Financial Service

Financial Services

Villagers are acutely aware that the lack of access to capital dramatically reduces their opportunity to improve their lives. Micro loans in Zambia have not proven to be very successful in rural areas because of the high interest rate, and a quick payback time. A more successful model in Zambia is the Village Bank. In this model, a group of motivated village members form a financial cooperative. The cooperative is trained in the operation of a financial organization especially in the management of loans. Each member of the cooperative must contribute funds on a regular basis. Even if the amounts are very small, the villagers must get in the habit of putting money into the cooperative. When there are enough funds, the cooperative can start making microloans to members of the cooperative. The advantage of village banking is that the cooperative sets the terms for the repayment of loans. If a person is seeking an agricultural loan, it is not possible for them to begin paybacks until the results of the loan come in which is typically a growing season. Traditional microloans require repayment to start almost immediately, thereby eliminating many of the more productive activities capital could create. Since the cooperative starts by loaning money to themselves, they get to set the terms. In discussions with village banking professionals, Project COPE has learned that a village bank cooperative works best if they have an outside capital infusion of less than $1000. It turns out that if more than $1000 is added to the money that the villagers have already accumulated amongst themselves, they lose the appreciation that it is their money and also lose the feeling of obligation to pay it back. Therefore Project COPE will solicit funding at $1000 or less once the financial cooperative is running and demonstrates competence in managing loans. Eventually, the Village Bank will develop the skills and capital to expand the local economy without reliance on outside funding.