Informal financial markets form the backbone of African economic activity. In addition to these informal structures, nongovernmental organizations have also intervened in African financial markets. Africa is unique in that most financial activity happens outside the confines of the modern banking system. This article will examine the different types of African lending and finance, both traditional and modern.
Credit Unions, Banks, and Credit Co-operatives
An assorted range of finance providers makes up the more formal banking sector in Africa. These include the semi-formal credit unions and credit co-operatives. The commercial banks are the most formal of all. Nongovernmental organizations also act as lenders.
Credit unions don’t disburse money that quickly, but they are good for those who are members and contribute regularly. The rates they charge for loans are cheaper than going to a bank. They can be a good midline option for those who have a steady income and enough spare cash to establish a pattern of saving.
Bank loans for most African borrowers are high-interest options, usually for larger purchases such as a home or expanding a business. They require collateral and have longer terms and higher value amounts than other lending options.
The moneylenders are an expensive option, yet they are a much more accessible place to get finance. The interest that they charge is usually extremely high. However, the requirements to get a loan from them are low, making them attractive to those without collateral or assets. As an alternative to collateral, there may be security provided through a guarantor. Moneylenders other advantage is that they disburse the money much more quickly than other options.
Forms of microfinance can be micro loans, loans of a small amount for persons whose income is not that high. A payday loan is one example. These loans have a term of one to four weeks. When the borrower gets their next paycheck, the amount they borrowed, plus interest, is paid back. The amount of the loan is good for short-term needs and is easy for anyone with a steady job to obtain.
The susu structure, made up of both susu clubs and susu collectors, is a type of loan club. In addition to being practiced in places like Ghana, it has also spread to the descendants of Africans in the Caribbean and Latin America.
A susu is a type of rotating savings and credit association (ROSCA), i.e., a group of people who work as a financial institution. The members of the susu or savings club each contribute a particular sum of money in each “hand” or turn. This pool of money is used as a source of funds to pay out to the participants on a rotating basis.
These type of money go-rounds are an important form of finance for the unbanked and the poor. Women in particular benefit from the susu as well. In the modern world, the susu has moved online, with apps such as eMoneyPool and Esusu.