LUSAKA (The Business Telegraph):- It is the most spoken about investment option in the informal sector. Savings groups have successfully penetrated the formal sector with the C-suite class . Increased appetite is driven by high returns and lean liquidity access costs compared with having to secure a bank loan that requires collateral and attracts a higher interest cost.
Savings groups in Africa’s copper producer Zambia, are still attractive investment vehicles given the high yields and premiums above elevated inflation which last headlined 15.5% (Aug). Benchmarked against a one year treasury bill (because the options run a year) now paying 24.5%, village banking is said to earn its members 30-85% annually driven by a groups borrowing patterns. The more active a group is, in borrowing and saving, the more interest is earned in aggregate to grow the fund. This return is not only lucrative, but a perfect hedge against rising inflation as the Southern African nation faces a currency rout that is aggressively driving cost push effects higher.
Dollar savings groups more lucrative. The affluent or other investor classes that earn incomes in foreign currency are now saving in dollars whose return widens in foreign currency terms with exchange rate revaluation effects as the Kwacha depreciates. The copper currency has lost 38% in value year to date which on a mark to market basis or time value of money is an inflation hedge for the investment option. In local currency terms the return is risk adjusted for currency depreciation effects while simultaneously translating to a higher interest earned which is a massive premium above inflation.
BOZ supports savings groups. The central bank recently issued a statement on village banking and savings groups re-iterating support for savings groups which play an important role in providing community based financial services informally. The savings option however has its fair share of risks from a due diligence perspective which if not managed effectively could flag money laundering risks. Earlier in the year the law enforcement agency pounced on a savings group initiative in the Southern part of Zambia that was linked to a money laundering scheme with the group members losing their funds forfeited to the authorities. It is imperative that members of the group act in the best interests of other members to ensure that proper due diligence of all involved in the group is done.
The Kwacha Arbitrageur
