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Home More Reflections Elephants in the room Linkages The cost of borrowing fuels poverty

The cost of borrowing fuels poverty

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Ever since I started joining in public development debates, mostly under a tree or in a classroom in a remote part of Zambia, I have talked about the need to feed the chicken and share the eggs. Too often people end up eating into the chicken, living beyond their means and having to borrow money till their next income drips (seldom flows these days) in.


There are few financial services available to the majority of poor people in Zambia so, like in many societies around the world, they have developed their own system known as “kaloba”. Most people borrow on "kaloba" from friends, relatives and “kaloba” businesses( "loan sharks"). The standard rates are 50% interest per month. ie borrow the equivalent of $2 (10,000 kwacha) and repay $3 (K15,000) at the end of the month. For smaller amounts, the fees are not actually unreasonable and more of an administration fee than an exploitative interest rates but on income levels of $1/day or less, “kaloba” rates contribute significantly to keeping people trapped in poverty.

Whilst one should be reluctant to interfere with a stable locally evolved system, it is clear that many people stuck in the “kaloba” cycle can be easily paying an extra 20-40% more for their basic needs. Many need help in budgeting, planning, and saving techniques and formal institutions so they can avoid borrowing at these high rates. Like with "pamela", helping people get out of the “kaloba” cycle is a worthwhile effort as it doesn't require any investment to significantly increase poor incomes.



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