Proper valuation critical


Charles Dhewa
Without accurate and relevant valuation, financial inclusion efforts will continue using blunt approaches and instruments. Most organisations including financial institutions are finding it very difficult to valuate services and other intangible assets such as knowledge, trust and relationships. In the current knowledge economy, the ability to valuate these aspects and informal learning is going to carry the day.

One of the reasons why financial institutions are failing to offer services to the informal sector, where an estimated $7 billion is said to be circulating, is because they have not been able to design a holistic valuation framework toward understanding this growing sector.

When you visit a trader’s stall in the agriculture market and see two pockets of potatoes, it is tempting to conclude that there is no business, yet if you visit the same trader tomorrow you can see a truckload being offloaded.

This means the trader deals in highly mobile commodities whose value have to be determined in a different way from immovable asset.

Valuating the SMEs sector is certainly not a once-off activity.

As a financial institution or credit reference bureau, how exactly can you value horticulture commodities in Mbare market where there are thousands of individual farmers and traders exchanging diverse commodities related to up and downstream value chain actors supplying different Communities of Practice (CoPs)?

In this case, valuation has to look at many aspects including source, volume and consistency of supply versus production area. At one time Mutoko is the number one tomato supplier but the other time it is Macheke.

On the other side, rarely will a household go for five days without tomatoes. Consolidating all this information from Mbare with that from other markets across the country should give you the value of a market niche such as horticulture.

Business models can then be developed from the central analysis, for instance, relationships between the market and processors; links between the market and farmers; the market with transporters; the market with consumers, etc. Without understanding the total market, it is difficult to develop a useful model.

A production model does not end at the farm but requires a market. You can’t build a model with a processor without understanding the supply trends of goods to be processed. This requires interaction with the market not just farmers. If you want to get into logistics you need to know sources and demand for goods. The market tells you all this in terms of what is produced, where and how.

What is the entry point for

financial inclusion?

This is one of the most important questions. Financial inclusion should be a thorough process not a slogan or catch phrase. It requires a change in mind-set by financial institutions and the demand side made up of farmers, traders and other actors currently outside formal financial systems. It can’t happen without some level of social engineering.

This means we have to flip the conversation so that we talk about effective demand as opposed to financial exclusion. The question is: why have the new target groups (traders & SMEs) been excluded or why have these groups been avoiding banks? Banks have their own perspectives about these groups just as these groups have their own perceptions about banks. That is why most traders would rather go to an informal lender than try to grapple with banks.

It’s not all about interest rates but other un-conducive terms from banks which prompt traders to consider other financial models and options.

Some of our experiences

A lot of lessons have emerged from eMKambo’s work with farmers and traders in informal agriculture markets over the past four years. Traders see a lot of short comings or disadvantages in working with banks, Micro Finance Institutions (MFIs) and insurance companies. However, they also see advantages which, unfortunately, are outweighed by short comings.

Reluctance or failure by financial institutions to invest in building relationships and trust with informal markets has remained one of the sticking points. Farmers and traders are convinced banks always have a negative perception of them. For example, any delay in repayment or failure to meet deadlines is associated with delinquency.

Traders are not given an opportunity for face to face explanations like what happens to directors of formal companies who are given chances to explain their situation to bankers.

Another short coming mentioned many times is failure or unwillingness by financial institutions to understand traders’ business operations. Loan officers who have some bit of understanding of the market have no influence on decision-makers who do not make an effort to meet their clients.

The top hierarchy does not create time to understand its clients. Due to pressure from their bosses, loan officers end up being more concerned with the repayment date. What happens during the other trading days is considered the trader’s total responsibility.

Big brother syndrome

While we talk about the business as a legal persona, most financial institutions do not separate the trader from the business.

Instead of trying to understand the business, they focus on the owner whereas it is the business and its market that determines business performance not the owner.

Another irritating behaviour, according traders, is that financial institutions have a big brother attitude where they try to come across as superior than traders and other clients. Rather than looking at traders as partners, banks tend to have a superiority complex. There is also no risk sharing inclination and, it appears banks think whoever applies for a loan is desperate.

Yet it is not the person or trader but the business which is saying to the bank: “Let us share our comparative advantages – you earn interest while I earn profit if we exploit this opportunity properly. But if things go bad you should also share the responsibilities – you incur defaults or delayed repayments while I incur losses. Then we try to rebuild together.”

Both farmers and traders think formal financial institutions believe in black listing the whole institution because of some misbehaving characters.

Out of 500 traders, if only two people do not do well due to circumstances beyond their control, the bank immediately says, “Mbare is a no go area.” Yet, as an institution, Mbare has existed for more than 70 years. If everyone had that notion, the market would have closed a long time ago.

Sharing bad practices rather than good ones

Knowledge sharing practices in the financial sector are often dominated by sharing of bad practices than good practices. A bank which previously invested in the informal market always shares its bad experiences ignoring the good ones. There is no sharing of best practices along the whole loan tenure.

If you got to any financial institution that has previously worked in the informal sector and say, “Give us five best things you learnt from working with traders over the past three years,” you will be lucky to get a useful answer. As a result, a new investor always starts from scratch.

This is where eMKambo has come into try and gather both bad and good lessons toward building best models.

Financial inclusion efforts should understand the gap that has existed between financial institutions and the informal market over the years. This knowledge should inform financial inclusion models. Different economic environments yield different economic results. Unfortunately financial institutions seem to prefer sticking to old experiences.

That is unhelpful in a fast changing economy. Credit reference bureaus are holding on old records on defaulters but such information lacks trendy factors and proper targeting in the current fluid information environment.

A name can be black listed for the past 10 years yet the situation is now different. What caused a default 10 years ago could be an opportunity now. Perhaps someone tried to innovate with something and learnt something from defaulting.

Rather than look at what could have been learnt and now possible for conversion into an opportunity, the credit bureau holds onto a piece of history which has been overtaken by events, ambitions, lessons and opportunities. This is one case where history and witch-hunting should not be over-rated.

Traders have been in the market for a long time. If you track them, they can tell you what commodities have caused problems in the past years and why. They have perfected their business models through trial and error – profit in one commodity covering up losses in the other. A complete disaster from one commodity triggers lessons for improvement and forward movement.

This knowledge has evolved such that traders can now, for instance, use market calendars to deal in oranges and butternuts in one season and potatoes in another season. This is all from experience including understanding consumer tastes.

On the other hand business models in most financial institutions have existed for years. They still insist on rigid business plans and training yet in informal agriculture markets by the time you complete designing a plan things will have changed.

Survival in this business is more about knowledge and experience combined with an aerial view of the market – a bit like watching the beetle and the forest at the same time. Over the years, decision making has moved from speculation to predicting reality.

Actors in the informal economy know what they want

Financial inclusion for the growing informal economy is critical. Traders and SMEs know what they want. Unfortunately, financial institutions and policy makers have taken too time to understand what this important economy requires in order to function properly. Some are confusing financial inclusion with mobile money. With the exponential growth of the SMEs sector, it is becoming impossible to clearly define small, medium and large. It is no longer a question of number of employees but the impact along the value chain.

If a trader buys 100 crates of tomatoes, what is the impact on transport, turnover, packaging, etc? Some large companies are now surviving SMEs as an extension of their market channel.

The whole economy is evolving in such a way that small and medium entities make up the larger animal. Some enterprises are small in size but big in revenue, for example, those dealing in high value commodities.

Those pushing financial inclusion should refrain from building policy frameworks which exclude participants like traders and farmers. We have to build from the ground up. Let us not surprise traders, farmers and other actors currently excluded.


Charles Dhewa is a proactive knowledge management specialist and chief executive officer of Knowledge Transfer Africa (Pvt) ( whose flagship eMKambo ( has a presence in more than 20 agricultural markets in Zimbabwe. He can be contacted on: [email protected]; Mobile: +263 774 430 309 / 772 137 717/ 712 737 430.

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