Euphrasia Phiri, Chairperson of the Makwatata Financial Association

A total of 268 men and women from Makwatata and the surrounding villages have enhanced their business opportunities this year by taking out a small loan from the local Financial Association (FA).

The FA is a savings and credit facility run by the villagers, for the villagers, with its headquarters in a purpose-built community hall in Makwatata.

“The biggest single problem for people in rural communities who are looking to get involved in business is access to credit,” says Peter Tembo of Micro Bankers Trust (MBT), a Zambian NGO responsible for establishing the FA.

Not only are banks located too far away for rural villagers to apply for loans, smallholder farmers are also seen as unreliable, he explains. “Commercial banks don’t trust rural farmers to make repayments, and it is simply too costly for them to review and keep track of each applicant for loans of such a small size. It just isn’t worth their while.”

Micro Bankers Trust were commissioned by Self Help Africa back in 2006 to set up a Financial Association to provide credit to members of agricultural groups supported by Self Help Africa in the area.

Tembo explains that there are several stages in setting up the FA. “First, MBT assist existing farmers groups in the villages to become ASCAs (Accumulated Savings and Credit Associations),” he says. “We use established groups, because they have already proven their commitment to working together to expand their business operations.”

Before loans are given out, members must save for at least three months to build up money in the ASCA. Members must contribute small mandatory savings of 5000Kw (€0.80) each month. They can add a voluntary contribution also, and the more they save, the more they receive in interest.

“The concept of saving is a very new one in Zambian society, especially in rural areas,” says Tembo. “Getting people to trust others with their hard earned money is often difficult at the beginning.”

“We carry out a savings mobilisation programme, to educate the members about the benefits of saving. We also teach them about credit management and risk assessment, so the group doesn’t give loans to businesses that have little chance of repaying. If this happens, the onus is on the group to repay the loan on behalf of their member. It is a shared responsibility.”

Once the ASCA has been successfully functioning as a savings facility for several months, members can begin to apply for loans. These are repaid over a fixed term, with interest. The profits received from the interest are shared out among the members, depending on how much they have saved.

The group can then apply to join the local Financial Association (FA), a larger credit and savings facility catering for several ASCAs. The FA in Makwatata provides loans to 17 ASCAs, and has 268 members in total.

In addition to the savings accumulated by the members, the FAs also benefit from funding from Micro Bankers Trust, which means they can give out much larger loans to their members than the ASCAs can.

Loans are given out once a year, with a repayment period of nine months. In the last round of loans, a total of 86m Kwacha (€13,340) was distributed, 31m (€4,800) of which was raised from shares and savings by the members themselves.

The average loan given out by the FA is 600,000Kw (€93), but the amount can range from as little as 200,000 (€31) up to 2 million (€310).

When the member applies to their FA for a loan, an assessment of eligibility for a loan is first done by the ASCA, who would be familiar with the applicant and their business. A loans committee of the FA then do a final assessment before the loan is granted.

So what do people do with the money? “Some open small shops selling groceries, or buy livestock to breed or resell at a higher price in town. Others become involved in crop marketing, or buying and selling fish. There are many opportunities there once the credit is available,” says Tembo.

Others use the money to invest in good quality seed and planting materials to improve the productivity and sustainability of their farming.

“Once they start making money from their business, the family income rises, which enables them to send their children to school, access healthcare when they need to, buy assets such as livestock, and make improvements to their home. Families’ livelihoods can change dramatically.”

The FA are particularly supportive of marginalised members of the community, like people living with HIV, the disabled, and most especially, women. “Seventy per cent of our members are female. We have a deliberate policy to empower women by making credit available to them. Because of the gender structure in Zambian society, women have largely been left out of development projects, but if they are given the resources, it has been proven that they can make more of a difference to their families’ lives than men, because they are more likely to reinvest profits back into the family.”

The chairperson of the Makwatata FA is a woman, Euphrasia Phiri. “I am an educated woman, I went to school, and I worked as a teacher all my life. I am retired now, but that experience gave me the courage to stand up in front of men, and to take a leadership role in the FA. I think it is important for women to be actively involved in projects like this, and I am very proud to be the chairperson.”

Phiri is now a baker, and has taken several loans out from the FA to help her to grow her business.

Micro Bankers Trust have been involved in the Makwatata area since 2006, and are preparing to withdraw by the end of this year. “The FA now operates just like a bank,” says Tembo. “It has been set up in such a way that it can now be fully managed by the local people.”

All members of the FA need to buy shares each year, which cost 10,000Kw (€1.60) each. The more shares a person holds, the more influence they have on the FA’s board. Full shareholders in possession of 50 shares can become directors, though their term is limited to three years and subject to election by the members of the FA. These directors will run the FA when MBT withdraw.

“Overall, the programme has been a success, but there are challenges that we are working to overcome. Typically, farmers only have surplus money once or twice a year – at harvest time, and when the FRA pays them for their maize. This means that savings and repayments are not steady. We are working on changing the system in some way in the future to accommodate seasonal issues like this,” says Tembo.

Although the groups are trained to only approve members who they believe are reliable, in some cases people disappear with the money or relocate, or simply make no effort to repay. “I hope that the groups are learning from it each time it happens. We can help them to minimise risk, but it is impossible to eliminate it altogether.”

The Financial Associations have been set up by Micro Bankers Trust as part of Self Help Africa’s Project for the Reduction of Poverty (PROP) in Eastern Province, which is assisted by funding from the European Union.