Mixed Fortunes in Zambian Village Banking

01/15/2020 – Random Thoughts and Deep Reflections on some Risk undertakings – Zambian-Style Village Banking.

Mark Zuckerberg (Synonymous with Face Book) stated that “The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks”. His sentiments have been echoed by Iveta Cherneva who categorically stated that “Only those who play win. Only those who risk win. History favors risk-takers. It forgets the timid. Everything else is commentary.”

In Zambia, between 1977 and 1999, we used to hear of local terminologies such as Ichiima, Ichilimba, Kaloba etc. During the 2000s, some of these concepts have revolved, been tweaked and refined. Some new user-friendly terminologies such as soft loans, community banking and Village banking have been conceptualized, methodologies and modus operandi continue to be panel beaten, sieved and refined as we continue in 2020.

One of the personalities, attributes or indeed one of the character traits that we are likely to find in any successful person (in whichever areas of human endeavors) is that they are willing to take calculated risks. Taking calculated risks may change one’s life for the better and or provide the way for some people to fulfill their dreams, hopes and desires. “Living with fear stops us from taking risks, and if you don’t go out on the branch, you’re never going to get the best fruit” Sarah Parish advised. Paulo Coelho further intimated; “Pitiful is the person who is afraid of taking risks. Perhaps this person will never be disappointed or disillusioned; perhaps she won’t suffer the way people do when they have a dream to follow. But when the person looks back, she will hear her heart”. Mark Twain encourages everyone to venture out and explore. “Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did. So, throw off the bowlines, sail away from the safe harbor, catch the trade winds in your sails. Explore. Dream. Discover”

From the onset, let me confirm that, I have been privileged to carryout consultancy work, reviewed several village banking constitutions, rules of engagement, operational manuals, minutes and helped to design the cash-flow quadrants and projections, finance and banking platforms for Village Banking groups based in Zambia and several of those being run by Zambians in Diaspora. I have a fair share of understanding on a practical level how Zambian style Village Banking operations are currently being run.

For easy of reference and clarity, Village banking system was initially thought to be implemented in economically challenged environments in order to help those that cannot get loans from traditional financial institutions such as commercial, retail, or merchant Banks. Currently, Village Banking as a type of microcredit similar to community banking and other financial institutions such as FINCA and several others is quite popular in Zambia and among phenomenal Zambian ladies and women.

The primary objectives of the Zambian style of village banking or Women/Ladies Savings Initiatives is to provide a platform for its members to save, to borrow, promote networking, allow members to share business ideas and investment opportunities. Zambian women and ladies want to save money away from or besides/along with the formal Banking systems whose charges and service commissions may be seen to be prohibitive and feared to have potential to wipe out the hard-earned funds held in Bank current or savings accounts. It is can be viewed as part of the Financial Inclusion.

The Zambian Women Groupings have found it prudent to provide funds to individual fellow womenfolk that are in need of assistance for certain projects and business needs. The fervent hope is that by providing them with small loans, other members can engage in business transactions that will eventually increase their savings and net wealth for other projects and during rainy days.

The basic structure of a Zambian style of a village bank is much like a support group made up of strong willed, determined and focused crop of women empowering each other and other resilient ladies, who discuss financial matters, have regular meetings in which they convene and discuss the issues associated with the village banking.

The Operational details of various Zambian style Village Banking groups differ from one group to another. Suffice to state that the underlying and fundamental qualification with regard to membership is based on a referral and strong recommendation from an existing member presumed to have good character, great Reputation, must be of good standing in society, committed, trustworthy and not a defaulter on previous loan obligations. Through a vetting and voting process, new members are admitted to the group.

In general, within this group, individuals can ask for soft loans from the village bank. If a member attends meetings regularly and is in good standing with the rest of the group, one should be able to get a small loan, with specified amounts and time frame in which to pay back at socially friendly lower interest rates than the ordinary commercial banking lending rates.

Members will make regular payments to the village bank until the said soft loan is repaid in full with a reasonable agreed interest rate. With this type of loan, they often do not require any kind of collateral. Collateral is usually not required as most of the individuals and the organization may not have anything to offer as collateral. Instead of collateral, all of the members of the organization provide cross guarantees on everyone else’s loans.

If a loan for one reason or another is not repaid (and within the Zambian cultural and social context, excuses and reasons why loans are defaulted can be as varied, complex and weird to comprehend and isolate or itemize. There is just no way of knowing which ones are truthfully genuine or fake news), the individual that took out the loan would be somehow socially pressured by constant reminders through phone calls, FB Messages, SMS, emails, WhatsApp and or embarrassed to remain in the group. That goes with the member-friend who introduced the delinquent member. This type of social/soft loan utilizes social pressure instead of traditional collateral to enforce the loan. Banks have lent the hard way and sometimes can be brutal with loan impairment and debt collection mechanisms. Village Banking can learn lessons from other Financial Institutions and the current cases before the Courts of law. We will discuss the risks later.

Similar to FINCA International which is supposedly a not-for-profit corporation that uses market-based solutions, like microfinance and social enterprise, to catalyze economic growth, expand financial inclusion and alleviate poverty in underserved regions worldwide, Zambian Village Banking is also playing a pivotal role in women supporting other women. It is however not without inherent challenges, problems and risks associated with it.

“Creative risk-taking is essential to success in any goal where the stakes are high. Thoughtless risks are destructive, of course, but perhaps even more wasteful is thoughtless caution, which prompts inaction and promotes failure to seize opportunity” – Gary Ryan Blair. This is what drives resolute women to forge ahead with the Village Banking.

Although the village banking groups in Zambia would like a situation where fraud and financial crime could happen to other financial institutions like the Pensions and Insurance, it is an undeniable fact that all commercial and Retail Banks, Community and Village Banking including these Women’s Saving Groups for Zambians are potential victims.

Just like in the Zambian cryptocurrency saga, more than four (4) groups have already fallen victims and members of the Village Banking groups are in a state of confusion trying to decipher when, how, what, why and who are the perpetrators of the fraudulent schemes.

So far, one group could not share out dividends, profits and savings for the cycle ending in December 2019, as the amounts mysterious went missing by the alleged trusted Secretary to the Treasury. The second group was ambushed by robbers wearing masks during their monthly weekend meetings and hauled their contributions in a cash box and the thugs vanished in thin air. Suspicion of the mole or the enemy within the group can never be established or determined. The third group thought the Signatories had deposited funds in the Bank Account at a Commercial Bank only to discover that the Secretary to the Treasury had decided to utilize group funds to invest in a supposedly higher return investment project which apparently turned out to be a scam of crypto-currency data mining. The group have been panicking and looking out for solutions. The fourth group had challenges with members who borrowed money to invest in a piggery, poultry and saloon business. Funds (loans and interest) could not be paid back as members claimed that the anticipated profits could not be realized due to load-shedding which brought out untold misery to the piglets and killed day old chicks. These and many more practical examples are real problems and challenges of such nature need to be seriously considered and tabulate how best they could be mitigated.

I have had the privilege of working in the Financial Crime Risk Management and Investigations in Zambia for two decades. I have seen a lot of financial scams and schemes in many sectors. Be that as it may, Village Banking is a relatively new normal and the sector needs nurturing, proper guidance, clear rules and regulations in order to effectively mitigate the risks attendant with these types of informal social and financial groupings some of which are carrying risks in the way they handle the groups financial transactions.

As stated, members who borrow from the Village Banking or Women’s Empowerment Organizations do not offer any collateral. When I inquired their respective constitutions, pertaining to how they would recover delinquent loans from members, most strongly felt that where a member fails to pay the loan outstanding, the group will consider reporting the matter to the police or taking such other legal steps to recover the amount.

Whilst some of the demoralized and frustrated Police Officer’s action has been lethargic, group members have had no problem in reporting such matters or getting them to the scenes of the crime (often by cajoling, providing transport, lunch allowances or “Talk Time” and internet Bundles or money for fuel). Culprits have been surrendered to the Zambian Law enforcement Agencies, the Director of Prosecutions and his team members and subsequently to the Courts of Law. However, these three arms of Government are increasingly failing to inspire the Zambian people, failing to deliver or are painfully slow to reform and administer justice and subsequently fraudsters are left scott-free. Clearly the penal system has not moved with times and the government which assured the general populace should not fall into the trap of paying a lip service to resolving the numerous Law Enforcement Agencies, DPP and Judicial ills Zambians have been crying over since independence.

In a separate article I shared that Fraud is among the oldest human occupations. Ever since Jacob obtained Isaac’s (his father’s) blessings by impersonating his brother Essau, the efforts and energies spent by some human beings to get something for nothing has been a recurring theme in literature.
For this Christian Nation of Zambia, those who went to Sunday and Sabbath Schools or have read the Holy Book called the Bible, are reminded that the oldest fraud is told in the Book of Genesis Chapter 27.

Under modern Zambia and using the current Statutes, Jacob and his mother Rebecca depending on so many factors including political will at the top could have been charged with conspiracy, impersonation with intent to defraud and indeed obtaining blessings by false pretenses. Other professional colleagues may also argue that under the current Zambia penal and judicial system the duo would have been acquitted due to unending court gymnastics, adjournments, legal technicalities and political inclines.

Fraud is a generic term for behavior, which involves deception by one party of another. Although the law relating to fraud differs in separate jurisdictions there are common threads, which identify behavior as fraudulent. These will include the practicing of a deception, the dishonesty of the person practicing the deception, the obtaining of property and/or the intention of interfering with another person’s lawful right to deal with property as he wishes.

The number and variety of legal definitions of fraud and like criminal offences are too voluminous to repeat here and those can be discussed later.
Fraud involves deliberate criminal intent and deception. Fraud is any intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain. Some of the salient elements in Fraud are;
Knowing submission of false representation or concealment (knowledge)
2. Specific intent to deceive (deception)
3. Detrimental reliance (losing money or assets)
4. Potential/Damage/loss to other members, individuals, groups, Bank or financial institution or organization.
Fraud is defined as any loss or attempt to cause loss involving deception.

I wish to submit that just like in corruption cases sheer dishonesty and greed, not necessarily the amount of salary or wages one gets per month counts. When it comes to the question of money, do not trust anyone, and not even yourselves. This is the reason we can have a very honest and trustworthy Government Office orderly and or messenger but have a greedy, craft and dishonest Church Bishop and Government Minister. In Zambia, we have heard of several high-ranking people involved in what my grandmother would only term as embarrassing and shameful activities.

Why would such a situation arise? In white – collar crime, the potential rewards are much greater than in blue collar crime. The risk of detection is lower, successful prosecution is more difficulty as one is able to summon the whole mighty platoon of the best Legal brains in the Country, state counsels and Senior Legal men and women to raise preliminary issues in courts of law, apply a dozen of injunctions, a couple of Legally challenging objections and adjournments for years on end whilst the loot is diminishing and being shared. The resultant effect is that the penalties are less severe.

What do you expect with “deliberately ill equipped and with no adequate logistical, technological and financial resources” and largely ALLEGED and presumed to be often corrupt Law Enforcement Agencies and Officers who would rather have a drought and poverty stricken but hungry villager who has stolen a cob of maize or a village chicken (free-range chicken) be convicted for five years in prison with hard labor than let the twit swindler of colossal sums of money go scot-free under the pretext of the case being technical, complex or unpursuable.
These are all sound “business” propositions and reasons for fraudsters to put their efforts into fraudulent activities. Those engaged in such criminal activities are many. It is BIG business. To be continued. KEKK888

Published by Kunda Kalaba

Financial Crime Compliance (FCC) professional. Passionate about AML/CTF, Sanctions, ABC, KYC, CDD. Member - World Advisory Council Association of Certified Fraud Examiners-ACFE. Member of the African Task Force Committee - ACAMS. Presenter at International Conferences-ACAMS&ACFE. Certified Fraud Examiner-CFE. ACFE & ACAMS Singapore Chapters Member. Certified Anti-Money Laundering Specialist-CAMS. Certified Anti-Bribery and Corruption-ABC. Chairperson, ABC Working Group. Founder - Institute of Directors (IoD) Zambia Chapter. Founder - Managerial Accountability & Transparency. Two-term of two years Chairperson of the Bankers Association of Zambia Fraud Prevention and Security Committee. Zambian Government to SADC and COMESA Consultant on Crime & Corruption Prevention & management Strategies. Sound & vast experience in FCC Compliance, Deterrence, Prevention, Detection, Investigations, Security and Prosecutions. 25 years extensive experience in FCC, ABC, AML, CTF, Fraud & Operational risk assessment & Investigations. STA in Financial Crime Compliance & Risk management in London, Coventry & Southampton in the UK. Area Head of FCC for Southern & East Africa responsible for Risk Assessments & Investigations, AML/CTF, Sanctions. Central Bank regulatory and AML Directives appointed as Country Money Laundering Prevention/Reporting Officer-CMLPO. Professionally trained “trainer of trainers” & core facilitator. Proficient with proven track record of exceptional abilities in management and leadership for performance. Corporate Governance, capacity building, Institutional & Organizational development, business process re-engineering. Technical expertise is coupled with excellent interpersonal, team building, communication and presentation skills.

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