There are no banks in Lomié. There are no microfinance institutes (MFIs) either. In fact, the history of banking here – and microfinance in particular – is not good here. Without going into more detail or personal asides (or any more than the previous post), large-scale financial services have not worked here.
But for decades, Cameroonian friends and neighbors have belonged to small savings and loan groups called tontines. Each week, people pool their money and choose one recipient to pay back the loan at their convenience, interest free. This same model was introduced in Lomié about 15 or 20 years ago. It works because the groups are self-selected and self-regulated, resulting in loan repayment rates of nearly 100%. Mohammed Yunus’ Grameen Bank model is similar, in that it uses social solidarity (or pressure, perhaps) to ensure loan repayment. And because it circumvents more rigid social hierarchies (such as India’s caste system or the elevated role of men in patriarchal societies like Cameroon’s), they are not typically targets for corrupt public officials and/or bank managers.
Generally speaking, tontine meetings (which usually take place weekly) are uncomplicated. Everyone saves a minimum designated amount and the group chooses one person to receive the loan. Often, though, they don’t work as well as they could; book-keeping methods are poor or non-existent, the president has too much influence over the group, loan recipients are not disclosed to the rest of the members…
To provide an alternative to these challenges, a savings and loan experiment called a VSLA (village savings and loan association) was created by a mix of local residents and development workers from CARE, Oxfam, Plan International and others. It works similarly to a tontine, but has built in systems to encourage transparency, equality, and sound financial management practices among its members. I recently started one of these groups with 11 vendors in Lomié’s daily market.
The nuts and bolts of our group work like this:
- Members choose one another based on requirements agreed to in a constitution, written by the members (with some guidance by the VSLA model and me).
- Each week the members meet to save money. Every fourth meeting (monthly) people can take out loans.
- Savings are composed of shares, equal to an amount designated by the group (in the case of my group, 2,500 fCFA – about $5). Each week a member can purchase anywhere from one to five shares, saving anywhere from 2,500 to 12,500 fCFA.
- After an initial period of five weeks to save up capital, the first people can begin taking out loans equal to no more than three times their total savings (if they’ve saved 10,000CFA, for example, they can take out 30,000CFA). This combination of savings and lending both encourages savings (in that they can’t take out a loan without saving at least a third of the loan’s value) and ensures higher repayment rates as the loans are all taken from within the group.
- A monthly service fee of 10% is charged on all outstanding loans. It is essentially the interest rate but we don’t call it that for two reasons: 1) Technically ‘interest’ is something charged by an outside lender. Since loan funds come from inside the group we call it a ‘service fee’. 2) “Interest” is specifically forbidden in the Koran, and about 20-25% of Lomié (as in Cameroon) is Muslim.
- Meetings are managed by a committee (Comité de Gestion) which includes the following roles:
- President – calls meetings to order, manages flow, keeps things on track, and ensures that the Constitution is followed by all members.
- Secretary – keeps written track of all of the members’ savings, loans, repayments, and fees.
- Treasurer – keeps the money box and brings it to each meeting (see pic of box below)
- Two (2) Money-counters – count the money saved, loans disbursed, fees gained, and social solidarity money being contributed each week
- Three (3) Key-keepers – responsible for bringing the keys to open the box to each meeting.
My group has been saving for four weeks now, and their fifth meeting will be Saturday. This Saturday will be the first loan distribution meeting. I haven’t actually been there for the last two savings meetings since I have been in Yaoundé helping to design the training for the next group of Community Economic Development and Education volunteers. I was ecstatic to hear that not only have the meetings been taking place regularly and smoothly in my absence, but the group has already saved 117,000 CFA (about $240)!
Here’s a pic of the meeting where we finalized the Constitution and elected the Management Committee: