The VSLA methodology

Summary

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 VSL methodology emphasises accountable governance, standard procedures and simple accounting that everyone can understand and trust.

Organisational structure

Groups hold annual elections. The responsibilities of the five-person management committee are clearly defined. This is 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 that cycle.

Savings

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.

Loans

Savings are deposited to a loan fund from which members can borrow in small amounts, up to three times the value of their savings. Loans are for a maximum period of three months 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.