The role of informal microfinance institutions in saving

1.1.10: AFRICAN SACCOs AND THEIR ENVIRONMENT
THE THREE SYSTEMS FOR OFFERING SAVINGS AND CREDIT SERVICES
In most African countries, three systems for offering savings and credit services rub shoulders,
sometimes, in competition with one another, but most often without their being a true
competition among them to the extent that they offer different types of service or service
different clienteles as follows:
• Centralized Financial Systems: - This refers to commercial and/or business banks that
operate primarily in an urban environment and the financial institutions under more or
less direct control of the Government. They are subjected not only to general commercial
laws, but also to specific banking regulations and central bank supervision. The institutions
operating under this system are sometimes referred to as Formal Financial
Institutions/system.
• Decentralized Financial Systems: - This denomination is used to designate institutions and
networks that were developed as alternatives to commercial banks and the informal
structures for offering financial services close to the people. It comprises, in particular, the
different networks of SACCOs (rural cooperatives, mutual credit societies, people’s banks),
but also different alternative experiences introduced by NGOs. The institutions under this
system are registered, but are not subjected to specific banking regulations and central
bank supervision. In Tanzania, for examples, SACCOs are registered under the
Cooperative Act and are supervised by the Government department of Cooperative
Department.
• Informal Financial Systems: - This refers to the range ROSCAs (Rotating Savings and
Credit Associations) of the tontine type and door-to-door bankers, in particular. Since
these are not registered nor are supervised by government machineries. Often loans
are granted based on the familiarity with the borrower. In Tanzania they operate as
‘‘Upatu’’ or ‘’Kibati’’, and other features as family or localized groups such as
‘’Ifogong’ho’’ in Shinyanga and Mwanza regions.
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