All of us need Money from time to time. After all, Money is much a part our life. We need to raise Money to Finance our education, finance our business plans and meet daily needs.
But when it comes to investing money, there is the right and wrong way to invest. Am not here to tell you where to invest your money, but show you the right and wrong way of investing your money.
Several reports in Zambia indicate that an increasing number of people have little or no access to finance. The informal financial sector is more popular than the formal sector for several reasons including flexibility and speed with which services are provided. It is quick and easy to get financing sources on the streets of Lusaka than at any commercial Bank. To me, this is a potential risk and to some extent a manifestation of how banks are loosing out on business. Unfortunately it comes with a cost.
There are a variety of arrangements rooted in the social fabric of the society, through which Zambians gain access to capital. The most popular grassroots-based savings and credit scheme is Chilimba.
Chilimba is a self-help way of assisting those who are unable to raise the money required to finance a business or buying house hold items.
In practice, Chilimba means “lending another person the whole or part of your money for a period (for example, one month) and receive it back, together with the other person’s equal and reciprocal contribution, the following month.”
Initially, Chilimba did not involve any written down rules but recently the town has seen the most organised forms of schemes, commonly known as Chilimba with some allegedly fronting names of named personalities as sponsors. The perception I hold about this boom in informal lending arrangements is that it shows how Banks in Zambia have lamentably failed to provide financial products to meet the saving culture of Zambians.
The idea of making quick money with very little effort sounds interesting. Unfortunately such ideas costed many people world wide their hard earned cash. Wait! Don’t get me wrong am not saying the credit saving schemes currently on the market will cost you your money. I just don’t accent to any “get rich quick ideas.”
Let me now substantiate my views beginning with why I see formally organised Chilimba investment schemes as a risk. The concept behind most of the investment schemes is very simple, but it is often presented to potential investors in a slightly altered form. For this reason, it is not only important to understand how these schemes work, but also be familiar with the concept these schemes use. Find out for your self what a pyramid scheme is before we get to the next point.
While trying to find answers to some patent questions a colleague of mine rose on this matter, I stumbled upon a report on a study into non formal social schemes in Zambia published in the journal of social development in Africa Vol 17 No 2. I must be quick to admit that this report made very good reading.
The report suggests that “although the Chilimba is useful, however it does not constitute a real social security scheme. Nevertheless it has the potential for being strengthened as long as it remains informal or semi-informal.” The report further warns that, “the formalisation of the Chilimba scheme into, for example a non governmental organisation presents a possible danger of creating cleavages, ultimately leading to its collapse.”
The report suggests that “although the Chilimba is useful, however it does not constitute a real social security scheme. Nevertheless it has the potential for being strengthened as long as it remains informal or semi-informal.” The report further warns that, “the formalisation of the Chilimba scheme into, for example a non governmental organisation presents a possible danger of creating cleavages, ultimately leading to its collapse.”
Further, experts argue that the major problem is that a pyramid type of scheme cannot go on forever because there is a finite number of people who can join the scheme (even if the whole country was to join). “The problem lies in the fact that it is impossible for the cycle to sustain itself, so some people may loose their money somewhere down the line” Those who may be most venerable are those towards the bottom of the cycle where it may become practically impossible to recruit the number or people required to pay off the previous layers of recruiters.
I know by now different thoughts may be going through your mind but before you make a wrong conclusion, consider doing the following things.
1. Find out about the company behind any Chilimba investment scheme before you finally decide to invest into it.
2. Learn about the product, carry out your own research, and find out from friends and relatives. I have always said it and I will say it again. The best way to improve any skill is to consult an expert on the subject and then apply the advice he gives. Seek advice.
3. Most importantly, ask questions. Don’t jump to conclusions based on what people say , you might miss out on a better investment opportunity. Ask the managers how sustainable the chilimba scheme is before jumping on board.
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