Banks in Zambia lose millions to the informal saving culture

May 12, 2010

Less than one third of Zambia's population has a bank account. Especially the informal sector is seeking alternatives to the formal banking. Barbara Namisango explains how the Zambian system called Chilimba works.

At the COMESA Market, located right in the heart of Lusaka, South African jewelry and baby clothes, Vitengi from DR Congo and fruits from Zimbabwe are displayed at small stalls. Walking among the stands is Lovemore Ngwenya. He is not there to spend money but to collect it. He stops at a stall where a young man is rolling out chapatti, who stops his work and gives Ngwenya 3,000 Kwacha (around 0.60 US$) in honor of his day’s contribution.

A group in COMESA Market aimed at assisting marketers is comprised of 23 people. Each day, each member contributes 3,000 kwacha. At the end of day, the total sum of money collected is given to one member of the group. This is a saving plan on small scale, which is called Chilimba. Every member of the group has a number. When their number comes up, they get all the money collected on that day. Marvis Chibwe, a member of the group, says saving in the Bank requires too much time, which she lacks due to her busy schedule. Banks lower costs

Ililonga Muyunda, the Executive Director of Zambia Consumer Association, says for many semi urban and rural consumers the banks are not an option. “Banks are losing business. Once the informal sector is organized and sensitized there is a lot of business.” Muyunda expressed the need for banks to cash in on the positive saving culture displayed in the Chilimba system.

According to Simataa Simataa, an independent analyst, banks are slowly changing to attract the informal sector. “A couple of years ago, having an account was a privilege of the few. However, banks have realized this, too, and they’ve gone down. I know of banks that have gone as low as 20,000 Kwacha (about 4 US$) for opening an account”. A radio as collateral

Banks may be reaching out, but it is still not enough. At the market, stand owners still prefer to give the money to Lovemore Ngwenya in their Chilimba system. However, at the close of this day, the member whose number was up, didn’t get his share. Ngwenya says one member of the group was unable to make his contribution in time. He says he will follow up the next morning to come up with the total amount required for the member in waiting.

But if worse comes to worse Lovemore may have to accept an item like a radio set instead of the money - just like banks go for collateral. So far, Lovemore never had to take any Chilimba collateral. His group members have a high discipline in honoring their share. A discipline many banks would love to see in their clients.

Barbara Namisango