Unbanking the Banked
Despite the recent development fad to get people banked, banked people - if one is to believe savings group members in a peri-urban neighborhood of Dar Es Salaam - are becoming unbanked.
Elizabeth is a member of a Vicoba (Village Community Bank). Her group operates much like a VSLA but does not cash out member shares annually, preferring to grow its fund over the course of many years, with partial cash-outs occurring when members have accumulated a surfeit of share capital. This particular Vicoba, Supa, has 30 members, many of whom are retired.
Elizabeth cultivates vegetables and raises poultry. She has been part of her Vicoba for three years. “Most members are like me,” she says. “We consider ourselves middle class. In my case I had a job as a schoolteacher with my salary paid through my bank account. I still have that account but ninety percent of my money is in my Vicoba.”
When I asked her why she preferred to save in a Vicoba, she pointed out that she was actually a member of four such groups, one which she started back in her village. “I never borrow from that Vicoba, I only inspire them to buy shares. I make my weekly deposits via MPESA.”
I had assumed that she had joined four groups to save as much as possible (no member may purchase more than 5 shares per meeting) and garner healthy returns. “The profits are good,” agrees Elizabeth. “We distribute dividends once per year and I am always surprised at how my money has gone to work. But that is not why I belong to four groups. I belong to many so that I may access more loans.”
She continues: “My bank will give me a loan if I make a guarantee and wait for 10 days. In each Vicoba, I can borrow three times my share value with no guarantee and can get credit instantly. This year from one Vicoba, I have borrowed $6,000 to increase my poultry business. From another, I took a similar amount to pay for my daughter’s airfare to Italy. I still owe about $8,000 in total but the new income from my poultry business makes it possible for me to pay both loans off within 9 months.”
Elizabeth claims that most members of Supa like the profits on shares but their main reason for maintaining membership is access to credit. “The savings services are good in all my groups. We keep tight records and are always profitable, but getting credit is even better than getting dividends. The loans are why we stay.”
Maybe it is time to segment different kinds of groups. Perhaps some might best be called borrowing groups, offering a sound reason to stop the practice of annual cashing out. These groups might prefer to swell their funds to offer longer term and larger loans to members who see credit as a group’s biggest benefit.
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Reader Comments (2)
In the Kenya Financial Diaries, we don't have any respondents who are able to borrow $6,000 in their groups, but like this Vicoba, most consider their groups "borrowing" not "savings" groups. They tell us that merry-go-rounds are more like saving, but the only attraction of an accumulating group is to be able to borrow. Most borrow $15-30 at a time, and their annual shareouts rarely exceed $40. But, they tells us that being able to take these kinds of loans helps them meet their "obligations"--like school fees and commitments to other groups without so much strain. And for them, that's worth the cost (usually 20% interest per month).
Fri, August 2, 2013 | Julie
Hey Julie,
Remind me - are those groups all CARE, or mixed CARE and CRS, or what?
My hunch is that the attitudes (or culture) of a group is inherited both from the facilitating agency through the trainer, and from other groups. There are groups in some places that hardly borrow at all - they just save, save, save. But that's certainly not the case in Western Kenya!
Paul
Fri, August 2, 2013 | Paul Rippey
