Leylo* (pictured on the left in purple) is part of a community organisation. Photo: Mustafa Saeed/Concern WorldwideLeylo* (pictured on the left in purple) is part of a community organisation. Photo: Mustafa Saeed/Concern WorldwideLeylo* (pictured on the left in purple) is part of a community organisation. Photo: Mustafa Saeed/Concern Worldwide

How village savings and loans associations and micro-loans are beating poverty around the world

How village savings and loans associations and micro-loans are beating poverty around the world
Story23 January 2023

Village Savings and Loans Associations (or VSLAs) keep economic power local and community-based, offering a sustainable means for breaking the cycle of poverty. Here’s how.

Village savings and loans associations fast facts

  • VSLAs are small, member-run microfinancing groups enabling those living in poverty to build savings and take out loans at low-interest rates.
  • 99% of loans given by a Village Savings and Loans Association are repaid in full.
  • In countries where women have fewer financial rights, VSLAs play an important role in gender equality, providing women access and ownership over income, savings, and decision-making power in the home. More than 70% of VSLA members are female.
  • VSLAs are key components of larger Concern programmes and projects, including our work with the Graduation model

In the communities where Concern Worldwide operates, continuous armed conflict in many parts of the country, disease outbreaks and high levels of food insecurity are all key causes of poverty. But that changes with VSLAs. For Concern community members, these microloans go a long way: They not only break the cycle of poverty, but build thriving livelihoods that turn the hope for a more sustainable, self-sufficient life into a reality. 

This is especially true for Sifa Consolata, a widow caring for her four children in Burungu, the North Kivu province of Democratic Republic of Congo

“Before Concern gave me this money, my life was difficult,” she says. “I was looking for a job to feed my children. If Concern hadn’t given me this money, I would have continued to work for people to make no more than one thousand francs, planting fruit to see if they harvest and see how to raise my children with that.”

Consolata Sifa Bagenaimana is a widowed mother of four and participating in Concern’s Graduation program in DRC. She sells local cooking spices, an income-generating activity that she has developed in Burungu Kitshanga with Concern and her local VSLA. Photo: Pamela Tulizo/Panos/Concern Worldwide
Consolata Sifa Bagenaimana is a widowed mother of four and participating in Concern’s Graduation program in DRC. She sells local cooking spices, an income-generating activity that she has developed in Burungu Kitshanga with Concern and her local VSLA. Photo: Pamela Tulizo/Panos/Concern Worldwide

When Sifa joined the VSLA, with her microloan of $20 to start, she bought land, maize flour, onions, and olive oil. She began cultivating the fields and selling her harvests. But the financial gain and reliant income isn’t the only benefit of the microloan. It’s the community of practice and training that accompany the loan which make it possible for members like Sifa to not merely have a job, but to build a livelihood.

“The VSLA taught us how to manage the little money that we earn. They taught us how to do business, how to attract clients and buy merchandise. They taught us how to maintain this as well. I put these lessons in practice because it might be that I need money and I go directly to AVEC for a loan. And with this money I can take care of my children and make sure they are growing, but also it allows me to preserve my self-esteem so that no one makes fun of me.”

Putting financial power back in community hands

This is also where inequality meets risk: Often it’s the most marginalised people in a community who are furthest behind, and have fewer options for getting cash. They are also more vulnerable to the impacts of a setback, whether a personal setback or a larger shock such as a natural disaster or a pandemic. In areas where the risk for such setbacks is high, this becomes a recipe for disaster. 

What would happen, then, if the people furthest behind had the resources they needed to be on equal financial footing with those furthest ahead? For starters, they would be able to build equity. They could also offset some of the risk that comes with having no financial reserves and facing the many unknowns that can lead to a financial setback. 

That’s where Village Savings and Loans Associations (VSLAs) come in. 

Conceived in 1991 by Concern’s peer and regular partner CARE International, VSLAs allow members to save money, build community relations, and access loans and emergency insurance. By pooling their savings and self-managing the loan distributions, VSLAs help their community members achieve economic stability in a sustainable, community-based way.  

How village savings and loans associations work

Part of the success of VSLAs over the last 30 years lies in how simple and effective the programme is. Each Association is made up of a small team of members who meet every week and buy shares of their group, continually investing a little bit of their income and pooling it with their friends and neighbours to create a sum greater than its parts. 

Members can take out loans as needed, and use their savings as collateral (versus the alternative of selling a major asset or cutting down on household necessities). The only assets each group needs are a lockable cash box and a notebook for keeping track of loans. Yet, for such a low investment, the programme yields high returns. 

Members of Chalbi Salt Self Help Group, they live in Northern Kenya. As a group they collect salt from the desert and sell on to pastoralist to mix in with feed for livestock. With the profit the group makes they help support local girls to continue with their education. Photo: Jennifer Nolan / Concern Worldwide
Members of Chalbi Salt Self Help Group, they live in Northern Kenya. As a group they collect salt from the desert and sell on to pastoralist to mix in with feed for livestock. With the profit the group makes they help support local girls to continue with their education. Photo: Jennifer Nolan / Concern Worldwide

For Kenya‘s women-formed Chalbi Salt Self Help Group, each member joined by contributing 1,000 Kenyan Shillings (about $9.00). When the group splits loans between members, those members use these funds to invest in profit-making activities. Upon repaying the loan, they add a bit more to cover the interest, which is then redistributed to the other group members, creating a profit cycle. Not only does this group’s investments help their individual livelihoods, but it benefits their collective community for generations: One of the things the Chalbi Salt group invests in locally is the education of their community’s girls. 

That’s one way the money can be used and distributed, and it’s also this flexibility that makes the VSLA model a powerful method of microfinancing. But the power of VSLAs isn’t just their monetary value, it’s their socially-transformative nature within communities.

A key investment in gender equality

With 2.7 billion women legally restricted from having the same choice of jobs as men and 34 million girls currently out of school, VSLAs offer women the resources they need to earn a living, manage crises, develop skills, and build and retain assets of their own. 

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