Why Village Savings Groups?
If you’ve been a part of the Tearfund family for a while now you probably already know how much we love Village Savings Groups (VSL)s. But what are VSLs? Why are they effective? And how do they differ from other economic programs (i.e. microfinance)? Here we hope to answer some of your questions!
What are Village Savings Groups?
Village Savings and Loan groups (or VSLs for short) are small groups of 20-25 individuals, usually women, who collectively come together to save small amounts of money and provide each other with loans and support. They are (sort-of) like a mini economic co-op.
What does a typical meeting look like?
Every week, members meet together to save, learn, pray, and conduct transactions. The meetings are very serious. In fact, there are often penalties for missing a meeting or for coming late. A different member of the group will act as chair each week and conduct the meeting. She will open up with prayer and a short study before business is conducted. If the group is relatively new, the meeting may involve one of our partner staff, who trains the group in financial literacy, business practices, and savings.
Members will then contribute a small amount of savings to the pot. Every member must contribute a minimum amount, as pre-determined by the group itself. Members will then have the chance to take a loan from the group pot if they want. The maximum amount available for withdrawal is calculated based on how much that member has saved.
Transactions are meticulously recorded and both the cash and ledger are stored in a locked steel box. The box has three separate locks on it, and three treasurers receive the keys. This is designed to prevent any theft or corrupt behaviour.
How do they help?
Village Savings Groups are quietly revolutionizing the lives of people living in poverty. Over the last eleven years, over 40,288 people have enrolled in 1,600 groups in Kenya alone through Tearfund’s partner, Fadhili Trust. VSL groups are a proven way to help families out of extreme poverty.
- They provide a safe place to save: the extreme poor do not have access to banks or financial institutions – either because physically there are no branches, or fees are too high. This means if they want to save they have to do it under their mattress or some other vulnerable place. Large amounts of cash are an easy target for burglars and bandits.
- They foster a culture of saving: Most families living in extreme poverty wouldn’t even think of saving their minute amounts (1-2 cents)! But groups provide a place where they can learn about the benefits of savings, slowly transform their thinking, and grow those cents into dollars.
- They provide a place to take loans: Banks or other institutions will not provide the extreme poor with loans. So in times of emergency, or in desperation, families are forced to take loans from loan sharks who exploit them and usually offer rates that can never be paid back. Village Savings Groups provide an alternative. Using their own savings, members have the ability to take small loans for emergency, farm equipment, repairs, start new businesses, and more.
These groups are a game-changer. It is quite common to hear members grow their income 10 or 20 times! With these loans families are able to climb up the economic ladder and eventually break the cycle of poverty.
What makes them different?
So you’re probably still wondering how these groups differ from other financial tools, such as microfinance institutions. Well, in a few ways:
They’re community-owned and organized
Unlike microfinance institutions or other banks, Village Savings Groups are owned and run by the members; they are the ones who determine the group’s by-laws, how much the minimum savings should be, frequency of meeting, loan conditions, and payback terms. They own all the money in the group and any loans are taken from the group’s own savings. This provides group members with autonomy and favorable conditions for loans. Since there are no overhead or management costs, it also means that there are no fees, and interest rates are affordable.
The group members also develop strong community bonds, and will often become friends and a system of support far beyond the formal group setting. This community aspect creates an environment of trust and progress that cannot be replicated by more formal banking methods.
Time-bound, cash out
Groups only last for one year. At the end of the year, all members receive their savings (which is usually more money than they have ever seen). The important thing to note is that this is their money. They can either then use that money to invest in capital projects, education, or other initiatives, or they can join a new group and continue the cycle. This time-bound, yet flexible, approach encourages members to save throughout the year, but also provides them with the flexibility to use their money as they want.
The majority of members are made up of women. This is not to say that men are discouraged or prohibited from joining a group, but women are typically the ones more interested in saving for the benefit of their children.
Involvement in Village Savings Groups empower women and increase their decision making in the home. Many men only see their wives as caretakers of the home and provide them with no decision making capabilities at all. VSLs provide both men and women in the home a chance to learn what a biblical marriage looks like, and creates an environment of mutual respect.
Groups also provide women with the opportunity to build businesses and become entrepreneurs, increasing their confidence and voice in their communities.
Finally, women are usually the ones more concerned with their children’s future and are more likely to use the funds saved and earned to invest in education and healthcare instead of material possessions.
One of the most exciting things about VSLs is just how incredibly cheap they are to set-up and run. Our role in these groups is formation and education: through Tearfund, your donations help to organize and establish new groups and provide members with financial and business training for the first year. The all-in cost of running one of these groups is $1,000 (or about $38 per member). A donation of $38 can enroll one family member in a savings group, which provides their family with the tools and training needed to lift them out of extreme poverty!
We hope that you learned a bit more about Village Savings Groups in this post! If you would like to donate you can do so below. Enroll one member with a donation of $38, or sponsor an entire group for $1000!