The cheering from the women inside the church hall is deafening, and the singing and ululating can be heard hundreds of metres away. But it isn’t Sunday, and this is no church service; and it isn’t a sermon being dispensed, but thousands of kwacha in brown envelopes.

It’s the afternoon of Tuesday 5 November 2017, and Kamalamba Baptist Church on the outskirts of Solwezi is packed to the rafters with the members – the large majority women – of the Kamalamba-A village bank.

Village banking is fast outgrowing its humble roots

They are participating in the annual profit-sharing ceremony during which all the members share out the money the bank has made during the past twelve months, from savings and interest charged on loans. A lady walks up to get her envelope.

The speaker proudly announces her takings. “Saved K6 740. Profit K3 370. Total K10 110!”

The crowd goes wild, and starts cheering even before the total is announced. Encouraged by the crowd, the lady removes the notes from the envelope and waves them for all to see.

This scene is repeated countless times, and it’s not long before the final envelope is held up for collection. It contains a staggering K18 750, and is handed to an elderly lady who runs various businesses. The singing and clapping now reaches fever pitch. It is the highpoint of the proceedings.

Afterwards, outside the church hall, one of the members explains to Mining for Zambia how she has used the loans to expand her business “I grow vegetables – maize, greenbeans, everything,” she says. “My first loan, I got K1000. I bought some seeds, fertilizer, I invested in the farming system. After repaying that, I got another loan, this time K3 000. I even bought a water pump! When I sell my crops, I save the money and bring it to the bank.”

What is village banking?

In a nutshell, it’s commercial banking tailored to the needs and realities of low-income communities. It is run by the community, for the community. There are no government officials, regulators or external agencies overseeing the finances. It is entirely self-regulated – and that is its strength.

“The money in these village banks is probably safer than money kept in formal banks,” says Golden Kontakonta of First Quantum Minerals’ Kansanshi Mine, who are spearheading the rollout of these banks throughout the region.

The banks make loans to its members at interest rates of barely 20%, which is about half of Zambia’s commercial lending rate. Even though some loans are as low as K1 000, and borrowers do not enjoy the security of regular salaries, the default rate is virtually zero.

Some 74 village banks have been established in the past five years. With a total annual loan portfolio of nearly K5 million and a steadily growing client base, the fledgling industry is fast outgrowing its humble roots and reaching the point where it may soon become a micro-finance industry capable of making loans to a far wider client base.

Kansanshi adopted the village bank concept after its research determined that people in the community often remained impoverished, despite receiving financial assistance from the government and NGOs. Kansanshi reckoned the reason was people had become dependent on the assistance. “So, we engineered a paradigm shift,” says Kontakonta. “Being poor doesn’t mean you are lacking; you can start with the little you have and turn it into real value.”

Each bank is entirely self-funded by its members; Kansanshi provides no start-up capital. The mine merely facilitates the formation of each bank, and provides the safes (cashboxes) in which the money is kept.

A bank is formed when a group of members – typically around 50 – get together as shareholders. The members select themselves, based on reputation, honesty, trustworthiness, thrift and hard work. “These qualities are important, because money is involved,” says Kontakonta.

Each member contributes a sum of money depending on what they can afford, and this money goes into a pool which the bank then uses as a source of loan finance for the members. Loan conditions are incredibly strict – the money borrowed must be used for investment, not consumption.

The risk of theft is reduced by the fact that there is seldom any money in the safe, as it is usually out in the form of loans. The safe requires three keys to be opened, and each key is held by a different person. All members must be present at meetings, witness transactions and agree on the outstanding balances. “We call it collective memory,” says Kontakonta.

At the end of each year, after the cashing out of profits, the bank is disbanded and the member base is started anew. The objective is to weed out members who are “bad eggs”, and learn the lessons of the previous year. “It’s a process of ongoing refinement.”

Kontakonta says the village banks play a huge role in improving quality of life. “People are able to afford fees and send their children to school; the nutritional value of the food intake in their homes has improved drastically; they’ve put roofing sheets on their houses.”

The concept has reached the ears of the government, and local officials have visited Kansanshi to learn more. Government has started some banks of its own, but the key difference is they are given start-up capital. Kontakonta believes this destroys initiative. “Any programme that starts with a handout does not always succeed; it is not sustainable.”

Perhaps more than money, it would seem that the most valuable aspect of village banking is that it has engineered a mindshift from dependence to self-reliance, and from financial illiteracy to financial awareness; and that is priceless.

See also: Harvesting fish for profit