Mathare, Informal Financial Services

Mitchel, a member of women go round from Mathare

Mitchel, a member of women go round from Mathare

Not everybody is a friend of banks and especially in the informal settlements where communities’ have circumvented established financial institution and devised ways of accessing credit facilities outside government controlled channels. Informal financial services vary from shopping of credit without paying an interest, shylock and merry-go-round initiatives.
It is common to meet a group of women meeting in homes or social places within Mathare to discuss ways of sharing collected money without think of banking. But what makes this kind of arrangement better than a variety of services offered by commercial banks? Eunice Wanjiku a member of unregistered women group believes that financial institution are not good for startup initiatives found in the Mathare like selling groceries, second hand clothes or starting chang’aa a local beer businesses. She quips “can you imagine a bank giving me Kshs.5,000 to start chang’aa business?, this is impossible. My previous engagement with a financial institution nearly made me develop ulcers. I will never take a loan from a bank again. They nearly sold my house”
There are many different types of businesses which are profitable according to the locals but unfortunately one cannot get easy credit to invest from established financial institutions. Fortunately, people have developed alternative strategies of attracting credit like forming merry-go-round and table banking initiatives. These groups are formed by likeminded and people who know each other very well. Here, loans are given out of trust with little intrusion from the lending group on the exact nature of your business. Mish, a young enterprenuer consulted fellow women and is in the process of getting Kshs.10,000 which she will refund with 5% interest over a period of six months. She was frustrated by commercial banks which asked so many questions and required her to save for at least three months before she could access the loan.
Requirements to access start-up business loans suitable for slums based businesses are minimal and this has contributed to mushrooming of shylock businesses within slums. In some places, community members own more than one or two expensive electronic item such as phones of TVs which they use for accessing loans from shylocks. Here the interest is quite high with the value of your item being determinant of how much you can access. The local shylocks are very strict and merciless. Failure to pay of time your valued good is sold to friends at a throw away price.
Our financial institutions have a long way to go in understanding how informal financial transaction operate and varied opportunities which needs to be tapped. In the informal settlements, most loans are on short term basis between 1 week to six months and default rates are quite low compared with commercial banks.

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