Going to the Bank
September 8, 2014
Ruairidh Waddell, Program Consultant-Zambia, World Renew
Going to the bank is one of the mundane chores that we in the developed world often take for granted. When we find the house or car we like, we go to our bank and ask for a loan to buy it.
In most cases, these are significant investments for us, but because we have a regular income, the banks see us as a “fair risk” and extend us the credit we need to make the purchase. Our banks don’t just lend us money: they also give us the opportunity to save and they can also help to smooth out a strained financial time when we have an unexpected bill to pay or unforeseen expenditure. Having our bank’s number stored in our phone gives us this financial security and a safety net to land in if we get into trouble.
Consider, then, the financial reality that women like Gertrude, a widowed grandmother caring for nine grandchildren, face in rural Zambia. If her fragile and externally dependent income stream is interrupted, there is no bank officer on speed dial to bail her out. The loss of income or an unexpected financial obligation often means going without the basic essentials like food, clothing, education for her grandchildren, and even eviction from her two-room rented house. Four years ago, I attended a training workshop in South Africa that introduced me to the Village Savings and Loans Association (VSLA) concept, and it has fundamentally changed my mindset and approach to poverty, economic empowerment, and micro-finance. Not only has VSLA been transformational for women like Gertrude, I have been blessed by sharing in their empowerment and seeing communities transformed through the introduction of this basic level of financial service.
A VSLA is a self-selected group of people who pool small amounts of money into a communal fund from which members can borrow. The money borrowed from this fund is paid back with interest, causing the fund to grow. The regular savings contributions to the group are deposited with an end date in mind for distribution of all or part of the total funds (including interest earnings) to the individual members. The loans are usually made on the basis of a formula that links the payout to the amount saved. This lump-sum distribution provides a large amount of money that each member can then apply to his or her own needs.
VSLA members usually receive a return on their savings investments that go from a low of 30% per annum, to a high that is in excess of 100%. That is far more than is paid by any commercial bank anywhere in the world! The members are also able to save more in times of plenty and less in harder times. They can borrow with a minimum of fuss, access loans and insurance benefits that are approved by their peers, and obtain loans that range from small change to several hundred dollars. Typical loans are usually between $10 and $50, which is far too small for formal banks or regular micro-finance institutions to consider. Members can receive insurance services that offset the effects of unforeseen disasters, and set up funds for school fees, festivals, and other predictable annual events.
The real benefit of the VSLA concept is that it is not a methodology that is designed for growth-oriented, exploitative entrepreneurs. It is for the poor and the very poor who are focused on managing their household cash flow more efficiently and flexibly and investing in income-generating activities that secure and stabilize their cash flow.
The most dramatic result of the VSLA program is often in the increased self-respect and social capital of the participants, particularly women like Gertrude who make up 70% of the membership. VSLA groups are filling a financial and social gap that has been missing for years in most of central Africa. The collective empowerment of women that has developed as a result of the independence and security that VSLAs have brought them is perhaps as big a transformation as the financial independence they now experience. For a widow like Gertrude who cares for nine grandchildren, VSLA has given her the chance to be independent from loan sharks and church feeding programs. Gertrude now relates to a local VSLA facilitator who assists her and other women in her community with accessing VSLA programs and the social empowerment that comes with it.
As Zambia’s economy continues to improve, women like Gertrude will have more access to income and the means to help themselves break out of the poverty cycle: they just need the opportunity to maximize the little they have—and VSLA provides that opportunity.
World Renew and its three partners in Zambia, the Reformed Church of Zambia, the Presbyterian Church of Central Africa, and the United Church of Zambia, will implement an ambitious VSLA program this year that will provide this sort of assistance to more than 1,000 individuals in impoverished communities across the country. The transformation this simple methodology can create in communities is staggering, and the amount of money these groups will turn over this year is sizeable. VSLA is one of the ways in which the Church universal is beginning to combat extreme poverty. This is radically different than traditional charity because it focuses on long-term, systemic change at the community level and employs lasting, local employment solutions, not short-term quick fixes. VSLA emphasizes the importance of church-and-community partnerships, and local champions like Gertrude are not external “saviors.” VSLA is one way that the hope of the Gospel is integrated into tangible acts of compassion that have long-term reach rather than simply providing handouts that keep the poor in a position of dependency.
Through programs like VSLA, people like Gertrude have the chance to have an element of financial stability in what is otherwise a very unstable world.