• Friday, May 20, 2011
• Inter Press Service

According to the World Bank, less than eight percent of Zambian adults have bank accounts. For the millions who make their living in the informal economy, this prevents them from earning interest on any savings they have or securing credit needed to expand small businesses beyond mere survival.

Just half a million people were in formal employment in 2008 out of an estimated total labour force of about 5.2 million. With so few formal jobs, it is inevitable that many have turned to livelihood strategies that include small businesses such as tailor shops, the grocery stands known locally as ‘tuntemba’, or charcoal stands at markets. Profits from this kind of trade are often small and offer little opportunity to expand the ventures.

Commercial banks have little interest in lending - or even banking - small entrepreneurs' money. Minimum opening balances range between $150 and $300 - far beyond the reach of most Zambians, even before considering hefty monthly charges.

'In the context of Zambia, where 58 percent of the population lives on less than one dollar a day,' says José de Luna Martinez, a senior economist at the Finance and Private Sector Development Office of the World Bank, 'these minimum balances prevent most people from having access to basic banking services. Thus, with the exception of high income households, public servants and employees of large companies, most Zambians do not have access to products offered by banks.'

Commercial banks also have little appetite for the risks of loaning money to small and medium-sized enterprises, especially in light of the relatively small amounts owners of small businesses are seeking and the time and cost associated with pursuing defaulters in the Zambian courts.

Microcredit is available - to some. But these small enterprises instead turn to microfinance institutions (MFIs) which have less burdensome requirements.

'When we started our cooperative,' says Rebecca Mwanza, 'we needed to open a bank account for our operations. But we soon discovered that it was not that easy to do, because banks were asking us for a minimum opening book balance of about 700,000 kwacha (around $150).'

Mwanza is the vice-chairperson of the Chawama Area Women's Association, a collective with 800 members drawn from a crowded peri-urban area in southern Lusaka. 'It was only when we turned to microfinance institutions that we found a cheaper way of doing this.'

'Cheaper' is a relative term - MFIs lend money at rates of interest beginning at 50 percent for short-term loans (1-3 months) and interest can climb as high as 75 or even 100 percent if the repayment period is longer than four months.

© Inter Press Service (2011) — All Rights Reserved. Original source: Inter Press Service

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