Five Million Cameroonians Rely on Tontines and Njangi to Fight Poverty

By Jean-Marc Sika, Balz Strasse and Ben Nakomo

Cameroon with a population of over 15 million, of which 7.5 million are economically active, has only about 700,000 bank accounts, divided into 250,000 business and 450,000 private accounts. A total of 800 savings and loan cooperatives with 250,000 members operates in the semi-formal finance sector. Only about 10 per cent of the economically active population is reached via the channels of these two groups of finance institutions. The majority of the people obtain their loans in the informal finance sector. This sector consists of private moneylenders, informal traders and the tontines. About five million Cameroonians rely on tontines to secure economically profitable lives.

What are tontines?

Due to their hybrid nature - a mixture of social and financial functions - the tontines are difficult to define. Typically, people who get together in these savings and loan associations feel bound to each other in some way. There are family and neighbourhood tontines, and others among craftspeople and farmers. Common relationships or interests are in the foreground. That strengthens social control and ensures that the tontines work.

The tontines in Cameroon can be classified as two types, both of which have variants. Despite the already marked differences among them, new variants arise all the time. Their ability to adjust to constantly changing social conditions and the inexhaustible imagination of their promoters bring about ever new forms of tontines.

The first tontine type is a rotating savings system. The members of these tontines meet at fixed intervals, usually weekly or monthly, and pay in a certain sum of money agreed at the beginning of the round. The total amount collected is loaned to a different member each month. From that moment on there are two common variants. In the first, the sequence of the members who receive the money is determined in advance by consensus. The number of the members produces the number of the loan periods and defines the length of a loan cycle. An equal amount of money is distributed each month, free of interest.

Loan Auctions

In another variant of this type of tontine, the money collected is auctioned and all members of the current round who have not yet received a loan may bid for it. The money goes to the highest bidder. The 'profit' made in this main money market is then divided into small amounts which also are auctioned. The money from this secondary market is treated as short-term loans which must be repaid, together with interest, within a few weeks. If the amount of money from the secondary market is large enough it is transferred to the main market and offered in the subsequent tontine round. This means that every member wins a 'free' round. The tontine ends as soon as all members have been paid once. The loans of the secondary money market are collected in the last round and distributed equally to all members, and a new round can begin. Both variants of this tontine type are oriented on savings.

The second tontine type is loan-oriented. Pay-ins are not fixed in advance, but depend basically on what the members can afford. The money collected is similar to a joint fund, which is available to individual members as a loan stock. At every tontine round repayments and new contributions are divided into packets of money whose amount depends on the number of members taking part and the level of loans they seek. An arbitration body is often essential to satisfy all members. In this case the loans have a shorter term, usually one month, and interest is set at 5-10 per cent per month. The tontine cycle ends when the term set by this round matures. This can be in August, when the aim is to fund the costs of children starting school, or in December, to cover the extra expenses of celebrations to mark the end of the year. At such fixed times the tontine pays out the members' savings, plus interest earned, which depends on the amount saved and the term of the loan. Since both types of tontines have complementary roles (the building up of investment loans or savings), both often can be found in interplay within one group.

Strengths and weaknesses of tontines

For the majority of the people, who have no access to the formal banking system, the tontines' savings and loan functions are a necessary alternative. They provide a large section of the population with financial services, and their members can better manage their own cash flows over a year or more. Also, because the tontines are self-administered they can be adjusted at any time to the changing needs of individual members. Against a background of great economic and social insecurity, this flexibility is very important and certainly one of the tontines' success factors. Another positive feature of the tontines is their high repayment rate. This is the result of a system based entirely on the mutual trust of the members and doing without collateral which would exclude many people. The network of social relationships in which the actors live is structured in such a way that they depend on the help and solidarity of each other. So it is in every member's interest to pay in the fixed sums regularly and repay loans on time. If they do not, they risk exclusion not only from their own tontine but from the whole system. And no-one can afford that.

But the tontines also have some weak spots which preclude using them as a means of financing the investment needed for Cameroon's economic development. One of their first weaknesses is that they cannot convert their short-term savings stocks into long-term loans, which, incidentally, is also a still-unresolved problem in the country's formal bank sector. One obstacle is the shortness of the tontine cycle. A second problem linked with that is the low level of the loan sums, and finally the high interest rates are not an incentive to use tontine loans to finance long-term projects.

© The Entrepreneur Newspaper 2007

Comments

[Dr. Peter Vakunta]

The population of Cameroon in 2010 is 18,879,301(see http://www.theodora.com/wfbcurrent/cameroon/cameroon_people.html)

Any distinction between NJANGI and TONTINE?

[Commercial Debt Settlement]

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