Community-managed
Micro-finance Institutions
(CMMFIs)
How they work and
perform
4 commonly accepted myths
• Poor people want to start businesses to get out
•
•
•
of poverty
Poor people don‘t have enough money to save,
so they need loans (to start ‘productive‘
businesses)
Poor people are more interested in loans than
they are in savings
These loans have to be provided by regulated
formal institutions
Why Ugandans save
1
Household basic needs (food,
clothing, medical)
82%
2
Emergency (burial, medical)
70%
3
Education
35%
4
Business
19%
5
Inheritance
12%
Why Ugandans borrow
1
Household basic needs (food,
clothing, medical)
61%
2
Emergency (burial, medical)
32%
3
Education
19%
4
Business
15%
5
Pay off debts
9%
Preference - Where
Ugandans save
Preference - Where
Ugandans Borrow
What is a VSLA
• VSLAs:
• are informal groups that invest in a fund from
which members can borrow
• are owned and managed by their members on
a voluntary basis
• are autonomous: they do not depend on
external linkages
• provide very high returns on investment to
their member owners
• retain all of their capital and profits in their
communities
Results to date for CMMF
(non SHG)
How does a VSLA Work –
Current products and features
•
Savings:
•
Loans:
•
• Regular, frequent contributions
• Varying, voluntary savings or share purchase. May
allow withdrawal on demand
• Regular opportunities to borrow (usually a multiple of
savings)
• Loan criteria, loan term and interest rate set by group
• Flexible repayments
Insurance/Social fund
• Eligibility criteria and benefits set by group
• Benefits in the form of grants or loans
How does a VSLA Work –
Group norms
• Group size range: 7 - 30, averaging 22
• Membership: Self-selected, open to both men
and women
• Meeting frequency: Chosen by group. Weekly,
fortnightly, monthly
• Attendance: Obligatory, but flexible
• Leadership structure: Democratic. Committee
(usually 5 members) elected annually.
• Record-keeping: Based on passbooks and cash
balance records only
• Time to full self-management: 9-12 months
How does a VSLA Work – the
Kit
A large,
wellmade, 3lock
cashbox is a
must!
How does a VSLA Work –
The oral/visual tradition
How does a VSLA Work –
Starting Balances
How does a VSLA Work –
Share Savings
How does a VSLA Work –
Loans
VSL: The Delivery System
•
•
Training and
3-Stage
Supervision/
Follow-up
Phase
Graduation/
Action Audit
VSLA Survival
• 90% +
long-term
(5 years)
• VSLAs
have a
tendency
to selfreplicate
Trends in VSL
• Use of fee-for-
•
•
service
community-based
trainers
(sustainability
strategy)
Very large scale
national
programmes
Technology
Burning issues in VSL
• Linkage to
banks
• Regulation
• Federation
• Keeping it
simple
(that’s really
hard)
Upside of VSLAs
• Works in rural areas and is sustainable
• Safe
• Flexible
• Simple and transparent
• Accessible
• Frequent opportunities to save
• Regular opportunities to borrow
• Incremental debt, proportionate to capacity
• Savings (asset) based, not credit (debt)
Downside of VSLAs
• Limited size
• Limited capital base (non-SHGs)
• Limited range of products
• May require annual distribution of assets to
•
maintain transparency and safety
When not distributing assets annually ,
CMMFIs tend to have long-term
dependency on external support