VILLAGE BANKING EXPLAINED: BY LYAPA MBEWE
Village Banking is a trend that has become so common in Zambia over the past couple of years, it is usually practiced by women but we have seen men also join in on the trend as a way to grow their money. They have been many success stories with this type of banking that has helped a lot of people over the years especially those in business, however we have also heard some horrible stories of people running away with peoples money so it is advised to use a trusted group. Financial expert Lyapa Mbewe took the time to explain the concept of village banking and how best you can benefit from it.
Village banking are Savings and lending schemes organised outside the formal financial sector. As the term “village” implies, membership is usually among people who are familiar with each other and share certain commonalities through their family, friends, and community. Membership is by self-selection and the number of members in the group is limited. Members formulate rules and procedures to guide the governance of the group called a Constitution. The group is self-managed and does not involve the placement of savings/deposits or arrangement of borrowings by an individual, agent or company outside the group membership.
Accumulated savings and interest earned on loans extended to members are the main source of benefits, which are shared-out at the end of the cycle. How it works;
•Bank meetings are held once a month or Biweekly.
•They are usually made up of 15- 35 or more people (depending on the trust levels)
•Cycle tenure range from 9-12months
•The members of the village bank elect a management committee commonly know as The Group Executive
•All financial transactions, such as collection of savings and disbursal of loans, are done at the bank meetings, in front of the entire group.
•Initialy village bank has a cash box with 2 or 3 padlocks. different officers keep the keys to the locks. But now times have evolved and most groups prefer to open a Bank account with 3 or more signatories.
•Village bank women/men always have access to credit. But instead of giving each member one big loan, the village bank gives members a series of portioned, short-term loans. As soon as a member pays back one loan, they can take another.
•In a Village bank, the interest earned on loans remains in the group fund as profits and creates wealth for the members to benefit at share out.
•Village bank members know how much of the group’s money belongs to individuals in the form of savings. And they also know how much profit the group has earned from interest on loans, fees and other sources. Savings? At each bank meeting, just like in a traditional savings group, the members deposit a certain amount of mandatory savings. The exact amount is discussed in the group and agreed upon by all. Members try to save as much as they can in order to build up their group fund quickly. Mandatory savings for each member may range from K500 to even up to K5000 a month. In addition to mandatory savings, each member should try to deposit an initial amount in the beginning as agreed upon by the groups constitution e.g K1000min.
Though the member can save more if possible. Loans to be able to take a loan from the village bank you have to be a responsible member of the group. Members who are in good standing have priority when it comes to getting loans. To be in good standing, a member must attend bank meetings and save regularly, make his/her loan payments on time and abide by the bank’s rules. Interest on loans are usually at 10%-20% and should be paid back in 3-6months depending on the groups constitution. Like any Investment Vehicle, Village Banks have risks these range from members unable to pay their loans to someone disappearing with funds. Find a group of people that are trust worthy with a good credit standing.
Source: Lyapa Mbewe