Developing a banking system does not just mean savings available for a rainy day; it means social support and community involvement. In the Western world when we think of banking systems, we think of large institutions that for a small fee, allows us to securely store and grow our paychecks. We can invest, take out a mortgage, a loan, pay our bills, and perform many other financial tasks. As multidimensional as this system may have grown into, we seem to be lacking one thing, reflecting the nature of our societal values. We have opted for less community support for individual gain. Community versus individual banking each has its own advantages and disadvantages, but how does community banking work? How did it begin in Tanzania? And what role does CPAR play in the development of it?
Community banking is just that: it is a banking system used, monitored and managed by a small community such as a village. The idea originated at the federal level in 2007when the government initially conceived of a small scale banking system that would allow villages without formal banking institutions, to benefit through pooling individual resources and working together, ultimately with the hope of reducing poverty in the area. The government has been slow to act on this banking strategy however, CPAR saw its potential and has been able to incorporate it into their Farmer Field School program. The system is now called VICOBA (Village Community Banking).
CPAR educates participants of the Farmer First program about the benefits of community banking, and gives participants the option to become a member of VICOBA. As a result, all VICOBA members are farmers by default. CPAR emphasizes the support and security that results from VICOBA, while explaining the mutual benefits of working together. Strict rules surround the operation. The money is stored in a safety deposit box, secured with three separate locks and keys which are given to 3 different people who sit on a management committee of elected community members. Each farmer must contribute a small minimum amount of 1,000Tsh (about $0.70CND) per week which is referred to as purchasing 1 share. In addition, each participant must contribute a monthly membership fee of 1,000Tsh. Each farmer can purchase up to 5 shares per week (5,000Tsh) if she/he chooses.
If a farmer is in need of a loan, then that farmer is eligible for a loan that is 3 times the size of the amount of shares they own at a 10% interest rate. A loan may be requested to start a small business, pay school fees, buy bags or seed for planting, etc. Each loan is considered by the board and will be granted in order of need. A board may decide to grant a loan to a person needing to repair their house over someone who has a strong house, but is looking to add another room. To be eligible to put in a request for a loan, each person must provide collateral and have a co-signer who can commit to repaying the amount in the event that it cannot be repaid by the borrower. Land is often used as collateral, but it is typically only accepted as such within a community banking system as opposed to formal banking institutions seen in cities. As 100% of farmers do not have formal land title deeds (the government legally owns all land), it is very difficult for people to request loans in formal banks. Community banking in this case is the only option.
VICOBA is not just about credit and saving options though; it also works as a means of insurance in case of an emergency. If a person is injured and must be taken to a hospital, the board may meet and decide to cover the cost of the travel and hospital fees. The money may also be used to meet a community need such as paying for the repairing of a community building. VICOBA encourages equal opportunities for both genders as well, with both men and women eligible for loans.
The enforcement of the rules and the repayment of loans are cleverly managed. The community regularly meets and if anyone is late, they are fined. If a loan has not been paid on time, the board will meet with the individual and discuss his situation, why it has not been paid, and if he will be given an extension. The individual will have a couple of warnings, but if it still has not been paid, than the board can meet with the village leaders and request permission to take some of the collateral that was put down for the loan.
One farmer explains the impact of being a part of VICOBA:
“Before we would sell the whole crop to earn an income, but now we are selling some and saving some of the crop for eating. We put our savings in the box, and we know that if something happens, such as a drought, we will be ok, because everyone takes care of each other.”
Since the members are farmers, they are putting in money that they have received from selling some of their crops. With the Farmer First program, members are encouraged not to sell all of their crops but to save some for themselves and sell the rest as a source of income. This ensures that families have enough food for eating as well as generating an income. When farmers put their money into the community bank, they are not only helping each other, they are securing their own livelihoods. Prior to the implementation of this program, farmers were struggling in times of emergency and were on their own. It was harder to imagine an improved future for yourself and your family. VICOBA community banking has been an agent of empowerment for farmers, allowing them to plan for their futures.
– Jacklynn –