Village Banking: A Tool to End Poverty in the Democratic Republic of Congo
This article was originally published on FINCA International’s website.
The concept of Village Banking was created in 1984 by the cofounder of FINCA, John Hatch. Its application allowed the poor to obtain small loans without collateral at interest rates they could afford. Neighbors, usually from the same village, come together to create a group, giving them the collective power to disburse, invest, and collect loan capital as they saw fit. It is an important tool in the struggle to end poverty in the Democratic Republic of Congo (DRC).
While each member of the group can apply for a different amount of money, they support each other through the process. If one member struggles the rest of the group supports them to ensure that the group remains in good standing with their credit. Of course, knowing that if one person defaults on their loan that everyone is responsible, makes it less likely to happen as no one wants to let down their fellow member. This feeling of solidarity is very powerful. As a result, Village Banking groups enjoy a high loan repayment rate and a shared success.
Today Village Banking remains alive and well in the Democratic Republic of Congo (DRC). One Village Banking group from the Barumbu neighborhood of Kinshasa has been together for seven years. Since then, they’ve completed 29 loan cycles with the average loan cycle being 4-6 months from when they borrow until they repay. The group has 12 members, seven women and five men, and they meet every 28 days. Although they all receive their own loans to support their own business, the Village Bank has an elected president, treasurer, and secretary to track the finances, applications, and repayments of each member. Though united in a common purpose, they each have a unique story including the successes and challenges they each face.
A Village Bank Breaking the Cycle of Poverty in the DRC
Jean Mazambi is the president of the group. He learned about FINCA when a loan officer visited his neighborhood. Seeing the potential, he organized an information meeting which 45 of his fellow neighbors attended. This led to the forming of the first Village Banking group in his neighborhood with 12 members. Mazambi used his first loan of $50 to buy inventory and set up a small store selling rice, milk, sugar, and other basic foods. Over time, he increased his loan size growing his store and eventually buying a car to transport goods.
Mimie Mboyo is also a member of the Village Bank. She saw an opportunity by importing agricultural products from neighboring Angola and selling for a profit to small businesses in Kinshasa. She travels two days to the border where she is able to buy a sack of rice for $12 and then resell it for $20. However, she did not have enough capital to make the trip worthwhile. So, she borrowed $300 from FINCA to add to her existing funds and purchased a truckload of products. Upon returning to Kinshasa, she was able to sell her goods within a week and repay her loan.
Another member is Josephine Otshumba, who had a different but no less important need. Josephine’s son was ill and she needed to get him treatment at the hospital but didn’t have the funds to do so. She tried to get a loan from a local lender but the interest rate was so high at 50%. That’s when her friend told her about FINCA, which provides loans quickly at a reasonable rate. She applied through the Village Banking group and got her son the treatment he needed right away. She was happy to state that her son is doing well.
Whatever the reason, all the members found a solution to their financial challenge by working as a group with FINCA. The Village Bank community values the support and training it receives from FINCA because it helps manage finances and business.
FINCA Banking Agents in the DRC Processed Nearly 1.5 Million Transactions in 2022
In 2003, FINCA started operations in the Democratic Republic of Congo (DRC). Since then, FINCA has been at the forefront of the fight to end poverty in the DRC through financial empowerment and literacy. Today, FINCA DRC is the largest microfinance institution in the country with 23 branches in all 11 provinces. More than 1,650 banking agents serve over 350,000 clients nationally. This expansion was made possible by the advent of mobile banking.
FINCA clients in the Democratic Republic of Congo (DRC) no longer need to travel to a bank branch and stand in line to deposit or withdraw money. Banking agents are trained to carry out services throughout the country. This way, small business owners such as shopkeepers can carry out financial transactions using a small handheld Point of Service Device (POS), similar to the device that a waiter would bring to your table to pay your restaurant bill. Banking agents use the POS device to collect loan payments, withdraw or transfer funds, and pay bills to various vendors. With these mobile banking devices, FINCA DRC processed close to 1.5 million transactions in 2022.
How Mobile Banking Reduces Poverty in the DRC
As long as there is mobile phone coverage (current coverage is 52% of the country), a POS device can work anywhere. This is particularly important for serving clients who live in rural areas where no traditional banks are available. Another valuable feature of the POS devices is fingerprint reading technology. Clients register their fingerprints with their FINCA account so that for all future transactions they are able to place their finger on the POS device fingerprint scanner to verify their identity.
With each fingerprint being unique, it means there is no longer a need to show identification. This is critical as in the DR Congo government identification is difficult to obtain or replace if lost. The safe, secure, and easy transactions make using agents a big selling point for FINCA clients. Mobile banking has made it easier to expand financial inclusion, which helps in the fight to end poverty in the DRC.
Currently, FINCA has trained agents in 15 out of 26 states in the DR Congo. More agents are needed to reach more unbanked clients. Many in these communities are seeking an opportunity to grow their savings and build resilience against future shocks. For the past 20 years, FINCA has been supporting communities to lift themselves out of poverty in the DRC.
Celebrating 20 Years of Work to End Poverty in the DRC
2023 marks 20 years of FINCA DRC‘s work to reduce poverty by increasing access to financial products and services. At the 20th anniversary ceremony held in Kinshasa, Mirela Pekmezi, CEO of FINCA DRC said: “This journey would not have been possible without the continued support and trust of our customers, our partners, and our hardworking employees whom we also celebrate today. They are all, each at their own level and together, the cornerstone of our actions. It is thanks to all of you that FINCA has risen to the leading microfinance institution in the DRC.”
Pioneering Group Loans to Women in the DRC
Over the last 20 years, FINCA DRC has accomplished several milestones including the first financial institution in DRC to:
- Offer group loans to women who for a long time, were excluded from the traditional financial system.
- Introduce the concept of agency banking with over 1,650 agents serving clients throughout the country.
- Launch and introduce mobile banking to its clients. Today, FINCA DRC serves more than 350,000 customers, with over 60,000 accessing products through digital channels.
- In partnership with the Government of Canada and FINCA Canada, the Financial Inclusion Project yielded remarkable success in bettering the standard of living for many including creating jobs, and increasing incomes for both men and women. Toward the end of 2022, the project contributed to an improvement in poverty rates among FINCA DRC clients from 12 percent to 9 percent.
Going forward, FINCA DRC has set ambitious goals for the future to:
- Adapt to digital payments with CFC/FLASH which will provide clients with more accessible and innovative ways to make an electronic payments and transactions via CLICK App, FINCA mobile, USSD channels, as well as a pre-paid bank card.
- Expand the Juste Pour Elle (Just for Her) loan program: In 2023, the program will aims to add another 1,200 loans for women entrepreneurs, with a value of $7.5 million.
- Expand diversity and inclusion resources to make FINCA DRC’s financial services more accessible to women.