A financial service for the rural poor that really works
7 August 2009
The Village Savings and Loans Association (VSLA) scheme is an ingenious solution to the financial needs of these credit starved rural communities. Currently operating on the Kumi and Bukedea Districts of Uganda the project is comprised of self-managed groups that do not receive any external capital and provide people with a safe place to save their money, access small loans and contribute to a welfare fund that members can draw on at any time of the night or day in cases of emergency.
The Associations begin by collecting weekly savings from the members. Savings are accumulated in the form of shares at a price agreed upon by the group. Once sufficient savings have built up in the cash box over four or five weeks, loans are offered to members. At the end of the year, members receive a return on their savings ranging from 30 to 60 percent annually created from interest and fees collected throughout that year. Crucially, it has been shown that up to 95% of associations continue beyond their initial year of support.
Democratic, empowering and flexible: the scheme has social implications that are felt throughout the community. Studies have shown that the savings groups have greatly improved access to decent healthcare and provided families with better nutrition. Members can also borrow from the welfare fund interest free if they need to pay for something unexpectedly (a funeral, for example). It also has far reaching educational implications as participants are able to pay school fees, buy school uniforms and keep their children off the farm and in the classroom. Significantly, most of savers are women (in the Kumi District of Uganda, for example, 67% of the project is female): the project is raising the self-esteem and skill base of these traditionally marginalised members of society.