LuSE eyes Village Banks as new source of capital

The Lusaka Securities Exchange (LuSE) says village banks have the potential to become an important source of capital for small and medium-sized enterprises (SMEs), while helping channel community savings into productive sectors of the economy.

Village banking is a community-based savings and lending model in which members pool their money, provide loans to one another and earn interest on their savings.

LuSE Chief Executive Officer Nicholas Kabaso says village banks should consider investing their pooled resources through the capital market to grow their savings and strengthen their financial sustainability.

Mr Kabaso says the funds held by village banks, if properly managed and invested, could play a greater role in supporting economic activity.

“From the exchange point of view, we are seeing village banks to be a very instrumental piece of pooled funds that we can use to be able to redeploy into more productive sectors,” he says.

He says the growing appetite among SMEs to raise capital on the market presents an opportunity for village banks to invest in businesses seeking financing.

“We are seeing a lot of appetite for issuers or companies wanting to raise money on the market. Some of the avenues through which that money can come through are the village banks,” Mr Kabaso says.

Mr Kabaso says village banks could also qualify as potential candidates for listing on the LuSE Alternative Market if they are formally organised and incorporated as companies.

He says some village banks already have pooled capital of more than K500,000, exceeding the K250,000 minimum capital requirement for listing on the Alternative Market.

“If these village banks can then formally organise themselves, we see them being potential candidates for listing on our Alternative Market,” he says.

According to Mr Kabaso, listing could also improve governance, accountability and transparency in the management of village banks by introducing a formal shareholding structure.

He says members could acquire shares when joining a listed village bank and sell their shares when they decide to leave.

“That way you can then formally organise your village banks nicely and you avoid the fraudulent cases where we've been able to see treasurers running away with the money,” Mr Kabaso says.

Mr Kabaso says LuSE considers village banks a “very unique niche” with the potential to expand participation in the capital market while directing domestic savings towards productive investments.

He says village banks can participate in the capital market both by investing their pooled funds in businesses seeking capital and by eventually listing their own operations on the exchange.

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