Reaching the very poor: The need for a new microfinance model

Typical clients of Microfinance Institutions (MFIs) are the owners of established enterprises, who want to borrow to increase business turnover. They are mainly found in urban areas, where lending is profitable.

But MFIs that target the rural poor are challenged by a limited demand for credit and high delivery costs. As a result it is hard to service this market without subsidy and, increasingls, MFIs are concentrating on urban and peri-urban markets.

There is also a gap between the financial products that MFIs prefer to offer and those that are needed by the very poor.

While MFIs stress credit, it is savings that improve household cash-flow management and are a better fit for this clientele, which prefers to minimise risk by limiting its exposure to debt.

The assumption that the poor want business credit more than any other financial service is not true.

piggy icon

To reach the unbanked 2.5 billion adults worldwide, a new model was needed that operates at very low cost and offers the right products: Village Savings and Loan Associations meet these criteria.  Initiated by Moira Eknes in CARE's Matu Masa Dubara (Women on the Move) project in Niger in 1991 variations of this methodology reach more than 17 million people worldwide, with about 2/3 using the VSLA model.

The Village Savings and Loan Model

The Village Savings and Loan (VSL) model is a self-managed and self-capitalised microfinance methodology. By having its members mobilise and intermediate local pools of investment finance, it offers savings, insurance and credit services in markets outside the reach of formal institutions. The model has spread to at least 75 countries in Africa, Asia and Latin America, with over 17 million active participants worldwide.  We also know that spontaneous replication is taking place without the intervention of a facilitating agency, sometimes more than tripling the number of groups.  Thus, the number of members is likely to be much greater than the 17 million cited in July 2018.

Key facts:

  • Women comprise 78% of the membership
  • Repayment rates are the highest in the microfinance industry;
  • 89% of groups continue to operate more than five years after receiving training, on average doubling their capitalisation and average loan sizes
  • At any one time the average group has 63% of members with loans outstanding
  • At any one time 74% of the available funds are in circulation as loans
  • The average annualised return on assets is 29.1%  (;
  • The cost per member averages $22.2 (and as little as $8).
  • 98% of members continue from one annual cycle to the next

VSLAs have altered the development equation in marginalised communities worldwide, providing members with the means to cope with emergencies, build capital and re-create social dynamics that support genuine self-reliance.

The microfinance industry has come to accept the place of VSLAs as an important part of the financial landscape and the most dynamic, affordable means of bringing entry-level financial services to the rural poor.

globe icon