In Mabvuku, a low-income neighborhood in Zimbabwe’s capital, Harare, the festive season was marred by anxiety. Two days before Christmas, a group of women marched down a narrow, pothole-ridden street with a serious mission. They were heading to the house of their savings club’s treasurer, hoping to retrieve the money they had saved for Christmas shopping. When they called the treasurer’s number, they received an automated message: “The number you have dialed is not available.”
Informal savings clubs, known locally as mukando, have surged in popularity in Zimbabwe, particularly among women and those in the informal economy. These clubs, usually comprising a dozen members, pool their money together. A central member, often the treasurer, collects and keeps the contributions until the end of the saving cycle when the money is shared. Members can borrow from the pot and repay with interest, adding to the shared amount at the end.
However, these clubs are unregistered and unregulated, relying heavily on trust between members. This leaves them vulnerable to fraud. Experts warn that the lack of oversight and formal agreements can lead to serious financial losses.
Carol Madzimo, a 24-year-old hairdresser, joined a savings club with her mother, hoping to save for Christmas groceries. The club was supposed to run from July to December, at which point the savings and interest would be shared. But on the day they were meant to receive their money, the treasurer disappeared with $1,200 and an unknown amount of interest.
“We went to his house, but he wasn’t there. His wife said she hadn’t seen him in two days,” Madzimo said. “We didn’t know what to do. Some wanted to file a police report, but we hesitated to report a community member.”
The treasurer eventually resurfaced in January, offering excuses that didn’t make sense. He admitted to using the money for personal use. Although he returned the original contributions, the members received none of the profits from the loans or interest. “I regret joining the savings club,” Madzimo said. “At least I got back my contributions.”
Tanaka Mutyori, 26, had a similar experience. She joined a savings club in April, contributing $50 weekly. The club was supposed to save for 18 weeks and share the savings and interest. However, the group’s leader kept postponing the payout date. When confronted, he claimed he had lent the money to his pastor, who hadn’t repaid it.
“It’s now five months into 2024, and we haven’t received our money,” Mutyori said. Her business suffered as she relied on the lump sum to boost her operations. “I lost a big fridge because I couldn’t pay rent. Now, I work for someone else, hoping to save and restart my business.”
Savings clubs, despite their risks, provide crucial financial support for many Zimbabweans. Economist Prosper Chitambara highlighted that these clubs help people access investment capital. “These savings clubs allow members to mobilize funds for investments, businesses, or even consumption,” he said.
While the benefits are clear, the informal nature of these clubs leaves members exposed. Most lack formal agreements, relying on verbal commitments and WhatsApp messages. Harare-based lawyer Moses Mavhaire warned against the legal risks, stating that fraud cases are difficult to prosecute without binding documents.
“There should be paperwork in savings clubs,” Mavhaire advised. “Arrangements need to be documented in contracts or trust agreements with clear rights and obligations.”
The popularity of informal savings clubs partly stems from a lack of trust in Zimbabwe’s formal banking sector. Years of currency instability and numerous bank failures have eroded confidence. Since 2003, at least nine banks have collapsed in Zimbabwe. Informal savings clubs offer a more accessible alternative, especially for those without collateral for traditional bank loans.
“These informal systems are more trusted by many Zimbabweans,” Chitambara noted. “Most people in the informal sector don’t save money in formal banks.”
For many, the informal savings club system has led to financial loss. Mutyori and Madzimo’s experiences reflect broader issues faced by members. Without legal protections, members are at the mercy of their club leaders.
LynnenMary Katiyo, a 21-year-old clothing seller, joined a different type of savings club where each member takes turns receiving the full contribution. However, even this system has its flaws. “Someone can take their turn early and leave the club, causing a loss for others,” Katiyo explained.
Zimbabwe’s informal savings clubs offer vital financial support but come with significant risks. The lack of regulation and reliance on trust can lead to devastating losses. Legal experts and economists suggest formalizing these arrangements to protect members. As Zimbabweans navigate economic challenges, the need for secure and trustworthy financial systems remains critical.
Source: New Zimbabwe
