Field Notes from Rural Africa: How Money-Hungry Communities Kill off Informal Loans

Field Notes from Rural Africa: How Money-Hungry Communities Kill off Informal Loans
Photo Credit:Twin and Twin Trading @Flickr CC BY SA 2.0

I live in a part of rural Tanzania where the vast majority of people engage in subsistence agriculture. With year-round work on their maize farms, vegetable plots and chicken keeping, farmers here in most years do not depend on the markets for food.

That is not to say the farmers have little need for the market. Cellphones are a necessity in rural areas as mobile networks extend their reach, and solar lights offer brightness in areas where electric grids are non-existent or non-functional. Clothes are now overwhelmingly cheap secondhand imports rather than mended at home, and children crave processed snacks like they do elsewhere.

All of these require cold-hard cash, a rather difficult commodity to obtain for smallholding farmers with little excess produce to sell in a highly underdeveloped market. In the best of times, incomes are highly seasonal and unstable; and in the worst of times, absolutely paltry compared to the cost of desired products.

As such, out in these villages, “let me find some money to do X" is one of the most common phrases heard when conducting business transactions. Widely used among people who obviously do not have any money with them or at disposal, it simultaneously denotes a desire to spend money to get what is wanted and a determination to find the means of getting the money through completely flexible yet currently unknown ways.

Surprisingly, as unsatisfactory as the phrases sounds, most of the time, sooner or later, the money is actually somehow “found."

The way that the money is “found" speaks volumes about the way incomes are earned in these rural communities and subsequently, how the money is distributed. As previously mentioned, incomes in rural communities are primarily agriculture-related, and thus tend to be highly seasonal and unstable. People generally keep the produce in its physical form, stored at home, ready for consumption. But if they need to “find" money, they will need to sell whatever amount of agricultural produce in possession at the time, just as demand for cash becomes absolutely immediate.

When lacking any produce to sell, people work part-time, but any part-time work available in the villages is inevitably menial. Most work is usually agricultural in nature, such as planting or weeding for farmers. But even for what seems to be non-agricultural labor, such as construction of houses and furniture-making, work is only available when (usually the same) bigger farms sold produce at good prices and suddenly have money to splurge on these services. Since whether produce can be sold at good prices is an open question, there is no constant stream of work.

The fact that neither sales of agricultural produce nor involvement in menial labor can produce stable incomes naturally brings up the topic of how the money is distributed, across different time periods and different people in the village.

Since no one really knows how much one can earn at what point in time, there inevitably emerges plenty of occasions where somebody in the community urgently needs money (to pay for medical bills, funerals, school fees, to name a few) but cannot “find” any at that moment. Lacking banks, credit agencies, or any other formal financial institutions in the villages, the natural instinct is for the person to borrow from immediate neighbors, friends, and family members, with the promise to repay and/or return in kind when others have similar needs in the future.

Given the compact size, small population, and tight-knit social structure of these villages, it is not too difficult for the individual in need of money to sniff out the few members of the community that happen to have some money to spare at that very moment.

Furthermore, when others ask these people with cash to lend or give money, it is extremely difficult for them to refuse. From the perspective of these individuals, it would be most unwise to refuse, fully knowing that like everyone else, their incomes are unstable and they themselves might face the need to borrow money from others in the near future when the need arises.

The entire village becomes a “bank" in a sense, pooling together money to give to those in need, expecting every member of the community to adhere to the same unwritten obligations in order to continue accessing the “service."

But unlike a real bank, the financial holding of this “bank” is always minimal, limited by the meagerness of the average villager’s cash holdings. The meager holdings give rise to the phenomenon that the collective outstanding needs from different people are always equal to or greater than the incomes of the village as a collective. Hence, it can be assumed that every member of the community more or less would not have any cash in possession after lending.

In such a setup, the most rational, self-interested behavior of an individual is to immediately spend all cash income before others find out that s/he has any to spare. After all, the choice is between getting physical value for the money or giving to others in need with only vague and uncertain promises of future repayments or borrowing opportunities.

In other words, the best way for one to not get involved in an undesirable tangle of financial favors that is the colloquial “bank,” is to be “goods-rich but cash-poor," keeping zero monetary savings by converting all to physical assets.

It is no wonder, then, when emergencies hit, “finding money" becomes such a difficult activity. Physical assets, such as houses, furniture and electronics spent in the frenzy of short-term desire to avoid having to lend or give to others, cannot be easily converted back into cash. Yet, since everyone else also immediately spends all available cash on physical assets, there is, ultimately, very little cash that can be immediately “found" even when in times the collective income of the village is theoretically not too small.

As times goes on, and immediate needs for physical goods decline, such perverse logic of “good-rich, cash poor" economics can only hurt in the overall economic development of the village. Each major inflow of income into the village will be followed by an increasingly wasteful splurge on goods that are unproductive for the economic betterment of the purchaser. As these physical assets remain impossible to convert back to cash, any opportunities to use the same resources for more productive causes are completely lost.

It is simply ironic to think that a supposedly beneficial idea of everyone freely lending to everyone in a village just becomes a cause for the community to be mired deeper in poverty.

First Editor: Olivia Yang
Second Editor: Edward White

The News Lens has been authorized to repost this article. The original piece was published on the author’s blog here.


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