VSL Associates

VSL Associates is a consortium of practitioners dedicated to spreading the Village Savings and Loan ASCA methodology more widely throughout the world and particularly in Africa.

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Why a New Microfinance Model is Needed

While microfinance is becoming a mature industry in many parts of the world it has proven largely unable to penetrate remote rural areas because the costs of doing so are high and the demand for credit quite restricted. Most of the people who live in rural areas and in urban slums (and particularly the very poor) receive no services. Thus, there is still a very large gap between the needs of the poor for financial services and the ability of banks and MFIs to provide these services. Moreover, the gap cannot be filled by these types of institutions because in most cases they will never be able to cover their costs.

In addition to the gap in service delivery, there is also a gap between the products that MFIs can offer and those that are needed by the poor. MFIs tend to emphasise credit. Most are unable to offer savings services, because they are not licensed to take deposits. The conventional view is that credit is the most important service that an MFI can offer, because it provides the means by which the poor can invest their way out of poverty. But this view is increasingly being challenged by practitioners, who observe that many poor people prefer to build their assets through savings rather than increase their risk exposure by taking out loans.

The VS&L Methodology

The Village Savings and Loan (VS&L) model is a savings-based approach that has proven on a very large scale that it can substantially fill this gap. By intermediating small local pools of capital to satisfy household cash-management needs it provides immediately sustainable and profitable savings, insurance and credit services to people who live in places where banks and MFIs do not have a presence.

The model was originally developed in Maradi, Niger, by CARE International in 1991 and has spread to 16 countries in Africa, 2 in Latin America and 2 in Asia, with now almost 1 million active participants worldwide.

At the time of writing (March 2008), the numbers of participants in CARE’s African VSL programmes stands at about 792,500.

This is comprised as follows: Niger 220,000, Uganda 125,000, Mali 110,000, Tanzania 90,000, Zimbabwe 75,000, Rwanda 40,000, Mozambique 30,000, Kenya 25,000, Bangladesh 20,000, Ecuador 20,000, Malawi 17,000, Ethiopia 20,000, Eritrea 6,000, Angola 4,000, Lesotho/South Africa 4,000, Senegal 3,500, Sierra Leone 2,000, Zambia 1,000.

CRS and Plan international each have African programmes with about 20,000 participants each.

What, then, is VS&L?

The approach developed by CARE Niger builds on a ROSCA model and creates Village Savings and Loan Associations (VS&LAs). A VS&LA is a self-selected group of people, (usually unregistered) who pool their money into a fund from which members can borrow. The money is paid back with interest, causing the fund to grow. The regular savings contributions to the group are deposited with an end date in mind[1] for distribution of all or part of the total funds (including interest earnings) to the individual members, usually on the basis of a formula that links payout to the amount saved. This lump sum distribution provides a large amount of money that each member can then apply to his/her own needs.

Members of VS&LAs receive a return on their savings investments that go from a low of 30% per annum, to a high in excess of 100% - far more than is paid by any commercial bank anywhere in the world. They are able to save when they need and in whatever amount they wish. They are able to borrow with a minimum of fuss, with loans and insurance benefits approved by their peers, and can obtain loans that range from small change to several hundred dollars. Typical loans are in the order of $10-20, which is far too small for MFIs to consider. Members are also able to receive insurance services, mitigating the effects of unforeseen disasters, and can set up funds for school fees, festivals and other predictable annual events.

VS&L is not a methodology that is designed for growth-oriented entrepreneurs. It is for the poor and the very poor and enables them to manage their household cash flow more efficiently and flexibly and to invest in income generating activities that secure and stabilise cash income. Its most dramatic impact is on self-respect and social capital, particularly amongst women, who form 70% of the membership.

[1] Usually between 8 – 12 months.

Training

While the methodology is simple, it depends on a very carefully structured system of training. Over 6 sessions that can cover as little as 6 days, or as much as a couple of months, groups learn to form their Associations, define a purpose, elect officials, design their system of savings, insurance and credit and practice running savings and credit meetings. Once this process is completed, Associations can begin to save and to lend, supervised over a period of 9-12 months by field staff who ensure that procedure and systems work properly and that the groups can function independently thereafter. Experience in Africa has shown that more than 95% of Associations continue to operate independently once their formal training relationship to the implementing organisation comes to an end.

The methodology does not call for the establishment of an institution to handle members’ funds and to issue loans: money is handled solely by the groups themselves and all net interest income remains their property. By distributing all or part of the portfolio at the end of the cycle (usually 12 months) the members receive a useful lump sum for investment in whatever activities or assets they wish.

Once these systems operate sustainably in a rural or slum setting no further input to the Associations is needed, although linkage to financial institutions is possible in urban areas or where there is adeveloped and accessible rural banking infrastructure.

VSL Associates has taken the original model of VS&L, which was based on a fixed amount of weekly savings, month long loans and a memory-based system of record-keeping and has helped CARE, CRS and Oxfam develop the model to accommodate loans of variable lengths and amounts, and systems of savings that allow for flexible contributions – or even shareholdings.

The training approach is focussed very specifically on group development and training in savings and credit operations. Users of the model are able easily to add to the core training curriculum whatever supplementary training is relevant to their purposes. At the same time, the model can be implemented by non-specialist organisations as part of a programme that otherwise does not deliver financial services. Thus, AIDS service organisations have been trained to deliver the methodology successfully in many parts of Africa. It has also proven effective in agricultural development programmes, where formal finance is not available.

VSL Associates has produced a programme guide, available for free downloading on this site. It is a guide to how a programme is implemented and administered and is aimed at the training of both literate and non-literate participants, using a system of record-keeping that depends solely on simple passbooks and noting ending cash and property balances. It avoids the use of written ledgers which, in the view of the authors, is the most common cause of complexity and difficulty for rural groups attempting to manage a savings and loan portfolio. VSL Associates has also developed an Excel-based MIS that allows programmes to track and manage individual Field Officer portfolios. These are consolidated into a programme-wide performance system. The MIS is available for programmes that keep written records and, in a simplified form, for programmes that do not (Version 1). A new, more advanced version that covers both eventualities is also available. (Version 2)

Both the Programme Guide and a companion MIS can be downloaded from this site.