A Village Savings and Loan Association (VSLA) is a group of people who meet regularly to save together and take small loans from those savings. The activities of the group run in cycles of one year, after which the accumulated savings and the loan profits are distributed back to the members. The purpose of a VSLA is to provide simple savings and loan facilities in a community that does not have easy access to formal financial services.
A VSLA is a transparent, democratic and structured version of the informal Savings Groups found in many parts of the developing world. The main differences are that the VSL methodology emphasises accountable governance, standardised procedures and simple accounting that even the least literate, least influential member of the group can understand and trust.
Groups usually hold annual elections. The roles and responsibilities of the five-person management committee are clearly defined. This is to encourage the participation of all members in the operations of the group; and, moreover, to protect the group from being dominated by a single individual.
Each group is composed of 10 to 25 self-selected individuals. Groups meet weekly and members save through the purchase of shares. The price of a share is decided by the group. At each meeting, every member must buy between 1 and 5 shares. The share price is set by the group at the beginning of the annual cycle and is fixed for the entire period.
The system is very simple, but the result is powerful.
Members do not have to save in equal amounts; these can vary at each
meeting. Additionally, by saving more frequently in very small amounts, they can build their savings more easily, contributing to improving the security of the household. People who are
often excluded from participation in ROSCAs (Rotating Savings and Credit Associations) because they MUST save the same amount at each meeting, are able to join VSLAs because the amount they save
is not fixed.
Savings are deposited to a loan fund from which members can borrow in small amounts. These can be up to three times the value of their individual savings. Loans are for a maximum period of three months in the first year and may be repaid in flexible installments at a monthly service charge determined by the group. This flexible repayment system is a decisive advantage when compared to the rigid repayment demands of MFIs.
Pictures from VSL Associates' field visits
1. NUDIPU Uganda
2. ESDC Palestine
3. CARE Cambodia
4. CARE Uganda
5. CLP Bangladesh
6. Oxfam Mali