SEATTLE – Families in poor communities around the world are making money through the Village Savings and Loans program (VSL), in which individuals form groups to pool money collectively.
The VSL program was founded in order to provide people with easy savings and loan prospects that would otherwise be inaccessible. It consists of groups, around 15-25 people each, that build up savings and withdraw loans from their shared pool.
It is an alternative to seeking money from jobs outside the home. People pay into the group savings fund once every week, and cycles last for a year. At the end of each cycle, the money saved and profits made from the loans are given back to each one of the members.
Membership within each group is voluntary and the group elects five officials once a year to oversee the system. Their position is well-defined in order to keep power well-dispersed. Everyone is encouraged to participate, including those that are less literate or do not have much influence in the community.
The group manages funds and the rate of interest, while deciding who has access to the loans. If someone does not pay back their loans, the group determines the penalty. At each weekly meeting, members buy 1-5 shares at a price that is decided on by the collective.
No two members have to save the same amount and they do not have to purchase the same number of shares at every meeting. Buying in small amounts makes it easier for poor families to make money. If desired, a member may leave once a cycle has completed.
Being a part of the program teaches people how to save and manage money. It also empowers people, like women, that typically do not have opportunities to acquire stable jobs. Other groups include people struggling with chronic illnesses, like HIV/AIDS, and those caring for sick family members.
Kalimba Chiwaka volunteers with VSL Associates and works with villages in Malawi. “It has been easy to get people to accept poorer and vulnerable people into the VSLAs. They are even willing to change their by-laws to accommodate people who are poorer and cannot pay the same fees and interest as the rest of the group […] groups want to be sure that they can give those same opportunities to other people who need them.”
“At first, I did not want to join the VSLA,” says one man in Malawi who participates in the program. “I thought it was only for women. Since I am HIV positive, I did not think I could save and be a part of the group.”
He was upset by the fact that he could not provide for his family. However, after attending an HIV support group, he learned that VSLAs were open for men, too. Despite his HIV, he could join a cooperative group and make money for his wife and children.
Oftentimes, children are pulled from school in order to help take care of younger siblings or older relatives, or to find jobs to bring in more money. With the VSL program, more children can finish school, which is essential for getting these families out of poverty.
– Lillian Sickler
Sources: Care 1, Care 2, Village Savings and Loan Association, World Renew, Global Microcredit Summit, Innovations for Poverty Action
Photo: Grameen Foundation