Bwafwano Village Savings and Loan Association (VSLA) in Nseluka District of Kasama has been forced to reduce interest rates for the group from 20% to 10% due to high default rates by the members.
Registered as a Savings and Credit Cooperative (SACCO) by the Registrar of Societies, Bwafwano VSLA has a current membership of 20 (9 men and 11 women), with committed and active members currently at 18.
Dating back from the year 2000, the group went through a number of challenges since formation due to high default rates by members. The group was later revived in 2006 with the initial membership of 25 which has currently fallen to 18.
Though the 20% initial charge on the loans to members saw the profit for the VSLA growing fast and shared within six (6) months, however default rates were very high by members.
In 2015, Bwafwano VSLA group decided to reduce on the interest charged to its members from 20% to 10% to reduce on the high default rates by members which was affecting the profitability of the group.
Currently, members buy shares at K100 per share and loans are given out to group members on a monthly basis with 10% interest. The accessible loan amounts vary according to shares purchased by each group member and are payable within 3 months with interest (10%).
Benefits accrue to members according to their shares in the group and are paid out in form of dividends. Dividends or profit is paid out on a yearly cycle in September each year.
According to Bwafwano VSLA Group Chairman Daniel Mwamba, last year in September the VSLA had saved a total K43, 115 with profit which was paid out to members as dividends.
Conversely, James Chombela Savings Enterprises, another VSLA group in Kasama rural has maintained the 20% interest for loans acquired by its members.
To deal with high default rates, members pledge movable collateral such as household goods (e.g. radio, television, furniture) and fixed property such as land as security.
The group takes possession of pledged collateral for members who fail to pay back their loans which is sold off to recover the loans. Defaulters are also taken to court to recover the loans paid out to them.
Both Bwafwano and James Chombela VSLAs have been formally registered with the Registrar of Societies and with PACRA respectively and have opened bank accounts with Zanaco with the support of the Rural Economic Expansion Services (REES).
In 2016, RUFEP partnered with REES under the CBFI Linkages Window of the Innovation and Outreach Facility (IOF) to link saving groups to financial institutions. Bwafwano and John Chombela are part of the Treatment group under the Randomized Control Trials by the University of Mannheim in partnership with RUFEP.
The two VSLAs groups have only deposited their Social Funds with Zanaco under the Community Savings Account as much of their savings are loaned out to members.
Meanwhile, Zanaco is doing a customer segmentation exercise to come up with a suitable product for the Community Based Financial Institutions (CBFIs) and individuals. Zanaco Kasama Branch Manager Viola Mukobeko disclosed this during an interview with RUFEP in Kasama.
Mrs. Mukobeko said currently the bank has embarked on a restructuring programme aimed at coming up with products that suit the all customers’ needs. She added that Zanaco was moving away from the current product offering where customers are segmented under high profile and low profile.