Ngome Shanty Town
Microfinance: A solution to breaking the cycle of poverty?
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Breaking down the vicious cycle of poverty and raising incomes relies on raising levels of investment and savings. For many of the poorer members of Zambia where the majority live on under US60c per day there is little opportunity to save. Thus the funds available for small scale low income entrepreneurs were not available. Commercial banks have been reluctant to lend even small amounts of money to people of limited means requiring business start up loans fearing that, in the absence of any significant collateral security borrowers would simply be unable to repay the loans. Opening up bank accounts in commercial banks was also a costly and complicated exercise particularly to those people who had low levels of literacy. Women were particularly lacking opportunities and funds to start up businesses. Many economists have identified the need for enable women to become more financially independent if fertility rates and population growth rates are to fall.
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What was needed was a system that enabled small businesses and women's groups to borrow often small amounts to finance essential investment and a more effective way of enabling people on low incomes to save small amounts of money. Microbanking or microfinance was an innovation that allowed this to happen. The specialised in lending small sums of money often under $25 to people that needed to borrow money in order to finance capital investment
One such Microfinance scheme is PULSE a microfinance group launched in the shanty towns of Lusaka by the NGO CARE supported by bilateral aid from Canada and the United Kingdom.
Some economists argue that NGO run microfinance schemes have been less successful that those schemes run by commercial banks and credit unions. It is said that they do not have the necessary skills to successfully manage banking operations and the loans that they make are not related to the amount deposited. They have often tended to be microcredit organisations focusing more on providing credit facilities rather that offering wider support to small businesses such as technical assistance and marketing advice. It is also argued that as they are no longer basing their lending strategy on commercial factors they are not so insistent on longer-term sustainability of projects as commercial banks might be.
Those economists supporting the microfinance schemes operated by NGOs argue that NGOs will take on more risky and often more needy schemes especially those aimed at lending money to the very poor and women's groups.
Some microcredit schemes such as the Mpongwe Women's Bank run by a Zambian company, Credit Management Services (CMS) (supported by European Union and Finnish Aid) in Luapula Province only lends to members of women's clubs. These clubs are divided into cells of five members. Each cell organises savings amongst its members based upon which members are given twice the amount they have saved as a loan. The savings are held as security. CMS is able to provide loans of up to 500,000 Zambian Kwacha (about US$ 250). CMS have found that the scheme has enabled women to generate income which has given them some degree of independence from their husbands.
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