Informal savings clubs have emerged as a popular financial avenue in Zimbabwe in recent years, especially among women and people in the informal economy who may not trust banks or have access to traditional savings and loan options, experts say.
Known locally as mukando, meaning contribution, these clubs usually have about a dozen members who come together to save money. Some clubs are being run by central members who collect everyone’s contribution and keep it until the saving cycle has ended, after which it is distributed. Throughout the cycle, members are allowed to borrow money from the pot and pay it back to the club with interest.
“In a slightly different version of the savings club, contributions are collected and the full amount is given to a different member at certain intervals. When the member pays back the money, they do so with interest. In both cases, the interest gets added to the full pot of money, which is then shared at the end of a savings cycle, letting members get their original savings with an extra amount added,” Al Jazeera reported.
While many who join these clubs find this system an essential source of support, these clubs are also unregistered, unregulated, and depend on good faith between members, which, as per the experts, leaves members open to the dangerous scenario of being swindled.
Knowing the system
In December 2017, Reuters reported on a phenomenon known as “Savings Clubs.” These are local groups that have formed to circulate scarce hard currency among their members. This enables the members to run small businesses, avoid poverty, and helps the African country to avoid a liquidity crunch.
Lynet Sigauke, one of the unbanked individuals in the country, while interacting with the Media agency, upvoted the “Savings Club” concept, stating that it was a good option to mitigate cash shortage in the country. She was a pioneer member of the Shingairai Savings Club, which used to operate under this principle: Anyone borrowing money from the club, including individuals recommended by members, must pay it back in hard cash at an interest rate of 15%.
Sigauke, treasurer of the 30-strong Shingairai club back in 2017, said members take turns to make contributions of $300 each into its coffers, to ensure adequate levels of cash.
In recent years, with the African nation’s economy repeatedly going through headwinds like high inflation, these savings societies are giving citizens precious access to scarce hard currency.
Even economists agree indigenous savings clubs are the way to go as Zimbabweans, back in 2017, were seeing the arrangement as the potent option to avert the deepening cash deficit.
“Before, I was extremely poor, in fact a charity case, but after I became a member of Shingairai Savings Club, I now have a home under construction here in Harare,” said Sigauke, who also owns a thriving transport business ferrying children to and from private schools by mini-bus.
Like other club members, she was able to borrow money to invest in her projects to generate income. While back in 2017, there were no official statistics about the number of savings societies that have sprung up in Zimbabwe, there were allegations about many of these informal financial institutions operating illegally.
However, the Reserve Bank of Zimbabwe stated that in that year, $7 billion was circulating in the informal sector, which savings clubs were drawing on.
How do savings clubs work?
Al Jazeera, in September 2023, reported about Unity Gope, a hawker by profession, who is a member of one such “Savings Clubs.” Gope, a mother of four, lives in a small two-room home in Dzivarasekwa, a low-income neighbourhood and one of the oldest suburbs of the Zimbabwean capital city of Harare. Her total monthly income from market stall ranges between $350 and $550, which lessens during times of low economic activity. Her total monthly expense, back in 2023, stood at $685.
Gope and her children found their economic condition worsening by the rising cost of living and Zimbabwe’s stagnating economy back in 2023, as the yearly inflation has risen from 75% in April to 77% in August. The savings club became her primary supporting mechanism.
These clubs are largely dominated by women, and tend to have about 20 or more members, usually belonging to a similar social group or area where they live or trade from. The Matapi savings club that Unity joined in January 2023 had 23 members who all contribute a minimum of $10 each week over four months.
The contributions are then pooled together and then given out as borrowings to different members at an interest rate of 5% per week. At the end of each savings session, usually every four or five months, each member gets back their full contribution plus a share of the interest that’s been accrued.
Till September 2023, the largely informal Zimbabwean economy Zimbabwe’s economy covered 76% of the country’s population (as per the International Labour Organisation), with women constituting a massive portion of the tally (65%).
Only 5% of Zimbabweans have savings through formal banking channels, according to financial non-profit Finmark’s 2022 Finscope Zimbabwe Survey. Even those who are formally employed often only use the banks to get their salaries. Savings clubs have become a source of capital for many people on the economic margins. And being peer-driven, they also have criteria that are less stringent compared with banks (conditions like being formally employed or having loan collaterals), members say.
“I always find the savings club helpful in the absence of capital through normal banking channels,” says Milliscent Mataranyika, a fellow member of Unity’s club, while adding, “Zimbabwe’s economy is just unpredictable; the banking fees and charges are high, we also fear that the currency will be changed and we will lose value and these savings clubs have proven to be reliable and sustainable.”
In fact, the savings club solution was so successful for Unity and her group that they decided to expand it to include a subcategory where each member saves specifically for groceries.
“The grocery savings club started in 2022, initially as an idea to save money to buy a celebratory meal on the last day of a saving session, when the group shared the proceeds. At the end of the first session, members bought a bucket of chicken and chips as they distributed their savings. But they soon realised they could do more with the extra money, and decided it was better to convert the chicken and chips savings into a grocery club,” Al Jazeera reported.
Unity was concerned about Zimbabwe’s declining economy and the possibility of her children dropping out of school. However, the savings club provided her with much-needed comfort by ensuring a steady income. This allowed her to stock up her market stall and enjoy the benefits of having a reliable source of income.
Not everyone is lucky though
“It was two days before Christmas in the low-income neighbourhood of Mabvuku in Zimbabwe’s capital Harare. Music played, people chatted and most were in a festive mood. But not the small group of women marching down a narrow, pothole-ridden street on their way to the house of their savings club’s treasurer. They had a much more serious matter in mind. The previous day, the women were meant to share out money they had been saving together for the last six months to use for Christmas shopping. But when they called the mobile number of their club’s treasurer, they got an automated response: The number you have dialled is not available. They tried his number multiple times, but to no avail,” Al Jazeera reported earlier this year.
One such affected individual was Carol Madzimo, a 24-year-old hairdresser from the area. She had joined the club together with her mother so they could save money for Christmas groceries.
“My aunt invited us to join the savings club. The savings club was supposed to run from July to December, at which point we were supposed to share the money we had been contributing to the club every month (plus the extra earned from interest),” Madzimo said.
The treasurer, who had all the money the 20 members had been saving for six months, $1,200, plus an additional unknown interest amount, disappeared on the day they were supposed to share the proceeds.
“Christmas was just two days away and we hadn’t received a single cent to buy the Christmas groceries we had saved so hard for. So you can imagine the frustrations we carried to the treasurer’s house that day,” she noted.
It was in January 2024 before the club heard from the treasurer again. It turned out that the treasurer had been using the members’ savings and the interest money for his own use, as per Madzimo’s version. She wasn’t sure exactly how much interest was accrued because the treasurer kept all the books, and the other members had simply trusted him.
Eventually, he returned to each member the amount they had input over the six months, $60, but did not give them any of the profits from the loans or interest.
“I regret (joining the savings club). However, at least I got back all the money I put in as monthly contributions,” Madzimo said.
However, Tanaka Mutyori, who joined a different savings club, wasn’t as fortunate. In 2023, she used to run her own beverage business in a building in Harare’s city centre. After Mutyori joined a savings club in April of that year (located in the same building where her business was operating), she used to contribute $50 every week. The money was supposed to be saved for 18 weeks, before being shared equally among its five members. The club was also supposed to distribute the interest gained from loaning out money to members throughout the saving period.
“Before I joined the club, I witnessed some members buy cars using money they got from the club, so I genuinely thought it was a good idea,” Mutyori said.
However, when the time came to share the club’s money, the group’s leader kept shifting dates.
“Initially, we were supposed to share the money on Heroes’ Day [August 12], but the leader kept changing the date. It wasn’t long till we came to the conclusion that he didn’t have our money,” Mutyori lamented.
When the club members confronted him in 2023, the leader said he had lent all the money to his pastor at church who had not given it back. However, sometimes Mutyori does receive small amounts from the club’s leader when she desperately needs money.
“I am subtracting the small amounts he gives me from the money I am owed, which is $950,” she added.
“I was planning to use the lump sum I was supposed to get in August last year to boost my business. But after I failed to get the money, everything just started going downhill,” remarked Mutyori, as she admitted that joining the savings club really set her back.
One of her big fridges was taken by the management of the building she was renting space from when she failed to pay rent. Her business crumbled and she now works for someone else.
Debating the legality
As per Zimbabwean economist Prosper Chitambara, women and people working in the informal sector participate in savings clubs the most, with one of the key motivations for joining is access to investment capital.
“These savings clubs are making it possible for people to mobilise savings within a group, for lending to each other, either for investment purposes, to invest in businesses or to expand their businesses or even for consumption,” Chitambara said.
Savings clubs have well-documented benefits, he said, so people are eager to join them.
According to Chitambara, numerous scholars have conducted studies to explain the motivations behind these savings schemes. Some of them have even agreed that individuals use their participation in these savings schemes as a way to commit themselves to saving money and to address self-control problems.
Then there are other scholars, who argue that individuals with no access to formal credit may choose to join informal savings groups to finance the purchase of various types of property. In Zimbabwe, one of the biggest benefits of savings clubs, according to local press, is that they protect members’ funds from neighbours, family and friends who may be prone to asking them for money.
Another reason behind the steady blossoming of informal savings clubs is the lack of trust among the common people in Zimbabwe’s formal banking sector.
“In Zimbabwe, there is a general lack of trust and confidence in formal banking institutions by a lot of people. And in any case, our economy is largely informal. So most people in the informal sector don’t save money in formal banking institutions. They prefer to save using these informal banking systems,” Chitambara added.
A major reason for the lack of trust in the formal banking sector is Zimbabwe’s history with an unstable currency, says a post on the Bankers Association of Zimbabwe’s website, while also contending that confidence in the banking sector has been hampered by a number of bank failures. Since 2003, there have been at least nine failed banks in the African country.
Unlike formal banks, informal savings clubs give loans to members without them needing to put up collateral, making this preferable for many.
Moses Mavhaire, a Harare-based lawyer, however, warned savings clubs against giving out loans for interest, saying they are not legally mandated to do so.
He told Al Jazeera he was aware loans given by these clubs benefitted many people supposedly ineligible for bank loans.
However, Mavhaire said, “There is no substitute for the law. You cannot substitute the law for convenience.”
The reality is that savings clubs, however lucrative they may sound in a troubled economy like Zimbabwe, lack legally binding documents and the daily business is done on the basis of “good faith,” “verbal agreements” and “on WhatsApp”.
There is a serious problem with this type of arrangement, Mavhaire said, explaining that fraud cases relating to mushrooming savings clubs are a nightmare to prosecute due to a lack of legally binding documents.
Arrangements by savings clubs should be documented in a contract or trust agreement with clear rights and obligations of parties, he concluded.