A decade ago, the mention of a bank to middle class would not have been taken too lightly. To many, it would have been an undeserving mockery. Most people associated banking with elitist life, as interest rates were so high on borrowing and very low on lending/deposits. Besides that, there was the book size terms and conditions attached to borrowing and high ledger charges. That’s why banking was exactly what it was - banking for the bankable. Whereas the rich went to the banks, the middle class went to the Savings and Credit Cooperatives (SACCOS) while the small-scale traders asked where and when to go for the next merry go round. This does not say that there has been much of change. With only mint results to talk about, another decade may just be what’s needed to raise the place of the common man.
Walk along the streets of Nairobi’s Eastleigh commercial hub (formerly a low class residential area now a Dubai import outlet) today and if the foreign currency stuffed in small stalls waiting trading does not surprise you, then the traders themselves will. Perhaps you may find yourself in an oblivion wondering where their banking career started off. To them, what they do has nothing to do with banking- it’s about giving the people what they need in a most affordable and convenient way.
Their trade is the kind that reminds me of my elementary school days when my teachers told me that in barter trade, the language your trading partner understood did not matter as long as you could strike a deal. A client pops in s/he hands in the foreign currency, gets back the local currency and walks away. Fair enough! One may say after all there are no queues to encounter, no conmen on the wait, no queries over source of funds and no formalities to scare one away.
My concern is not that they do it, how they do it or about whom they serve. My worry is that they do not get the guiding principles they need to help introduce best practice into their informal practices. This leaves me asking; when the government says that their aim is to support trade for economic prosperity, whom do they have in mind? My understanding of development encompasses two key factors, the systems that are in place and the beneficiaries. It thus stands that if the people are assisted and the system not strengthened, then trouble is likely to set in. Assisting the people without a change of systems is more like giving fish rather than giving the fishing net.
With the international banking palaver, the small-scale traders felt completely left out in the development agenda. However, there came the growth of the Micro Finance Institutions (MFIs). Their rise was believed to be the savior of Africa’s underdevelopment. But again, they developed a wrong model of approach. Donor agencies even equated rural finance to agricultural credit, seeing it as an input to achieve agricultural production or other project objectives. It therefore followed that credit was offered on a supply-driven basis with only superficial analysis of true market demand, and often at subsidized interest rates through unsustainable agricultural banks or project implementation units. This is according to the Consultative Group to Assist the Poor (CGAP) that has a lot of ascendancy in South East Asia, North America and now almost taking seize of Africa. In addition to their wrong approach, MFIs, even after their decade of reign have not reached most of the small-scale traders.
The MFI’s concept of changing the scope of coverage of conventional banking has over the years died out. Their once group based loans are in the current times unaffordable. Commercial banks are also investing heavily on the micro finance industry. Their drive, like any other business is the identified market need. And this follows that good returns are expected in the short run.
Donor organizations invest millions of dollars to MFIs to boost small-scale trade. This is a grass root approach as one may see it. The truth however is that the overall benefit is enjoyed by not those people who need the credit and can afford but the people who need it and can’t afford still end up being shut out of development. Thus, such people end up living as unproductive people in the society. Surprisingly, that’s where most people fall.
The fact is, the banking sector, despite the major reforms aimed at reaching out to the poor, and the MFIs, despite their niche approach, all seem to be leaving out a very productive sector of the economy- the less than dollar economy. With that in mind, the unregistered merry go-rounds, and the different approaches that small-scale traders use in saving could be more workable for them than banks and MFIs. Isn’t it time they were given a chance to thrive in a more open environment? Perhaps if the concepts used by the small-scale traders were given a formal base that is not characterized by so many requirements, it would help solve many small-scale traders’ challenges.
The government has not yet come to terms with the fact that the informal sector is probably worth more than what the formal sector is worth, their quantification may just provide a starting point in coming up with a long term approach to developing the thriving informal sector without turning beneficiaries away. With the challenges that this would have, the shylock paradise shall forever thrive. What Washington Akumu (Sunday Nation, July 31st 2005) describes as a place where small desperate borrowers disenfranchised by the formal banking system, stung by its bureaucratic ways and the form load it places on customers are increasingly finding solace in highly risky alternatives.