Project Everest

Problem

[The Problem] SoCon Fiji July 2019

Lean phase: Problem

Aim: To identify the most prevalent issues regarding financial management for micro-enterprises, and how these issues inhibit them from successfully running and expanding their businesses. Furthermore, we looked at how these issues restrict financial institutions from accessing customers. 

This post will look at the big picture of the problem, issues and external factors for businesses and financial institutions and the critical future actions that need to be taken.

The problem definition centres around a few main issues discovered over many months of research, including:

  • Many Fijians living in villages do not have ownership of land, nor do they have documentation to prove ownership
  • Many Fijian’s have a lack of access to financial knowledge, ensuring they are not educated in financial management
  • Traditional Fijian culture doesn’t require the need for documentation, ensuring they see no value in keeping it
  • Some businesses, mainly farmers, tend to have seasonal and irregular incomes, making it difficult for Financial Institutions to give loans (external factor)

Big picture:

Adopting the United Nations Sustainable Development Goals, the overarching goal of SoCon is SDG 8 - to improve decent work and economic growth. Firms in developing countries face substantial disparities. Loan durations to firms in low-income countries average 23.3 months, less than half of the average for firms in high-income countries at 58.7 months. Complicated loan requirements coupled with restricted access ensures that individuals in developing countries struggle to grow their business and improve their income, ensuring that many continue to live below the poverty line. 

 

Problem in Fiji: 

Native Fijians living within inland villages and working within the industries of tourism and agriculture highlight emotions of helplessness, frustration and demotivation when dealing with issues of financial management

Without the ability to have access to micro-loans, Fijians may not be able to afford essential goods or services that could positively impact their long term living conditions and health. This is a problem because if Fijians are left with no choice but to continue on with their accustomed way of living, they will not have the opportunity to enhance their standard of living.

From the July 2019 SoCon team, who surveyed 11 Financial Institutions, and 63 small to medium enterprises we found that:

  • 100% of FI’s have set loan requirements.
  • On average, all the FI’s interviewed rate their current marketing methods 3.8 out of 5. (1 = not at all and 5 = very effective). We classified these FI’s as only somewhat satisfied with their marketing activities, but could still be improved or need reviewing.
  • 81.8% of FI’s require some form of financial documentation.
  • Only 3% of small to medium enterprises interviewed know exactly what they need to get a loan.
  • Only 59% of small to medium enterprises kept personal and business documentation.

This information demonstrates the helplessness, frustration and demotivation faced by native Fijians, as there are strict requirements demanded by financial institutions in order to obtain a loan, however most businesses are not aware of these requirements, and only just over half of businesses keep relevant documentation. 

 

Specific Issues:

Many Fijians living in villages do not have ownership of land, nor do they have documentation to prove ownership

Problem CS: From the data collected in February, 30% of people surveyed experience land right difficulties, because they do not have land rights to their collateral. In Fijian culture, much of the land is passed down through the family, thus documentation often gets lost, or was never given. 

Problem FI: Financial institutions are negatively affected by potential customers’ lack of documentation and access to financial knowledge. 91% of FIs stated that they felt their time and resources were wasted on customers who entered their institution without the required documents and had to be turned away. As many institutions saw turning away customers as a last resort, banks endeavoured to assist customers but ultimately may simply need to turn them away and this can result in negative word of mouth and negative customer experience.

 

Many Fijian’s have a lack of access to financial knowledge, ensuring they are not educated in financial management

Problem CS: From the July 2019 data, 52.4% of businesses interviewed agreed that they had problems from an absence of adequate financial management. In regards to business owner’s perception of financial management, 37% believed that the process was too difficult, and 37% believed that having financial management wasn’t needed.

Problem FI: We also learnt that most larger banks refer customers to Fiji Development Bank (FDB) for start-up businesses and agricultural loans, as FDB was instituted by the government to support start-ups and farmers. FDB has lower requirements and lower interest rates. We also discovered that banks claims they put the interest of the customers above their profitability needs. FI’s have procedures and recommendations to help most customers obtain loans if they are unable to reach them by pointing customers towards the right direction. Moreover, the research found that a majority of Fijians who want to access loans do not meet the loan requirements. Without the ability to access financial documentations and knowledge, Fijians settle for microfinance organisations like SPBD, who provide a mandatory business training, and do not have strict loan requirements, but have high interest rates. This data is corroborated by the research conducted by SoCon 1, who found that 24% of respondents currently have a loan with SPBD. 

 

Traditional Fijian culture doesn’t require the need for documentation, ensuring they see no value in keeping it   

 Problem CS: Throughout our interviews we discovered that many don’t keep documentations because they don’t see the need or the value of it. Quotes from various business owners to support this statement include:

  • “We don’t need a loan, and we don’t worry about financial management until it’s a problem - it’s a simple life”.
  • “You don’t need proof of documentation within the village for anything, if it's personal or business, and that status has just run through our ancestors, but there’s no physical proof”.
  • “We prefer to save money at home and have no bank account, most transactions are done by cash in hand in the village, so it’s just easier”.

Problem FI:

We also found that customers did not have a tendency to have bank accounts and have saving plans in place, but the government has recently made it mandatory.

 

Some businesses, mainly farmers, tend to have seasonal and irregular incomes, making it difficult for Financial Institutions to give loans (External Factor)

Low and irregular incomes are also an issue contributing to this problem, as banks are less likely to give loans to businesses with an irregular income. Data collected from February stated that 11% of businesses have a significant fluctuation throughout the year. 

Next moves:

From the data collected up to this point, SoCon 1 and 2 will begin conducting offer testing after developing and refining an MVP. FI offer testing is a process which allows us to confirm PEV’s relationship with FI’s that identify the problem that they turn customers away. This is a vital step to ensure the SoCon team will be providing a solution to micro-businesses that suffices FI loan requirements.

 

edited on 23rd July 2019, 23:07 by (Account removed)

Jess Riley 11 months ago

Status label added: Problem

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