In Africa, you often hear many stories of despair, failed projects, bribery, corruption and suffering. The stories of success and lasting hope seem few and far between. However, one of those stories of success exists in the form of Village Savings and Loans Associations (VSLA). You might have heard about these member operated savings groups that exist with no outside cash, but did you know this model actually has its roots in Niger? The first, and most famous group, is called Mata Masu Dubara.
A Village Savings and Loan Association is a group of people who save together and take small loans from those savings. The activities of the group run in cycles of one year, after which the accumulated savings and the loan profits are distributed back to members.The purpose of a VSLA is to provide simple savings and loan facilities in a community that does not have easy access to formal financial services.
I bet you thought that the poor had no extra money to even think about saving right? In Niger, the truth is that the poor often deal in small amounts of money daily. They get a small amount from a sale of an item, a small shop they run, a small salary or a gift or something. They buy their food often one meal at a time at little corner stores that you find on every street. The fact that they deal in small amounts of money, like maybe even 50 cents a day, makes it infeasible to open a bank account, pay interest and bank fees, or even to save with a local lender who charges high interest rates. So they just keep it and spend it each day. And when an emergency arises like a sickness or doctors bills or even annual school fees are due, they just don’t have the money saved up to be able to pay for it. The VSLAs revolutionize money savings in small communities because it gives them a way to save.
A VSLA savings group meeting outdoors in Ghana.
The system is very simple; but the result is powerful. In a VSLA, savings is flexible across members and over time. Members do not have to save the same amount as each other; and they do not have to save the same amount at each meeting. Also, by saving more frequently in very small amounts, the poor can build their savings more easily; and this contributes to improving the security of the household.
So what’s the quick version of the system? I’m so glad you asked!
- Members meet weekly to save. They can save between 1 and 5 increments of the base savings amount. So if the base is 25 cents per share for example, they must save between 0.25 cents and $1.25 a week.
- After a month of this saving there is a basic fund of money available for people to take loans from. The group must agree on the loan. There is 10% interest. Historically the loan fund is quite active and thus the overall “bank” of the group grows with interest payments.
- There is also a small social fund donation given each week (usually one share worth) that people can request to access (not a loan) for funeral or serious sickness for example.
At the end of the year, the amount of money is divided by the number of shares sold. So if you bought 50 shares over the year for 25 cents, but there were lots of loans and now each share is worth 30 cents each, that is how much you get. The end of the year payout allows them to make major purchases like paying a school year fees all at once, invest in new agricultural inputs, etc.
VSLA Key facts around the World:
- Repayment rates are the highest in the microfinance industry;
- Over 90% of groups continue to operate more than five years after receiving training;
- The average annualised return on assets is 35.4%
You might be sceptical to think that this could work, but in fact it has been more successful in Africa than in any other continent. AS our young women have graduated from our three year Vocational Training program, we hope to see them using their skills and sewing machines to earn money to support their families. A VSLA group will help them to save some of their money so that it is available to them for future plans!
Our NVOC girls in a savings meeting.
So one of these groups, with young ladies from NVOC, has already started. There is another group, with some of the local Tuareg moms and potentially also NVOC grads, that we hope will start up soon as well. As soon as we bring a few groups through one cycle they can split and reteach other people in new groups.
Cecilia and I went to Ghana back in 2012 to get the training on VSLAs and Cecilia recently re-taught the system to some of our teammates. We are thrilled to get them slowly starting up here in Niger. The women we work with especially want to find little ways to improve their families financial security and we hope that VSLAs will be one vehicle that will help them to do that.
Cecilia and I flying in a teeny tiny plane to Ghana
If you have any questions, please don’t hesitate to ask.
Banking for the Poor- it can be done!
