VSLAs — Village Saving and Loan Associations

01 Jul 2010 5 Comments

by danrennt98 in Uncategorized

Hey my friends! I hope that you are all enjoying this blog (cranberry bog!) and related posts!

But I think I had mentioned earlier that I wanted to do mostly business work while I’m in Uganda. That aspiration will obviously be determined by the needs of my community of course; if my community has a high HIV and malaria ridden population, that will need to be addressed before I can help them generate income better and help set up VSLAs. 

I read this girl’s blog today that had previously served in Uganda from 2007-2009. She transferred to Uganda after a brief stint in Guinea [link] (a country [sometimes called Guinea-Conakry because of it's nextdoor-neighbor Guinea-Bissau] in West Africa [next to Sierra Leone, Mali, Senegal and Liberia]) after the Civil Unrest during 2007 [link]. FYI, this is what happens when the civil unrest is really bad and dangerous; they decided to evacuate the country, they give volunteers the option to move countries or just go home. Hence, I will be very safe with the Peace Corps. This is her post [link], which is where I got the idea.

Anyways, back on topic. These VSLAs are a really great way to empower villagers. They have little access to Ugandan banks, and they have high interest rates when they do get access. So, how, if a Ugandan man wants to buy new chickens and a tractor to further enhance his business to make more money, will he get enough money to do what he wants to do? A VSLA. It takes no money from anyone else, but the people who run it. It is sustainable, and once I would train these people to do it, it will run long, long after I’m gone. This is exactly the thing I was looking for. This is what I want to do. And this is a perfect example of one of the things I’m going to be doing in Uganda, so you, my readers, have an idea of what exactly the Peace Corps does. So, PLEASE, PLEASE READ IT. I know I didn’t write it, but she explained it better much better than I ever could. Here it is:

One of the pieces of my work that makes me hopeful that what I’m doing is making a difference is training Village Savings and Loan Associations (VSLAs). VSLAs are a way of bringing small-scale, community-based financial services to the rural poor, who are economically vulnerable and marginalized within the wider economy.

All the details in this entry may not be interesting to everyone, but I feel they are important for someone to understand exactly how cool this model is. VSLAs work, and are likely a bit part of where development work is headed in the future.

A VSLA forms voluntarily from a group of 10-30 self-selected members. Once the group has formed, I lead them though several training sessions that allow the association to be fully functional and attain independence; once trained, the VSLA will not need me or any other outsider to assist them in any way.

The association meets at regular intervals; in the case of my groups, they meet weekly. The group elects a management committee and sets rules that make up a constitution. As a part of this, the members decide on the procedures and guidelines governing the association’s main activities: savings and loan.

In VSLA, all members are expected to save money at each meeting. Savings occur in the form of purchasing shares. In order to allow flexibility, a member can purchase between 1 and 5 shares per meeting. The group sets the price of a share to something that is practical for the members. In some of my groups, a share is 500 shillings (about 25 cents US), in others they have set a share as 1000 shillings (about 50 cents US). Member savings are recorded using a simple passbook system, based on stamps such that even illiterate members of the community may participate and keep track of their own savings. The savings are kept in a cash box with three separate padlocks that are held by three keyholders within the group. The box only opens at meetings, in front of all members of the association, to ensure transparency and accountability.

Every four weeks, the group holds a loan meeting, when members may borrow from the association’s loan fund (which is composed of the share purchase/members’ savings). The association sets the length of the loan repayment term, but generally a monthly service charge (some would call this interest) is due at four-week intervals. The association establishes its monthly service charge in its constitution. In the five groups I have trained, they charge 10 percent, which is significantly lower than anything available in big banks or microfinance institutions.

At the end of one operating cycle, usually one year, the association shares out the total value of all its financial assets, including all interest collected on loans, amongst the members in proportion to the quantity of each person’s shares (or savings). Members can expect to get a better return on their money in a VSLA than they would get in any bank or microfinance institution. Experience has shown that VSLAs generally get back at least 30% more than they save, but most groups even more. A Peace Corps colleague of mine has groups making 80% in an area north of here. (I don’t have any profit stats on my groups yet, but will share when I get them.)

In addition, most groups keep an emergency fund to help members when they have problems. This serves as a sort of insurance, providing members with no-interest loans or sometimes even small grants, in case of emergencies (several health problems, funeral expenses, etc.)

The VSLAs that I have helped to train are only 5 months old, but I can already see the benefits that they are bringing members. Some of the groups have already managed to save over 500,000 shillings (about $250US) in small savings increments. Members are using loans to grow small businesses and diversify agriculture. The emergency fund gives members confidence that if they face a problem, they have the backing of their fellow VSLA members in solving it.

One of the major principles of VSLA is that associations are not provided with any outside funding. This ensures that once they are trained, VSLAs can continue without help from anyone. When outside money is contributed to a VSLA loan fund, usually it discourages people from saving and also removes feelings ownership. Since the loan fund is made up of members’ own savings, they are very cautious and sensitive about how they use the money.

In the end, VSLA is empowering people who have been told many times over that they are powerless and need others to help them. I believe in this work and that it will help people lift themselves out of poverty.

If you have read this and are interested in finding out more about VSLA (especially if there are any future-PCVs who read this blog), visit http://www.vsla.net/ where you can learn more and even download how-to guides about starting up and supporting VSLAs.

I would just like to thank this girl (Erin is her name) for letting me take this, even though I haven’t asked her yet. And if you’ve gotten this far, I would like to thank YOU for reading it. This is something that is going to be very important to me. Take care all!

-Ugandizzle

P.S. This will be my new pen-name – Michelle made it up by accident today, and Jess (I miss you and love you so much) and Jill (and Ariel sometimes) used to call me Dizzle all the time, so it makes sense. I answer to Dizz, Dizzle, and Dizzy.