Microfinance and Consulting

Access to socially beneficial assets through access to capital

Vision

Decentralised bridge of capital between the developed and developing world

Loans provided to local community members, previously without access to capital, to enable them to access socially beneficial products & services and develop credit ratings for future financial security

AUD provided in loans in the Nancholi region (avg AUD$83.42 loan size, average income in Malawi is AUD$449 per annum however 75% of the population live below the lowest poverty threshold of USD$1.25/day)

%

of customers followed up with confirmed improved situations and that the payment plan has been affordable. This occurred 6 months after gaining access to the loan

THe Problem

Financial inclusion is a severe limitation for the Malawian economy, as only 18% of adults have access to a bank account, with only 6% of the nation’s population having access to formal lending. Savings is also a major issue: 54% of Malawians don’t have savings, with the major cause due to lack of money after expenses (Lee, Research Summary).

Malawians are alienated from formal financial services with the major issues being:

  • Lack of collateral
  • High-interest rates
  • Fear of indebtedness
  • Low/irregular income

Formal financial institutions provide some capital, but this is usually limited to those with a strong history of financial information. If consumers do not have an adequate financial history, they are either rejected or are charged high-interest rates. Organisations external to the commercial banking system, such as FINCA (for-profit business) and Umunthu Microfinance (charitable organisation) have tried to provide access to finance to these communities, however, it remains difficult for individuals to obtain loans through these organisations.

Without the opportunity to expand their businesses or pursue economic opportunities, Malawians are hampered in their capability to improve their financial situation and increase their income. Whilst some ingenious solutions have been created locally such as village banks (a collaborative effort by a community to distribute loans to their community), these organisations often cannot meet the demand among their communities, nor issue large-scale loans.

Lowering access barriers to finance

in Malawi, access to finance is the biggest obstacle to business (Malawi Enterprise Survey 2014). This barrier exists both in terms of cost and geography. By creating a tech-enabled micro-finance institution, we are looking to lower operating costs and increasing geographic reach to increase access to financial services.

Making productive assets affordable to more people

Productive assets often involve high upfront costs, which make it unaffordable for everyday consumers. This locks out many consumers from being able to improve their economic situation. By allowing this cost to be spread out across time, this makes key assets more affordable to everyday consumers.

Financing productive assets, not consumption loans

One of the key criticisms of micro-finance is that it can create debt traps for consumers, where consumers have to re-borrow to pay off the initial loan. By having strict criteria to finance productive assets which improve economic outcomes for consumers, we are looking to enable consumers’ independence and avoiding creating debt traps.

KEY PARTNERS

Nancholi Youth Organization (NAYO)

Nancholi Youth Organisation (NAYO) mission started out as helping those suffering from HIV/AIDS by providing social, nutritional and educational support. Today they work in Nancholi promoting full and equal societal participation among, building life skills, educating youths and the community in the areas of HIV/AIDS, reproductive health, human rights, food security, gender and environmental protection.

HOW IT WORKS

This project aims to reduce the inefficiencies that exist in Malawi’s financial system in order to improve access to finance. Informal finance provides lower amounts of capital and is available based on social networks (family/friends), village banks or private lenders. People may go to informal finance because they cannot access formal finance, or because they prefer it due to proximity or social trust. Currently, about 20-25% of people have access to informal finance.

This project aims to provide financing for productive assets that directly improve the lives of Malawian consumers. We seek to find opportunities where financing goods or services can provide individuals with the ability to directly improve their quality of life. Often the upfront cost is too high, but when financed over longer periods, it becomes affordable.

Currently, we are building out the service by providing access to our Solar Products through micro-financing. This has been an excellent opportunity to provide social good and also gain invaluable understanding of our customers should we advance to the next stage of providing financing for a range of quality assets. The key to executing this is understanding the direct benefits to the consumer, how to manage payment systems and how to manage potential loan defaults. The next stage of the project is centered on these challenges; building stronger relations and interactions with customers, a customer relationship management system (CRM) and understanding and managing defaulting customers.

The business model

The aim is to become a digitally enabled microfinance institution. By focusing on digital solutions, we can improve efficiency, and pass on cost savings to consumers. The digital opportunity in Malawi has been made possible by several recent infrastructure developments; improved mobile communications, mobile payments and advanced biometric national identification systems for Malawian citizens. Current revenue is generated by charging customers interest on the provision of capital and in this testing phase the customer interface has hampered repayment ability and thus the validity of the business model has not been able to be established. Initial focus is on proving the business model by testing and proving each component part using PEV provided capital before opening up the opportunity to gain external capital in a crowd sourced way.

The future of this project is a marketplace to directly connect lenders from the developed world with those in the developing world on commercial terms, as opposed to a charity model like Kiva. By westerners providing capital directly through a digital microfinance platform we seek to lower costs and scale the provision of capital to individuals within a country like Malawi. ‘Producers’ (as it relates to a platform business) in a western country would be rewarded with higher interest rate returns than available through banks in their own countries, ‘consumers’ in a developing country like Malawi would be able to advance their economic situation through the provision of this capital.

KEy Value Proposition

Two-thirds of our solar customers would not have access to the social impacts of this product without access to microfinance
Customers engaged with solar are able to access the benefits now and lock in financial savings provided through the product earlier
Developing a repayment history can provide future opportunities to access capital, and for larger amounts
Access to capital is the cornerstone of economic empowerment for individuals, enabling them to access further socially beneficial goods such as Solar, Water and communications. Longer-term this can develop to direct income opportunities through borrowing for business purposes.

WANT TO INTERN ON THIS PROJECT?

LOCATION

Malawi

DATES
PRICE

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