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 big 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.