Mi-fi Module – The Next Generation – Encouraging Young Entrepreneurs

We are currently running our first Mi-fi Module in Georgia, where we are collaborating together with the MFI Crystal. Two of our Mi-fi members, Noah and Stepanka are in and around Kutaisi, to work together with the local Microcredit provider. Our visit has two main goals – the first is to present some basic research and inputs on extension services and value chain finance. The second lies in an analysis and feedback on workflows and processes on the different products and services offered by Crystal.

An Intriguing Idea

In order to spread entrepreneurial spirit among Georgia’s youth, Crystal has founded the Young Entrepreneurs Club. Especially in rural areas and among the older generation, parts of the spirit of the Soviet Union has managed to linger loner on. Many await the support and direction of the government. It is very important that young people who show initiative are supported in turning their ideas into reality; it is the purpose of the Young Entrepreneurs Club and the Crystal summer school to do so.

Visiting a meeting

agriculture-742210_640On one evening we visited a local section of the club. In a meeting room in Crystal’s headquarter six young people met to discuss the ideas and concepts of their projects. During the club’s meetings they learn about Marketing, Finance, Branding and other related areas from Crystal’s branch managers and other Crystal professionals. Projects can be funded with 2’500 $ granted by Crystal and US AID.

One example is a young entrepreneur who wanted to use the 2’500$ to start growing grass using hydroponics. The concept had the goal to produce several hundred kilograms of grass using only water and some nutrients. His possible market are farmers during winter when the cows cannot graze outside and have to be fed with hay and corn, which currently have to be partially imported at high cost.

An Opportunity for Value Chain Building

“Do you think the farmers have waited for this? They are conservative people, do you think that they will buy this new product rather than sticking to their old ways?” – We are asked by Giorgi Janelidze, one of Crystal’s Marketing people. Mister Janelidze’s scepticism is well founded. Farmers have been using traditional methods for decades, which are not likely to change unless sold via innovative channels.

cigarettes-621346_640This situation would be a great opportunity for value chain building. It is vital that such innovative entrepreneurs get access to a functioning value chain in addition to a credit. Since both, the farmers and the grass grower are part of Crystal’s portfolio, the MFI could serve as an intermediary, closing the missing link in the chain between the producers and the consumers. This is only one example, with countless other cases for which Crystal could connect individual entities to larger Value Chains. It is vital that MFIs become aware of this possibility and use their knowledge as intermediaries.

Mi-fi Module – Successful Value-Chain Building in Georgia

We are currently running our first Mi-fi Module in Georgia, where we are collaborating together with the MFI Crystal. Two of our Mi-fi members, Noah and Stepanka are in and around Kutaisi, to work together with the local Microcredit provider. Our visit has two main goals – the first is to present some basic research and inputs on extension services and value chain finance. The second lies in an analysis and feedback on workflows and processes on the different products and services offered by Crystal.

What is a Value-Chain?

Mi-fi likes to talk about Value-Chain Finance and it is one of our goals here in Georgia to witness and document successful Value-Chain building. However, what is Value-Chain Finance and how can you build it? Moreover, why is it so crucial to the success of Microfinance?

According to the World Bank, an agricultural Value-Chain is “the full range of value adding activities required to bring a product through the different phases of production”. In other words, all the people, processes and businesses involved in bringing a product from the farm to the end consumer. The lack of functioning Value-Chains is a big problem in many developing countries. It is hard to create a business in an empty space that lacks suppliers and distributors, as well as channels to customers.

RabobankThe good news is that, we do not have to passively wait for a Value-Chain to emerge. MFIs and other financial institutions can actively engage in Value-Chain building. Rabobank for example, does not only finance tulip farmers in Mexico but also the auction house where the final product – the flowers are being sold. [more on Value-Chains and Rabobank]

In case of agricultural Value-Chains, farmers benefit from advanced input channels, as well as increased distributive possibilities. This can generate more stable relationships between the different actors involved in the production process. Stability has a huge impact on the lives of people that do not have a daily income to count on. On the other side, this has also positive side effects for involved MFIs, as their clients default risk falls.

Svaneti – A Remote Region in Transition

We have found an example of a Value-Chain, creating new business opportunities in a very unlikely place. In the middle of the Georgian Caucasus, in the utmost north of the country, amid picturesque mountains and valleys, lays the remote region of Svaneti. According to mythology, Prometheus perished here, tied to the side of a mountain. The villages, among them Ushguli, one of Europe’s highest permanent settlements at 2’200 meters above sea-level, are guarded by dozens of the landmark watchtowers which have become a symbol for the region. Despite its remoteness, the region has become one of the centers of the growing tourism sector of Georgia. Its nature, culture and long white slopes attract an increasing number of tourists every year. The center of the industry is the regional capital of Mestia, a village of 2’600 inhabitants. Crystal operates a branch in Mestia, which has accompanied the transformation of the town during the last years. When Crystal arrived, there was almost no tourism in the area and people were still largely dependent on low yields from agriculture. Over the last decade, this has changed drastically, as hotels and hostels opened up all over the region.

Bildschirmfoto 2016-07-18 um 09.55.02

New Business Opportunities

Most of the clients in Mestia are active in the tourism sector and a lot of them operate hotels or offer accommodation. Due to its remoteness, we were not able to visit clients in Svaneti ourselves, but the YouTube channel operated by Crystal provides some impressions. One of the clients is Valiko Zorzoliani, a hotel owner, who started his business with a microloan by Crystal nine years ago and now owns one of the largest local hotels. [example video] It is due to people like Mister Zorzoliani and his hotels that the local economy has come a long way.

Local Value-Chains

Iuri Udesiani is a Svanetian carpenter producing traditional wooden furniture. His products bear the traditional Georgian sun-symbol or the dragon-slaying patron Saint George. He also carves traditional souvenirs. Merely ten years ago, Mister Udesiani’s business would have met little demand. Nowadays he delivers most of his products to the surrounding hotels and hostels who show a high demand for the traditionally carved chairs and tables to create an authentic atmosphere in their guest rooms and hallways. Not only the hotels, but also Mister Udesiani used credits issued by Crystal to initiate his business. The symbiotic relationship between the businesses of Mister Zorzoliani and Mister Udesiani serves as a simple, but clear example of Value-Chain building, even if not consciously created by the MFI.

Bildschirmfoto 2016-07-18 um 09.54.50Opportunities for Value-Chain Building

The tourism sector in Svaneti is not the only industry where Value-Chains can develop. Especially the agricultural sector has a high potential, as farming is still one of the most important sources of income among the population. Value-Chains have high potential to benefit clients as well as MFIs. If Value-Chain Finance allows new distribution channels to be opened, entirely new opportunities are created. We are curious, about which Value-Chains will be shaping the future of Georgian economy.

Mi-fi Module – Bringing Microfinance to remote areas

We are currently running our first Mi-fi Module in Georgia, where we are collaborating together with the MFI Crystal. Two of our Mi-fi members, Noah and Stepanka are in and around Kutaisi, to work together with the local Microcredit provider. Our visit has two main goals – the first is to present some basic research and inputs on extension services and value chain finance. The second lies in an analysis and feedback on workflows and processes on the different products and services offered by Crystal.

An office in the Middle of Nowhere

We approach a small shed on the dusty main square of the small village of Chkhoni in the region of Samegreli. The structure is painted pink – the colour of the MFI Crystal. It is one of eight prototypes, developed by Manuchar Chitashvili’s department of innovation and started operating a couple of months ago. Chkhoni is one of the bank’s first “boutiques”, a basic version of the normal office, suitable for rural and remote areas where no other banks are present. The employees of the boutique, the so-called “Avatars”, can autonomously decide on loans smaller than 3’000 Lari (around 1’000 Euros). For larger quantities (up to 5’000 Lari) they have to consult the headquarters’ credit committee. This autonomy makes the loan disbursement very fast fast and efficient.

Motivated Avatars

Crystal is the first MFI to locate officially to these areas, but the idea is not completely new. Although other banks do not operate offices in small villages, Mister Chitaishvili tells us that they collaborate with local “consuls”, influential community members who work unofficially for the banks and advice their neighbors when in need of money. Crystal chooses a different recruitment strategy for their Avatars. They are mostly young locals without extensive financial education. Since the analytical work for big loans is done in Kutaisi, it is more important that the employees are communicative, motivated, have a talent for selling and are trusted members of their local community. The three Avatars we meet in Chkhoni just began their work in December.

IMG_2282-1A Risky Project

The eight boutiques have been open since last winter and up to now have proven to be successful. There is a big demand for loans in villages like Chkhoni and there have not been any major problems with slow payments or defaulting debtors yet. Mister Chitaishvili admits that his department had identified several possible risks and there had been skepticism among the villagers. As we wrote in our previous article, there is general scepticism towards Microfinance in Georgia because of some MFI’s irresponsible behavior. The people were initially suspicious about Crystal investing so much money into bringing a small lending facility to their village. Moreover, Mister Chitaishvili told us, that it wasn’t clear whether the villagers would place confidence in the young credit agents, with now or little experience. However, many of the worries were uncalled for and Crystal managed to attract a substantial amount of new customers.

IMG_2252Credit Takers

One example is a local shopkeeper selling a diverse range of goods and products. She started her business with a loan by Credo, a different microloan lender, but switched to Crystal after the boutique had opened on her street. Many of the debtors are not for businesses, but rather farmers mostly producing nuts, which the region is famous for. Accompanied by one of the Avatars, we visit two of the farmers, living remotely in the surrounding hills. The Avatars know all of their clients personally, which builds trust. Irakli, one of the Avatars even visited the farmers during the winter, when there was half a meter of snow and the farms were only accessible by foot.

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Competition among MFI

The market for MFIs in Georgia is highly competitive and a company like Crystal, one of the oldest players, constantly needs to come up with new ideas in order not to lose market share. The boutiques in remote areas are the newest initiative in the constant quest to make Microfinance accessible for those who need it most. Moreover, Mister Chitashvili tells us, the boutiques are the place where Crystal has no competition and can therefore concentrate on its core business of lending money, without spending time and efforts on advertisement and other necessities, all elements of a saturated market.

Mi-fi Module – Microfinance and Equality

We are currently running our first Mi-fi Module in Georgia, where we are collaborating together with the MFI Crystal. Two of our Mi-fi members, Noah and Stepanka are in and around Kutaisi, to work together with the local Microcredit provider. Our visit has two main goals – the first is to present some basic research and inputs on extension services and value chain finance. The second lies in an analysis and feedback on workflows and processes on the different products and services offered by Crystal.

crystal brochure

Awthandil’s Quest

Handwritten copies of the 12th century medieval Georgian book Vepkhis T’q’aosani, The Knight in the Tigerskin, by Shota Rustaveli, used to be a traditional wedding gift from the bride’s family to the groom. It is about Awthandil, an Arabian noblemen in love with a princess, who is sent out to find her father’s murderer – a mysterious knight, clothed in the fur of a tiger.

The writer Shota Rustaveli was a very forward thinking character of his time. He did not differentiate between nations, religions, men or women, rich and poor. According to him virtue can be found everywhere and in everyone. Manuchar Chitaishvili, Crystal’s head of innovation is fascinated by the very modern ideas that originated in Georgia’s Golden Age in the 11th and 12th century. Crystal as an organisation is very much influenced by the ideas within this old saga. Not only is the staff gender-balanced and many women occupy leading positions, but also debtors are treated as equals by the local Crystal executives.

The Crucial Role of Risk Assessment

We were able to experience this when we were invited to a local branch of the MFI in the town of Sestaponi. At one of the offices on the busy main square of the town, Miss Lomidze, invited us to her office and explained to us the risk assessment process at Crystal. A proper risk assessment is one the most crucial steps of keeping Microfinance sustainable. Currently this is still mainly accomplished through elaborate excel-files, completed based on information from the customer. Microfinance in Georgia has not as good a reputation as one might expect. Many people distrust MFIs and would never lend money from this type of institution. The reason is that in Georgia, a country with around 3.5 Million inhabitants, about 70 MFIs compete for the customer base, with only Crystal and about a handful of others, focusing on a high degree of social responsibility. In many cases, the drive for profits leads to confiscated land and property due to customer’s defaults.

Drinking coffe with a microcredit customer

Credit Worthiness

Crystal assesses the people’s financial situation before granting them a loan. If clients do not have a good credit history or an income that is too low, the loan is refused. One of the metrics Crystal uses, is that at least 30% of the client’s salary has to be left after they pay their monthly interest. However, Crystal tries not to only make their decisions based on excel files filled with numbers. Credit agents are expected to visit the loan applicants at their homes and businesses to see how they treat their family and co-workers – the goal is to see beyond the numbers and keep a close connection to the clients.

Sestaponi – Visiting Clients

Shorena Lomidze, the local branch manager, emphasized that she tried to visit every one of the 1’500 clients in Sestaponi. She has a lot of passion for her job, which she describes as very rewarding. One can begin to understand the positive feeling from seeing how a client’s business grows over time. It boosts peoples’ self-consciousness and confidence. We have the opportunity to accompany her to five successful clients; a market woman, a manufacturer of mosaic doorsteps, a poultry farmer, a factory of window frames and a dentist. We are warmheartedly welcomed at all the stops we make and are always offered coffee, tea and pastry. Even a patient while sitting in the dentist’s chair invites us to his place while joking in Russian and hindering the young doctor from continuing the dental procedure.

Equality to opportunity

Rustaveli, the 12th Century Georgian writer, may have set the basis to the right mind-set when it comes to Microfinance in Georgia. Rather than blaming the poor themselves for their situation, they have to be treated as equals. They can be active business partners with great ideas and dreams, but often simply lack the tools to accomplish their goals. Shorena Lomidze, the branch manager from Sestaponi, embodies exactly this view. However Microfinance is no miracle cure and, as we have heard, faces some scepticism also among the population of Georgia. Until now, there is no governmental regulation of the sector and each microlender, no matter how shady can call itself MFI. In order to improve its image and increase its impact, more MFIs like Crystal are needed, aware of their important role in society, must work on improving Microfinance.

Mi-fi Module – Welcome to Georgia

We are currently running our first Mi-fi Module in Georgia, where we are collaborating together with the MFI Crystal. Two of our Mi-fi members, Noah and Stepanka are in and around Kutaisi, to work together with the local Microcredit provider. Our visit has two main goals – the first is to present some basic research and inputs on extension services and value chain finance. The second lies in an analysis and feedback on workflows and processes on the different products and services offered by Crystal.

Arrival at Crystal – Historical Georgian Innovation

Georgia, view from a hillAround 2600 years ago, the ruler of the Georgian realm of Colchis started minting coins made of copper. This made the kingdom next to the Black Sea one of the first empires in the world to have its own metal coins. Three millennia ago the Georgian mountains surrounding the Colchis capital of Kutaissi used to be some kind of ancient Silicon Valley. That is why, we are told by Manuchar Chitaishvili, Head of Innovation at Crystal, his employer will collaborate with the Georgian National Museum in order to remember the Georgians of the fact that their country also has a rich history of innovation and economic prosperity, not only the stagnation of the post-soviet Shevardnadze years.

Welcoming Words
Mister Chitaishvili welcomed us the first day we arrived at Crystal. In the light and modern rooms of Crystal’s headquarters on the outskirts of Kutaissi, Microfinance Institute Crystalwe will learn about microfinance and microlending in the coming weeks. After a fascinating presentation from his side and talks with other staff members we were invited to have lunch together with all the staff of Crystal’s main office. All the co-workers shared local Imereti specialties from plates in one of the office meeting spaces. The Swiss chocolate we brought proved to be very popular. We felt instantly welcome by the staff, who were debating last night’s football final. Another proof of Georgian hospitality – we have did not have the chance yet to pay for a meal since we have arrived, as we have always been invited to join for lunch or even a more lavish Georgian “Supra”. Already during our first talks with Manuchar Chitaishvili and Sophio Vacharadze, Crystal’s Head of Marketing and PR, we were exposed to so many insight that we could already fill a whole book and we can’t wait to write it all down.

Crystal’s history
Crystal, is Georgia’s second largest Microfinance institution and has contributed to the country’s progress in recent years by enabling entrepreneurs in different sectors. Founded in 1998 in Western Georgia’s urban centre of Kutaissi it funded rural businesses in the surrounding villages. Aged 18 it is one of the oldest MFIs in the whole Caucasus region. The history and character of Crystal is closely intertwined with the history of Georgia and its way to democracy.

Drive for Business
Everyone we met so far was engaged in some sort of business activities. Lewan, our guide in Tbilisi, founded an IT business with some friends and shows his hometown to a growing number of tourists. Our hosts Mano and her son Reso rent out some beautifully furnished rooms of their big house to guests. Kotiko, an acquaintance of Stepanka, used to be a journalist and now runs three restaurants in Kutaissi and Tbilisi. In many cases this entrepreneurial way of life was made possible by MFIs like Crystal. How exactly Crystal does this will be examined by Stepanka and me during the following weeks.

Please stay tuned and check our blog for more stories from Georgia. We will be visiting some of Crystal’s clients and their businesses and are looking forward to sharing our experiences with you.