for us to get something out of it, we need to ask for something in return. So as you say, for credit history we could ask for types of financial data perhaps, either traditional or non-traditional data. This could be a way to try to build up credit scores. But we'd just have to be careful about the presence of risk for us and the amounts of money we were giving out 'interest free' - but nevertheless is an interesting idea to explore!

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Mallory Dobner Jul 27, 2018

How prevalent is mobile money in Fiji? And is that rate of prevalence going up? I know within Malawi the rate is still relatively low, but is rising exponentially, and thus makes a good system that we are able to educate people on as it will improve other aspects of their lives. If there was a similar culture in Fiji I would highly encourage the use of mobile money as it easily allows access to all of your customer segment, although you may run into issues with different carriers/charges.

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Andrew Vild Aug 6, 2018

Status label added: Idea/Concept Not Complete

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