How VSLA Works
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. So 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.
VSLA Methodology:
The Village Savings and Loan model is a savings-based approach that has proven on a very large scale that it can substantially fill this gap. By accessing funds in the community it helps to satisfy household cash needs and it provides sustainable and profitable savings, insurance and credit services to people who live in places where banks and Microfinance Institutions (MFIs) do not have a presence.
VSLA is a self-selected group of people (25 – 30 people) who pool their money into a fund from which members can borrow. The money is paid back with interest, causing the funds to grow. With the help of a facilitator they under go six major training sessions before savings and loanings start. The group members all save up to an agreed date, when all the funds are then distributed according to how much each member has saved (by purchasing shares). This lump sum of money can then be used by each member for their own needs.
The return on their savings go from as low as 30% up to 100% per annum. Members can save when they need to and in whatever amounts they wish. They can borrow with very little fuss (loans approved by the other members) and obtain loans from very little up to several hundred dollars. Loans are usually about $10-$20 which is too low even for MFI’s. Members also benefit from an insurance service, which helps with any unforeseen disasters or annual costs such as school fees.
VSLA 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.
(info taken from www.vsla.net)
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