Smiling All the Way To the Bank
Village banks in Malawi give people access to convenient, profitable finance
Maltrida Phiri, 48, from Malawi’s southern district of Neno, sits on the smart verandah of her corrugated sheet-iron roofed house and reminisces. Ten years ago, her circumstances were very different, as she lived in a grass-thatched house that leaked during the rainy season.
“It was tough, but there was nothing I could do apart from facing reality. I often thought about having a well-built house, [especially] one that did not leak,” she said.
At the time, Phiri was told about a village bank concept (known as Bank M’khonde, meaning banking just near you) and how it could change her life.
The system involves a group of people between 15 and 25, mainly women, contributing money regularly which is kept by the group’s treasurer. Once a reasonable kitty has been accumulated, group members can then borrow money at a minimal interest rate and use the loans to fund small businesses or other similar projects, making the system more convenient and affordable compared to regular banks. The interest is paid out to members as dividends.
“I sold my goat and started a small business selling beans, rice and cassava. I was borrowing money from the village bank and paying back from my business. Then I molded bricks,” said Phiri.
She said she gradually built up her business and managed to build her house after a decade of using the village banking system.
“There is trust among [the members] as no one believes that the money might be stolen. Again, we do not keep [all] the money [in our kitty] because it is mostly used up by those who want loans,” said Phiri.
Concept moved to urban areas
While village banks are now operating in most parts of the country’s rural areas, the
idea has also moved into towns and cities, where it seems to have become firmly entrenched. The only main change is the name - in urban areas they are called Savings and Credit Cooperatives (SACCO), where people make monthly contributions, borrow money, own shares and get annual dividends.
Shares are made up by the amount of contributions of the members, and dividends or profits shared by members can come either from the interest paid when taking loans, or from their shares owned, depending on the bank’s system. The interest rate is far lower than commercial banks and no collateral is required for loans.
A number of people, including public and civil servants and those in security institutions, use SACCOS. One of them is the Police SACCO, which caters for the country’s law enforcement officers.
Its Chief Executive Officer Ian Mwalungira said the institution started in 2013, but got registered a year later.
“Police officers had difficulties in accessing loans [from commercial banks] to meet their problems. When they went to banks, they were told that they could not get [loans] without collateral,” said Mwalungira.
He said each officer has money deducted from his or her salary according to their requirements and they are free to reduce or increase the monthly contribution.
“This is the best way of saving your money as, unlike the banks, there are no service charges like account maintenance fees. The good part is that if you feel that you want to leave SACCO, you can do so because it is voluntary. But what we [actually] see is that the number is growing daily,” said Mwalungira.
Minister of Gender, Community Development and Social Welfare Patricia Kaliati said that the government is committed to empowering rural communities so that they are able to help in the development of the country. “As a country, we can grow economically when the rural community is empowered. Village banks are part of poverty alleviation programs that government supports,” she said.
Civil servants
Civil servants in Malawi have also seen the need to find a convenient source of borrowing money. At first, teachers from the northern district of Mzimba started the Mzimba Teachers’ SACCO. After seeing its benefits, other civil servants joined up to create the United Civil Servants SACCO.
Chimwemwe Ndhlovu, the United Civil Servants SACCO Sales and Marketing Manager, said they were overwhelmed with civil servants that joined, and decided to open branches in 20 areas and eight satellite locations.
He said at the end of 2020, membership stood at 34,494 and it keeps growing, adding that this is because members know that there is stability and the system is reliable. They aim to double the membership by the end of the year.
Ndhlovu said people do not want tough terms and conditions when trying to secure loans and that is why they are staying away from traditional banks. SACCOS do not ask for any collateral from members because their shares provide for that purpose.
Journalists
A separate branch of SACCO caters for the media fraternity, who have not been left behind in the world of informal loans.
Called Mudi SACCO, its CEO Triza Magreta said many journalists are members of SACCO, signifying its widening appeal.
“If you want to buy something, all you have to do is to go to the shop where that item is sold, get a quotation and give us the figure. We will pay for the item and will deduct the amount from your salary monthly, until the amount is fully paid,” said Magreta.
Jonathan Pasungwi from Nation Publications Ltd., the country’s largest publication in terms of circulation, is pleased with Mudi SACCO.
“There are times when you are financially stuck and you need relief. In that situation, the only handy source of loan is SACCO. I have been assisted many times and it has not let me down,” said Pasungwi.
He disclosed that apart from journalism, he also has a business on the side and that when he wants additional funds, he gets assistance from SACCO.
MUSCCO, the coordinator
Because of the spurt in growth of these institutions, there was need to establish norms and standards. Consequently, the Malawi Union of Savings and Credit Cooperatives (MUSCCO), a private entity, was formed to coordinate them.
Its CEO Fumbani Lungu said that apart from coordination, his organization also provides technical support for SACCO and lobbying for financial intermediation.
“SACCOS are growing tremendously and they have not been affected by the impact of COVID-19. Of course, when companies close, they are affected; but things have not been bad here compared to other countries,” said Lungu.
He added that as a way of modernizing the operation, SACCOS have aligned with the cooperatives concept.
“I am pleased to tell you that SACCOS are now licensed by the Reserve Bank of Malawi to ensure a smooth operation and that there is no financial calamity,” said Lungu.
According to him, the operation is running smoothly. About such village banks, the CEO says they are also doing fine and that his institution is monitoring how they operate.
However, said Lungu, with the changing financial environment, SACCOS also need to move with the times. CA
There are times when you are financially stuck and you need relief. In that situation, the only handy source of loan is SACCO. I have been assisted many times and it has not let me down. Jonathan Pasungwi Nation Publications Ltd.