How MSME innovatively circumvent high bank interest rates.
In an environment where commercial banks interest rates on money borrowed fluctuates ; MSME have found themselves in a situation where they are unable to borrow money to finance their business operations or expansions . The interest rates swing from one end to the other , and in some instances when rates are on higher side , MSME are completely unable to service the bank loan , leading to stalled business operations or even to total halt . Depending on law of supply and demand , the bank interest rate can change and even to double the initial interest rate ; this implies to almost doubling the amount of interest to be paid .
MSME entrepreneurs have innovated their own way of financing their micro-business ,and circumventing commercial bank services ; they have grouped themselves according to the bonding-strength of friendship , family , trust , workmate , neighbor , nature of business , etc . Once the desired group membership number is attained ,the members agree on the mode of meeting (place ,date and time ) and contributions per member per meeting .They also agree at the end of each meeting the total money collected will be given to one of the member as per agreed membership list of priority .
The benefits accruing from this innovative arrangement are ;-
(a)no interest is charged on money taken , (b) no repayment period , (c) no loan application costs , (d) encourages saving and development of micro-businesses .
These MSME entrepreneurs groups are informal , and due to their large number and spread they do play a significant role in driving forward the country’s economy .
These informal groupings are commonly known as ‘CHAMA’ an equivalent word English word ‘party’. These groups can also graduate and attain a higher and more formal ‘SACCO’ status with a registered office, while maintaining the same objective of offering cheap financial services to its members , again it is characterized by members- bonding. The benefits arising from SACCO status are :- (a) availability of money at low and fixed interest rate , (b) flexibility of amount to be borrowed , (c) encourages planning and implementation of bigger business projects.

The MSME entrepreneurs have managed to maintain and expand their businesses operations without seeking financial services from established commercial banks . As a matter of concern, some of the commercial banks are now offering free technical advise to these groups .