How the poor can fight back against the banks
- Michaela Collord
The small business owners revolution in Tanzania: Form a poor people's bank.
I live in Manzese, on Mvuleni Street. [Manzese is a working-class area in Dar es Salaam, Tanzania’s commercial capital – Editor]. I own a small business. We, small business owners, find ourselves taking out loans because of the difficult living conditions we face; so, we go for loans to get capital. Because the commercial banks refuse to lend to us as we lack collateral, we have invented new strategies to lend amongst ourselves.
In the past, upatu (a collective savings and credit scheme, or “money-go-round”) was very well-known, and it seemed to help many poor people. The way upatu worked was like this: you were many people, each one of you contributed a certain amount of money each day, and then after several days, one person would withdraw money. Like let’s say you are 20 people, each one of you contributes Sh2,000 ($0.86), so each day you have Sh40,000 ($17). After five days, you give away the money to one of you, and then you keep rotating until everyone has benefited.
The person managing the upatu, the treasurer, is known as the kijumbe (literally, the “broker” but effectively a treasurer). Initially, the treasurer did her work voluntarily, so she took no pay. But later many treasurers turned upatu into a business. That same treasurer started to claim an allowance. When collecting money each day, she charged a fee.
The whole scheme was not secure at all. There were many cases of treasurers failing to safeguard the money, or those who got money early in the rotation then ran away without contributing their share. A treasurer could get money and use it for her businesses or to pay a loan. Also, the upatu scheme was dominated by the treasurer who was the only person who knew everyone while you, the participants, did not know each other. After some time, this scheme lost prominence as many people stopped taking part.
Another way to lend to poor people is through microfinance institutions, which are now widespread. These institutions lend to one person, but she must be part of a group. So, the guarantor of the loan is the group.
A small business owner is given a loan, and then she is told to return a small amount each week. But that person receiving the loan is not told how much interest will be charged. She will just be relieved to see that the loan repayment each week is not very big. Even so, if you calculate, you realise that a person may take out a loan of Sh500,000, but by the time she finishes paying it all back, she will have paid Sh750,000. In other words, she is charged a 50 percent interest rate for the few months when she had that loan. A big part of the profit that small business owner makes, then ends up being taken by the microfinance institution.
Because poor people access credit in groups, if one person misses her loan repayment, then the whole group is told to pay for her. Often, the group members who’ve come to pay their share are literally locked inside the offices of the microfinance institution until they find a way to cover for their absent colleague.
A mountain of debt
If a debtor completely fails to replay her loan, the interest will continue to increase beyond what was left to repay of the loan. You find yourself with a mountain of debt, even though the money you took was little. Also, there are microfinance institutions here in the streets that subtract a lot of money from your loan all while still charging high interest rates. For instance, there is one institution that, if you want a loan, you will pay Sh20,000 for the application form. You will then be charged for the cost of sending an officer to inspect your things as well as for the loan insurance. At the end of the day, if you took out a loan of Sh400,000, they subtract like Sh80,000, and you are left with Sh320,000. Then they charge you a high interest rate, so you end up paying a lot of money.
If you fail to pay back that loan, they announce an auction to liquidate your assets. Officers from the microfinance institution, rallying your fellow group members to help, they come to take everything from your house.
There is one sister who had her belongings in her home, but when she failed to pay back her loan, they came and took everything, even the cutlery. They sold it all off for a very low price just to get their money back. This means if you go to borrow, there is nothing you get out of it. You end up losing everything you had, from your small business to everything in your home. You are left without a thing; you have to start from scratch.
This means, if you borrow money, make sure you don’t have any problems. You shouldn’t fall sick because if you do get sick, you go to hospital, and then you end up using your loan money to pay for your treatment. Or if your child is going back to school, where will you get the money for school fees? Will you just stare at that child? You’ll need to take money from the loan to pay those fees. If you get any problem, you will have to use that loan money. Then the interest they charge is not at all in line with the profit you get from your small business. You end up working to profit the microfinance institutions.
For those who are married, sometimes the husband can be stubborn and refuses to let your things be taken. He will say that those things in the home are his as the husband, so if they want their payment, fine, let them take “their person” (the wife) who borrowed the money. This does not help; instead, your fellow group members are used to pressure you, to humiliate you. They will harass you using whatever means they can so that you pay back that loan.
In our area, many people have run away from their families to escape their debts. A person may disappear for even a whole year. Meanwhile, her things are sold off. Then they force her group members to pay back any remaining debts. The day the runaway returns, she’s caught by her group members and taken to the police. If she is granted bail, her family pays money. Now she has become a source of capital to the police. After being granted bail, she will sign a police statement so that she repays that loan. As the date for repayment nears, she will need to borrow again. But no lender will agree to give her another loan because she has nothing – she doesn’t have a business or her own personal belongings. In this case, she’ll have to borrow from private individuals at an even higher interest rate, and so the problems start again. I mean, it’s one problem after another.
Exploitative savings and credit groups
The system of savings and credit groups was, at the start, an exploitative one, dominated by the rich woman who founded the groups.
[In this section, Shomary discusses a particular scheme, the Village Community Banks (VICOBA). The VICOBA were established by a prominent woman, who was at the time an MP (referred to here as the “rich woman”). The VICOBA structure is as follows. You have savings and credits associations that function as a primary unit, and then there is an apex organization that brings together all the primary groups. This structure resembles the standard, unitary structure of Tanzania’s cooperatives. Shomary observes that the apex organization was not accountable to its constituent primary groups; it was simply a structure created to extract money from poor women. That is why her primary group ultimately decided to withdrew from the VICOBA structure.—Editor]
If you start a group, to register it, you must pay the registration fees, which were Sh450,000. Our group, when it was registered, it had to pay an additional Sh300,000 to access more lending opportunities. We paid that money until we had paid Sh6m, but we did not get any loan. We started going to demand our money at the headquarters. We went round in circles, wasting our time, and after all that frustration, we only got half of our money back. When we got to the headquarters, we found mainly groups had come to complain, and they too were demanding their money.
Also, our group had to pay Sh30,000 at the end of every month as the monthly fee. In a year, we paid Sh360,000. We were told that money would help us get supplies, like notebooks, and cover the cost of a teacher and a group coordinator. But for a whole year, we didn’t get a teacher or coordinator. The only instruction we got came from the sponsors, especially Coca Cola, whose aim was to convince small vender to sell its sodas in their area.
The fees kept going up from Sh30,000 to Sh60,000 per month. When it reached that level, we wrote a letter withdrawing our group from this savings and credit system and demanding our money.
In that system, each group member must open a bank account, and the group itself also must have its own account. The bank where we opened our account had a contract with the company that “owned” all the savings groups, and so it withdrew our money to send it to the “apex.” All the money we contribute collectively to lend to each other we had to take first to the bank, then the bank transferred the money to the account of the individual group member taking a loan. Here there are the costs of running an account. Even if you go to check your balance, you pay a fee.
Another exploitative venture was the government’s effort to encourage small business owners to form groups and get loans from the government. There again each group had to open an account, and each group member also had to have her private account. The group account had to have a balance of Sh20,000, and each member’s account needed a minimum of Sh10,000.
Here in Manzese, there are like 50 groups, and each group has 30 members. Do the math: in Manzese ward alone, that bank collected Sh15m. In each district, the bank can mobilise 30,000 group members to open accounts and get government loans. Because there was a big mobilisation, and because it was done by government officials, I am certain that the bank got no less than 30,000 new customers in each district across the whole country. Take the 160 districts, each adding Sh300m, you get Sh48b.
Many of us who were encouraged to open accounts didn’t get loans. So, it’s really us who gave a loan to the banks. My group contributed Sh300,000 to the bank. Through all our groups, we contributed more than Sh48b. Here in Tanzania, it’s us the poor who loan to the banks.
The third exploitative scheme involves identity cards for wamachinga (small business owners, vendors). I know that when President [John] Magufuli introduced these identity cards, he had good intentions, and almost every day he tells us that he looks out for the needs of the poor. But each identity card is Sh20,000 per year. Each region received 25,000 cards. In a single region, the government collects Sh5bn. If you add up for Tanzania’s 26 regions, excluding Zanzibar, you get Sh130bn. And already Regional Commissioners have been told to take more identity cards where they have already finished distributing the first lot. I am sure there are very many of us small business owners. When we pay this money for the identity cards, it doesn’t mean that now we don’t pay taxes where we do our business, including for our market stalls. This Sh20,000 is just another burden for us. The question I ask myself, this money, will it be invested in social services so that if I go to hospital for a surgery, I won’t be charged? If not, then where is it going?
A Democratic Alternative – Savings and Loans Cooperatives
There is now a more egalitarian system of savings and credit groups.
The aim is to build the capacity of lower-class people after many of them were hurt by the system that only benefits financial institutions. In this new system, we lend to each other, we set our own interest rates, we share out the profit, and we don’t bring our money to any bank.
We lend to each other for 36 weeks, and after that, we start to return our loans. When we get to the 48th week, each member gets their savings back and then we divide amongst ourselves the left-over profit from interest collected on loans.
In managing our groups, we discuss everything collectively and openly. If someone wants a loan, we discuss with her, and everyone knows the amount she contributed. Through the discussion, she can explain her problems, and her fellow group members can discuss the way to help her through a social fund, a children’s fund or a loan. [Shomary here refers to the three funds to which group members contribute: the social fund, the children fund, and the general contributions.—Editor]. Through these groups, we are inspired to love each other, to respect each other and to help each other.
There is also transparency in the collection and lending of money. Each time we meet, we count the money together, and we record the results together. As such, each group member knows how much money was contributed and where it went.
If a group member could not pay back a debt, she stays in the group. Even if she is afraid, we encourage her to stay as a group member, and we set a procedure for her to gradually finish paying back her debt.
At the end of a savings cycle, at the end of the year, the social fund and children’s fund are divided up equally. But with the savings, each person gets back what she put in to begin with. The profit is divided according to the percentage of savings each group member contributed.
The small business owners’ liberation
From my perspective, I see these groups as a liberation for small business owners. For instance, if I want to get a bank loan, I need guarantors. Me, a poor woman, who is going to agree to be my guarantor? Also, bank interest rates are high, and that interest goes into the pockets of only a few people. But with our groups, there are no complicated lending conditions. If you need a loan, you will get it there and then, and the profit that comes from this scheme isn’t for someone else; it’s our very own. With the banking system, if someone is late with their loan repayments, she has to pay additional interest, and if she fails to pay her loan, she is bankrupted. There is no one who listens to the borrower’s troubles; they just want her money. With our groups, we listen to the problems of each one of us, and we find a way to help. We don’t add on extra interest, nor do we sell off her property.
If we plan well, we can use this system to open our own bank—the Poor People’s Bank. Our bank will not have extra charges and costs to drive people to bankruptcy, and with our deposits, we can make big investments that benefit the majority. There is a large network of these groups here in the street, and the groups can use their experience to pool their resources at the ward-level, and then continue to higher levels.
These groups can also build the collective strength to empower the poor to fight for their rights. We need to use these groups to encourage discussion about the reality of our daily lives. For instance, when we go to hospital, what happens? Is it our responsibility to pay for expensive health care? If I go to a government hospital, I will be asked to pay Sh2,000 for a registration card. If I get a test, like a simple blood test, it’s more than Sh10,000. And I haven’t even bought any medicine. Why is it that we hear children’s medicines are free, and then if you take your own little girl to hospital, you get the prescription and then are told to go buy the medicine at the pharmacy? Now aren’t you paying? Is this your responsibility? So, we can use these groups to question these things and to demand our rights.
Also, we can use these groups to advise our President, who presents himself as a champion of the poor. It is good to hear about and find solutions to each person’s problems. For instance, one mother whose land was confiscated had it returned to her, which helped her a great deal. But each time he helps someone, he should know that there are a thousand with that same problem. So, what we can advise the President is that he implement policies that remove the troubles confronting the majority. If he buys the farmer’s crops, that is a good thing. But if you have yet to remove charges for healthcare, then the farmer’s money will end up with the hospital. Or it will end up paying a bank loan. That person, will she benefit really?