Small Enterprises and Smaller Loans

Gaining access to a loan is nearly impossible in the village.  Most villagers don’t have bank accounts - they often don’t have enough money to open an account or rarely have enough money to keep the account open if they are able to open one – and banks typically aren’t nearby.  Yet, an influx of cash is needed in these areas because villagers have entrepreneurial dreams too – just like their friends and family in town.  That’s where Village Savings and Loans (VSL) groups come into play (something I’m just now learning about… in my third year of working with community groups - ugh... late but at least I got to the party) and help fill this important gap. 

The Manyoonyo Community's Village Savings and Loans (VSL) Groups met and held a meeting for us to watch.  The the small blue box by the woman's feet is where they keep their money.  The man to the left and the woman in the stripped shirt were the group's secretaries (in charge of taking all notes about loans given and repaid).  The group's formal name was "God is Good."  They've had such popularized success that a second VSL group in the community has started.  It's called "To Live in Poverty is a Choice."

The idea is that a group of five to twenty individuals come together and save a small amount of cash per week as a way of consolidating their resources for the good of the group and the gain of the individual.  Every week, money is saved by group members and then loans (very small loans on the scale that we Americans are used to) are given to individuals looking for a small influx of cash for a side project here or there. 

In my current job I’ve been tasked with assisting the Women’s Empowerment Coordinator of our project with recording what’s working, what’s failing, useful innovations, and ways to promote this method more fully.  It’s been incredibly interesting – maybe the most interesting thing I’ve worked on this entire year.  

The longer I’m here the more I realize that it’s ALL economics.  Sure, being able to grow more food (increasing yields) is important, but adding more value to the already produced crops is equally, if not more, valuable.  And then there’s the fact that economics and demand drive market availability and that influences what a farmer grows.  It’s important to grow the food, but economic viability and access to diverse income fields is something that can’t be harped on enough - it's the only way to truly escape chronic poverty.  The average person in Zambia lives on less than $2 per day, anything above that can make an enormous difference, especially when it comes from a source separate from farming.

The group really tried to promote transparency by collecting money (both for loan repayments and savings) in front of the entire group.  Keeping detailed records, as seen here, is the cornerstone to their transparency efforts.

So, I’ve been traveling around and meeting different groups that are involved in VSL.  The response has been great.  To be honest I was coming into the project a little pessimistic, a little biased in a negative light toward their work.  I’ve seen so many groups not work that I had a hard time being open-minded and thinking this may be different.  I’ve been happily mistaken.

Although it is early on (the groups started about 6 weeks ago), they are meeting weekly as they're supposed to, saving regularly, and issuing loans to group members – exactly the way they’re supposed to work!  Here are the basic rules: groups set the amount that each member needs to save (between $1.50 to $6 per week), a member can’t take out a loan until they’ve saved for four weeks, the group sets its own interest rate (typically 10%), a loan user must repay their loan within one month’s time, and when the group would like to withdraw the money they’ve been saving over time (like at a bank) they’re allowed to do so without question.

Made up of 20 members, this group was largely women (17 women to 3 men).  This was great to see.  Typically men are in charge of finances in the village, so to see women taken initiative in this program was wonderful.

During a meeting last week the group we were visiting collected all their loans on the exact day they were due: not one single loan of the seven outstanding went un-repaid.  In total the group collected about $32 in outstanding loans and saved an additional $10 for their coffer.

In another meeting a woman told me she had just been issued her second loan for about $70 because she had successfully repaid her first loan ($16) on-time.  She was planning on using the new loan to buy rice from Tanzania, import it into Zambia, and then sell it to local restaurants.

It's not a lot of money - these loans - but it's something to start with and it has vast potential to grow into something much bigger over time.

The successes I’ve seen have been great, although I’ve noticed a few yellow flags: 

So many of the individuals that we’re working with on this program are mimicking what they’ve seen work before by neighbors.  Many of the women are buying crates of tomatoes and then selling them on the roadside, along with other tomatoes already being sold by their neighbors.  Some are selling bananas in the same manner – small tables of bananas upon bananas dot lengths of roadside.  The list of examples like this goes on and on, and because it’s a big risk to take to sell something outside the norm it doesn't seem too likely to change anytime soon.

The businesses are being invested in with small bits of money – pennies, really.  I’ve taken to calling them “penny businesses.”  One woman I spoke with said she took out a loan for $1.50 and earned $4 after selling tomatoes.  After repaying her loan she remained with about $2.25… not much, but it is something. 

The group and me at the end of the day.

VSLs are a great start for many of these groups.  If nothing else it teaches book keeping and allows the group to function with a singular meaning / focus in mind: financial independence.  But most importantly, the VSL groups are helping to diversify incomes for the women and their families, so that they don’t have to be wholly dependent on one activity for money, which is bound to pay dividends in the long run.