Local Thrift Group Boosts Financial Inclusion In Rural Malawi

By Deogracias Benjamin Kalima

Sophie Mdala runs a small business in Chikwawa district of southern Malawi. Sales have been good for the past eight years, but it could be better.

To improve her business, Mdala needs fund but there are only few options in Malawi. To obtain loan from a commercial bank requires having collateral like land. But many rural women in Malawi do not own land due to cultural and traditional barriers.

An alternative way for Mdala is to borrow money from loan sharks who lends out money to fellow community members but at an exorbitant interest rate ranging from 70 to 100 percent.  This high-interest rate left many women struggling despite the potential to prosper in business ventures until the Village Savings and Loans (VSL) came to their rescue.

Village Savings and Loans (VSL) group help members start their own ‘bank’ with member’s contribution as capital. The money contributed is later lent out to members at an interest rate set by them.

The village bank cycle starts in April and ends in December. April is the harvest time in Malawi which means that most people in the rural community have money which is realised from the sales of various crop produce. Through this set up, many rural women are having easy access to loans to finance their small scale business ventures.

For Mdala, she joined a VSL group comprising of 17 other businesswomen in her village. They meet once a week and each member contribute 1000 Malawi Kwacha (US$1.40) to the group pool fund. This money is made available to members at an interest rate of 30 percent per month.

“In our group we have 18 members, which means at every meet we raise MWK18, 000(US$27) from the contributions. This money is available to everyone in the group to borrow at an interest rate of 30 percent which makes the capital to keep on growing,” Mdala explains.

The capital has now grown to an impressive 380,000MWK (US$550). Members also have a welfare fund set aside to cater for emergencies such as deaths and sicknesses of group members and their families.

Through her savings at the VSL group, Mdala has managed to grow her hawking business. She was also able to buy two goats which overtime multiplied to six goats. During the drought early this year, she sold some to buy food for the family.

“My hawking business has more stocks now. And I was able to provide food for my family despite the drought because I sold some goats to buy food,” she said, adding that she has not only enjoyed a “readily available source of financing” but she is able “to get loans at an affordable rate.”

Another person who has benefited from the group is Miriam Thomson, a divorced mother of two. Miriam used the money she got from the savings group to start a sales business.

“From my fritters business, I make an average daily profit of MWK 3,000 (US$4) which is enough for my household everyday needs. I (bought) three pigs which have multiplied to thirteen after several months. During the lean period, I have sold about five of them to pay school fees for my son and buy food for my family,” she said.

Miriam has already bought twenty bags of organic manure to fertilise her one and a half acre maize farm. In the next two years, she plans to buy an ox and cart to use during harvest. She also hopes to start hiring the ox and cart to other people at a fee.

However , some people have found the VSL groups to be tough after failing to pay back loans and as a result, they had  their properties confiscated and sold by fellow members to  pay off their debt.

While some people have expressed reservation on the VSL groups, women like Miriam see it as a saving grace. One thing is sure; the VSL groups are helping lots of families in rural Malawi.



Deogracias Benjamin Kalima is a Malawian independent professional journalist. He dedicates most of his reporting on rural livelihoods and development. His works have been published by German online magazines Eufrika (www.eufrika.org ) and JournAfrica! (www.journafrica.de/en).

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