High Defaults Force Bwafwano VSLA to Reduce Interest Charges

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.


KCCC links 55 SILC Saving Groups to Banks in Northern Province

Kasama Christian Community Care (KCCC) has managed to link 55 Savings and Internal Lending Community (SILC) Groups in Kasama, Mungwi and Mbala districts in Northern Province to Cavmont Bank Barclays Bank and Indo Zambia Bank.

RUFEP partnered with KCCC under the Community Based Financial Institutions Linkages (CBFIs) Window of the Innovation and Outreach Facility (IOF) to link randomly selected Saving Groups to financial institutions under the Randomized Control Trials (RCT) by the University of Mannheim.

Speaking during monitoring and evaluation field visits conducted by RUFEP from 19-22 June 2018 to document lessons learnt, KCCC Project Officer, and Martin Shamambo said his organization assisted the groups to be formally registered as a pre-requisite for linkages with formal financial institutions.

Mr. Shamambo said, KCCC trained 152 groups under the Randomized Control Trials in three districts (Kasama, Mungwi and Mbala) and has managed by June 2018 to link about 55 to financial institutions.

He disclosed that linked groups in Northern Province are now happy that their money has been deposited for safe keeping in the banks.

“Two theft cases occurred in Mbala as a result of keeping money in boxes. One group lost K3,500  and the second group lost K4,950. Currently we are under pressure from the groups that are not in linked as it is no longer safe to keep huge amounts of money in a box”, Mr. Shamambo said.

He said the linkage process starts with registration with either the Patents and Companies Registration Agency (PACRA) or the Registrar of Societies adding that SILC groups registered with PACRA are registered as social enterprises and are expected to pay annual returns.

“We facilitated the process of group registration and helped them to open accounts with Cavmont Bank and Indo Zambia Bank. The groups are now confident to walk in the banks to deposit their savings and are also looking forward to banks giving loans,” Mr. Shamambo said.

On the challenges, he said that groups that are further in remote rural areas like Mwangata, Shimba, Ongolo face the challenge of high transport costs to urban centers to deposit and withdraw their money.

He added that while SILC groups do not withdraw their savings before share out, the groups have higher expectations in terms of interest offered by the banks while some were still skeptical about the bank charges.

Katwezye (we try) Savings and Internal Lending Communities Group (SILC) in Mbala is one the groups that was linked with Cavmont Bank with the support of KCCC.

Following the group’s formal registration with the Registrar of Societies, Katwezye SILC Group opened an account with Cavmont Bank for depositing their savings.

Katwezye Group Member Janet Namfukwe Chisenga, disclosed to RUFEP that group members were now happy that their savings are safe with the banks as opposed to keeping huge sums of money in a box at home in a grass thatched house which was risky.

According to Cavmont Bank Kasama Branch Manager Roy Alitili, for the ordinary Savings Account which was considered suitable for SILC groups, the bank charges included K35 monthly for the account, K30 for a bank statement and K25 per withdrawal.

Speaking during an interview with RUFEP, Mr. Alitili said SILC groups were currently being monitored by the bank as a special project with a possibility of waiving some of the charges.

By June 2018, forty-seven (47) SILC Groups were saving with Cavmont Bank while 6 were with Indo Zambia Bank and 2 were with Barclays Bank bringing the total number of linkages with banks to 55 under KCCC.

Saving Groups improve Livelihoods of Petauke Rural People

The Savings Group concept where rural people are organized into groups to save and obtain credit is beginning to bear fruits on the livelihoods of the rural people in Petauke district.
The Village Savings and Loan Associations (VSLA) model consist of 15-25 members that meet regularly at agreed upon times (weekly, bi-weekly or monthly) usually under a tree, classroom or church premises to save and lend money to members.
In Petauke District, the Churches Health Association of Zambia (CHAZ) has been organizing VSLAs in rural areas as RUFEP’s implementing partner under the Community Based Financial Institutions (CBFIs) linkages window.
CHAZ has organized and trained 107 VSLAs with a total of about 3,102 members in Petauke rural under RUFEP’s support. Upon formation of the groups, members were trained by a Field Officer in group dynamics, bookkeeping, financial management, networking, liquidity management , performance management and on income generating activities. The Field Officer further recruits Field Agents from the trained groups to organize and form new groups for increased outreach.
Zambwela Savings Group started saving in 2012 and has since grown in terms membership and savings. With a membership of 30 by 2017, a total of ZMK 99,038.00 was accumulated from savings and interest earnings. This was share-out to members at the last sharing in 2017. The group loans to members are for a repayment period of 3 months at 20% interest.
After a member has received a loan they embark on income generating activities to grow their business and use the profits to repay back the loans and grow their savings. The benefits of these initiatives are slowly accruing to members of the Saving Groups in terms of poverty alleviation.
Kizito Mpatisha, a smallholder farmer in Kanyato area in Petauke Rural is now able to buy farming inputs without waiting for the Farmer Input Support Programme (FISP) by the government.
Mr. Mpatisha disclosed that group members are reluctant to secure their savings with banks due to bank charges and low interest rates.
“For now CHAZ and Minga Mission Hospital has been helping us to secure our savings and to earn some interest. It is a security concern to keep money in the village as we have heard incidences where group savings have been stolen”, he said.
In Chineta Village, Ulemu Savings Group Chairperson Acklina Tembo initially started by rearing village chickens from the loan she got from her group but had to change business as chicken diseases became a threat to her business.
Mrs. Tembo said members are advised not to invest the entire loan in one business venture because if it does not work out, they might fail to pay back loans.
“We do not use all the money in one business due to unforeseen eventualities. In case the business fails you can change business and venture into another income generating activity”, she disclosed.
And Sister in Charge of Minga Mission Hospital Asperanza Massawe, said the Village Banking model has helped to improve the livelihoods of the rural people and in reducing poverty among communities.
Sr. Asperanza observed that security of community funds is becoming a major concern as formal financial institutions are far away from the rural areas.
She was speaking during a monitoring and evaluation field visit of CHAZ supported CBFIs in Petauke rural by the RUFEP team.
RUFEP Programme Coordinator Michael Mbulo said the CBFI Window of RUFEP’s Innovation and Outreach Facility (IOF) is meant to, among others, address the security concerns by linking Savings Groups to financial institutions.
Meanwhile, CHAZ’s Microfinance Program Officer Joyous Sikalima said his organization was engaged with Zanaco in an effort to come up a financial product for Saving Groups in Petauke rural districts.