Village finance for real people Savings & Loan Associations
What is VSLA? Village savings & loan associations are: 1.democratic associations of 20-30 people, 2.self-financed financed financial intermediaries (funded by member shares), 3.time-limited events (cycles < 1 year), 4.an informal classroom for transmission of financial skills, 5.a very flexible way to build social capital, 6.adaptable to diverse cultural contexts.
1. A Democratic Association A VSLA is a pre-credit union based on similar il principles. i Operations are simpler and legal identity less formal. Members voluntarily select each other, members select their leaders utilizing democratic methods, as groups are < 30 members transparency and accountability are maximized, and over time trust and confidence increase.
Pamir Mountains, Tajikistan
2. A Financial Intermediary VSLAs provide loans to their members, funded from member shares and profit from operations. They: operate independently, with no external financing, can process loans at any meeting, usually in 2-5 minutes, and deliver a large lump sum pay-out to each member (her shares + profit on her shares) at the end of each cycle.
Burera District Rwanda
3. A Time-Limited Event VSLAs run in 1-year cycles. When the cycle ends they cash-out, dividing all assets proportionate to members shares. Members are then free to: begin another cycle (or not), work with the same members (or not), and work with the same leaders (or not). Cash-out reduces financial risk, helping to build group trust and confidence over time.
4. An Informal Classroom VSLA functions like an informal classroom, helping people to overcome discomfort with formal financial services by acquiring useful knowledge from trusted peers, about: borrowing and saving contracts, time-value of money, financial record-keeping, formal financial products, financial habits and practices.
Rasht Valley, Tajikistan
5. Flexible Social Capital With experience and confidence, groups often add new forms of member value, e.g. : a social fund that grants members cash when they face trouble, buying clubs, which save members money on individual id purchases, joint livelihood projects (e.g. a plot of land that is jointly cultivated), and multiple share offerings (with different cash-out dates).
This group sewed their own uniforms (Nampula, Mozambique)
6. Cultural Adaptability Because VSLAs are self-governed and self- financed, they may change their rules in any way after the first (training) cycle. The result is that their diversity is almost unlimited. In Muslim areas they may adhere to sharia and not collect interest. In urban areas VSLA is usually more formalized than groups in remote, rural areas...
Unguja Ukuu village, Zanzibar
How Does VSLA Work? The VSLA is a proven and easily governed system for financial intermediation. At its heart are a few simple mechanisms: a VSLA kit with a triple-locked locked box (transactions occur only at meetings), records based on individual id passbooks (group records are optional), the cash-out or action audit, which limits the money under management, and hence the operational risk.
1. Chairperson 2. Record Keeper 3. Box Keeper 4. Money Counter 5. Money Counter Fines Bowl Table Money Counting Bowl Stool 18 6 17 7 16 8 15 14 13 12 11 10 9 The model VSLA structure Above: executive committee. Middle: box, table, money-counting bowls. Below: the member-shareholders.
Committee and members, Malya, Tanzania
Meetings occur each 1-2 weeks. They start when the box opens, and end when it is closed. Three members hold keys and the box is held by a fourth, so it cannot be opened between meetings. VSLA Kit
Shares Shares are stamped and empty spaces crossed out. At cycle-end the total shares are added d and summed at the bottom of fthe passbook.
Loans Loans involve a quick group discussion. Members can borrow a maximum of 3X their shares for up to 6 months. The treasurer enters the balance lent, and the interest for one month, in the member s passbook, and both parties sign. Repaid loans are crossed out.
Group Registers All groups maintain a member list. Some also keep group-level registers that track shares, loans and even their social funds. If passbooks are securely stored in the box between meetings, registers are considered optional.
Cash-Out Calculations On the agreed date, the group cashes out. Total group assets are added together and divided by total group shares, yielding an end-of-cycle price per share. Members are then paid.
"Poor people always pay back their loans. It's p p y p y us, the designers of institutions and rules, who keep creating trouble for them." -- Dr. Muhammad Yunus, founder of Grameen Bank and Nobel Peace Prize laureate.
Resources The VSLA program guides for Field Officers and Village Agents. VSL Associates. http://vsla.net/programmetool/programmeguides The global VSLA database (tracking 26 countries and 1.5 million members). Savings Group Information Exchange or SAVIX. http://www.savingsgroups.com/
My Oral Village Lighting the microfinance path. My Oral Village is a not-for-profit organization incorporated in Canada in 2011. The mission of MOVE! is to support the efforts of poor people p to exit poverty by improving their financial management and institutional governance capabilities, especially in oral communities. By 2016 MOVE! plans to publish a compendium of oral linformation management ttools for microfinance, and distribute it widely through certified trainers, conferences and the web.
My Oral Village Lighting the microfinance path. President Heather Broughton Vice-President Hugh Allen Treasurer Jens Lohmueller Director David Myhre Director Peter Loewen Executive Director Brett Matthews Chief Marketing Officer Margaret Hazlewood Contact: brett@myoralvillage.org