Rural microfinance in Mwika
By Young Hoy Kim Kimaro
Imagine a life without banking services: Nowhere to stash away your precious savings to protect them from the wanton temptations of your own and of other’s; stressed out over large purchases or school fees for children which always fall due at the same time. That’s how life has been for most folks in Mwika.
In the absence of banking services, spare cooking pots, layers of old clothing, the underside of a mattress, a pot buried inconspicuously under a tree are some of the means people use to stash away spare cash.
Men, I am told, prefer otherwise. They prefer to carry their entire surplus in their back pockets. The thicker the bundle, the better they feel. But here’s the hitch. It’s hard to resist being expansive … hey, what harm is there in dispensing a little for free drinks for all …? The man returns home tipsy with his cash stock substantially dwindled down once too often, much to his wife’s despair and wrath.
Over the years the Government has encouraged Savings and Credit Cooperatives (SACCOS) to be formed, to bring modest banking services closer to the villagers. Mwika now has five such. Still, less than 12% of some 9,000 households are SACCOS members and less than one third of them actively use these services.
Low business volume means the terms of the loans the SACCOSs offer remain steep: an annual interest rate of 18%; loans to be repaid in six months. In towns where banks enjoy a higher volume of business, interest rates charged may be 2-4 percentage points lower. The repayment period may also extend for a longer period, but rarely do they ever exceed three years.
We were involved with SACCOSs in 2007, shortly after the new market was built in Mwika. With just US$2,000, we had a SACCOS lend small amounts of 20,000 shillings per person ($20 then) to groups of market women.
Its positive impact was visible and encouraging. More funds were raised and the project grew from 100 participants to more than 500 within three years. Loan amounts, pegged to the borrowers’ savings balance, grew in size also from US$20 to US$200 per borrower. Financiers of microfinance projects were elated. They were eager to provide more support, but we were of a different view.
SACCOSs’ clients were mostly subsistence farmers, only 12% of whom hold accounts of any sort. Automatic deductions for loan repayment didn’t and don’t exist here. Streets have no names, homes have no street addresses. No mail is delivered to homes and even a smaller fraction of the population use private postboxes. Recovering loans here is a much more Herculean task than in Korea or the U.S., made even worse by an antiquated management system, depending on ledger sheets where data remains as good as dead, not scrutinized nor utilized. Rapid expansion of SACCOSs’ lending under the project had pushed the SACCOSs’ capacity to recover their loans to the limit.
Our financiers were baffled why at the height of their seeming success we would put a moratorium on further expansion of the project.
Meanwhile, infrastructure constraints had eased. Most SACCOSs offices now had electricity. Time seemed ripe. When we heard about Uchumi Bank in Moshi town which works with SACCOSs, Mwika Rotary reached out to engage them.
Uchumi Bank was ready and eager to help the SACCOSs computerize to improve their management. It was even prepared to donate computers for their use. It put forward two conditions that our SACCOSs must meet before the project could move forward. At those conditions, what once had appeared to be a promising initiative fell flat on its face.
The writer resides on the slopes of Mount Kilimanjaro in Tanzania. She worked for the World Bank for nearly 30 years and her email is youngkimaro@gmail.com.