December in Zimbabwe often brings a flurry of activity on social media, filled with images of individuals, predominantly women, proudly displaying their Mkando grocery hauls and savings. Mkando, also known as “rounds,” represents a popular, informal financial management system where individuals pool their funds for collective purchasing or informal lending with interest. This system, flourishing amidst economic uncertainty, offers insights into the complexities of Zimbabwe’s financial landscape and the reasons behind the preference for informal over formal banking.

The Allure of Mkando: Community, Trust, and Accessibility

Mkando’s appeal stems from several factors. Firstly, it fosters a strong sense of community. Participants are often neighbours or members of the same social group, creating an environment of trust and mutual support. Unlike formal banks, Mkando transactions do not typically require complex paperwork or stringent credit checks. This accessibility makes it particularly appealing to those operating within the informal economy, many of whom may lack the documentation required for formal banking services. The ability to borrow at relatively lower rates than formal financial institutions makes it a lifeline to many small business owners.

The Instability of Formal Banking in Zimbabwe

The popularity of Mkando is inextricably linked to the challenges faced by Zimbabwe’s formal banking sector. The country has endured periods of significant economic turmoil, including multiple currency crises. This instability has eroded public trust in formal financial institutions. For example, the abrupt elimination of the Zimbabwean dollar (ZWL) in early April 2024, with little advance notice, resulted in a week-long bank closure, disrupting essential transactions as the system shifted to the Zimbabwean gold coin (ZiG).

This is far from being an isolated incident. Previous government interventions have resulted in chaotic forced currency conversions at unfavourable rates, leaving citizens apprehensive about the safety of their deposits in banks. This history of financial instability has fostered a sense of insecurity, driving many towards alternative financial systems like Mkando, where they perceive greater control over their finances.

The Formal Sector’s Response: A Call for Financial Inclusion

The Deposit Protection Corporation of Zimbabwe (DPCZ) recently spoke about the risks associated with informal savings methods like Mkando. The institution was set up by the government in order to protect the money of depositors in case of a bank failing. You are automitically covered if you open a bank account with any one of Zimbabwe’s banks. The DPCZ was able to make sure that people who had deposited their money in institutions like Afrasia aka Kingdom Bank, Interfin and Trust Bank got their deposits bank even when the banks went under.You are not charged for this service as your bank pays a certain amount of money to the DPCZ on a regular basis. The institution works in the same way that insurance does.

In a recent speech the DPCZ spoke out against Mkando. Their interest and attention was probably drawn by the people posting on social media. Among the celebrations of a successful year there are also posts from people who lost their hard earned money to dishonest Mkando members who abused trust and scammed their fellow members. Rather investing in Mkando, the the DPCZ feels people should instead make use of regulated depositors’ money, highlighting the DPCZ’s role in compensating depositors in case of bank failures.

However, the DPCZ also acknowledges the need for financial inclusion, particularly for vulnerable populations, recognizing that many informal methods like Mukando, fulfill a crucial role in providing capital for entrepreneurship and household expenditure that are otherwise neglected by the formal sector.

The truth though is that when it comes to massive losses caused by the government the DPCZ has been useless and has not compensated people for what they have lost. This means that even investing in a formally regulated bank does not mean your money is any safer than it was if you had invested in “rounds”

The Risks of Informal Finance: A Double-Edged Sword

While Mkando offers financial flexibility and accessibility, it also carries inherent risks. The lack of regulation and oversight exposes participants to potential fraud and mismanagement.There has been many, instances of treasurers absconding with pooled funds when it was time to share. The absence of formal contracts or legal recourse leaves participants vulnerable to financial losses with little opportunity for recovery.

Banks’ Struggles and Lending Challenges

Another factor influencing the preference for Mkando lies within the formal banking sector’s limitations. The Bankers Association of Zimbabwe (BAZ) has highlighted significant challenges constraining the sector’s lending capacity. Zimbabwean banks are not exactly dishing out loans. A lot of individuals in Zimbabwe are not elligible for loans as they are not formally employed. There is no widely available credit rating and often banks and formal institutions demand collateral from would be borrowers.

A lot of people don’t have cars and houses to use as collateral. In comparison Mkdando money pools have lower restrictions especially if you are a mmber. With time you can build trust and a reputation among your fellow members allowing you to borrow thousands of dollars without putting up an collateral or requiring a guarantor.

Frequently Asked Questions (FAQs)

• Is Mkando legal in Zimbabwe? Mkando itself is not illegal, but its operations fall outside the regulatory framework of formal banking. Therefore, transactions lack the same level of protection afforded by regulated financial institutions.
• What are the risks involved in participating in Mkando? Key risks include the potential for fraud or mismanagement by the group’s treasurer or administrator. The lack of formal contracts and legal recourse leaves participants with limited options for recourse in cases of loss.
• Are there safer alternatives to Mkando? Formal banking institutions offer greater security and protection for deposits. However, many Zimbabweans lack trust in these institutions due to historical economic instability and accessibility issues.
• What is the government doing to promote formal banking? The government, through initiatives like the DPCZ, aims to increase financial literacy and promote the adoption of formal banking through various awareness campaigns and financial inclusion programs.

The prevalence of Mkando highlights a critical need for a more robust, inclusive, and trustworthy formal banking sector in Zimbabwe. While Mkando is an essential financial lifeline for many, its inherent risks cannot be ignored. Striking a balance between fostering financial inclusion and promoting the security of formal banking is crucial to addressing the deep-rooted issues that drive citizens towards informal, albeit risky, financial practices. A sustainable solution would require addressing both the economic instability that fuels mistrust in formal institutions and the need for improved access to safe and reliable financial services for all Zimbabweans.