Want 30% return on your savings? Try VSLA…

Invisible Children’s Village Savings and Loan Associations (VSLA) model is a standard one used in international development.  Organizations all over the world use VSLA micro-finance initiatives to help lift people out of poverty.  In this article from the Guardian’s Katine series, the author looks at how best to deal with VSLA theft.  There were some amazing stats in the article:

—Care International has 10,338 VSLA groups in northern and eastern Uganda.  Between 2006 and 2009, there were only 10 incidents of theft among these groups, equating to a theft rate of less than 0.1%.

—The group they profiled saved 3,200,000 shillings [around $1,400 USD] over the course of a year.  On this amount, the group earned 950,000 shillings [around $420 USD] in interest by loaning money out to group members.  This means they earned a 30% return on their savings.  Yeah, thirty, 3-0.  For those of you with savings accounts and/or investments:  when is the last time you earned a 30% return?  Through allowing multiple group members to take loans from the same capital, VSLA enables its group members to generate a ton of interest on their savings.  Lost you?  Here’s how it works:

1.  Twenty people—a standard VSLA group for IC—meet for their weekly meeting.  Meetings last one hour and take place at the group leader’s compound.  (All groups are internally managed.)

2.  Each group member brings what he/she can comfortably save for the week.

3.  They put this money into a group pot, documenting their contributions.

4.  That money gets loaned out to group members in the form of small loans.  If you take a loan, you agree to pay it back in three months with about 10% interest.

5.  Next week, you bring your weekly savings and—if you’ve taken a loan the week prior—your loan repayment.  Again, this money gets loaned out to group members with the interest fee.  This is how the capital in the group pot swells:  as loan repayment money comes in, it immediately gets loaned out again, earning new interest.

6.  This process of saving and loaning goes on for six to twelve months.  At the end of the savings cycle, all members get back what they’ve saved, plus their share of the interest that the group has generated.

VSLA kills three big ol’ birds with one stone:  it helps group members save, it gives them access to capital, and it provides them with a bit of free money—interest.  Don’t tell anyone, but VSLA is my favorite IC program :)

–Andrew