The Use of Village Savings and Loan Association (VSLA) to end poverty among the Youth in Slum Areas of Kampala
Slum Youth Rehabilitation and Development Organization (SYRADO) has been given a privilege to work in a cluster with Sanyu Centre for Arts and Rights (SARI) to form groups and train youth in Kampala about VSLA model. Poverty and unemployment is a song that is sang by most youth in the country and one way to end this song is through VSLA. Our Partner Childrens Rights and Violence prevention fund (CRVPF) through the EYDCD (Empowering Youth Through Data and Community Development) program have given us the opportunity to make this dream a reality. We are forming 40 VSLA, training them, formally registering them, opening bank accounts for them and off-setting their saving culture through mentorship for a year.
A Village Savings and Loan Association (VSLA) is a group of people who meet regularly to save together and take small loans from those savings. The activities of the group run in cycles of one year, after which the accumulated savings and the loan profits are distributed back to the members. The purpose of a VSLA is to provide simple savings and loan facilities in a community that does not have easy access to formal financial services.
Organizational structure: Groups hold annual elections. The responsibilities of the five-person management committee are clearly defined. This is to protect the group from being dominated by a single individual.
Village Savings and Loan Associations (VSLAs) operate through a structured yet simple process that encourages savings, provides loans, and builds financial literacy among members. Here’s a breakdown of how they typically work:
Formation: A group of 15-30 people, often from the same community, come together to form a VSLA. They receive initial training on the VSLA methodology.
Savings: Members contribute a fixed amount of money at regular meetings (weekly or bi-weekly). These contributions are pooled into a group fund. Each member’s savings are recorded in a passbook.
Loans: Members can take out loans from the group fund. The loan amounts, interest rates, and repayment terms are decided by the group. Loans are usually small and intended for purposes like starting or expanding a business, paying school fees, or covering medical expenses.
Social Fund: In addition to the savings fund, VSLAs often have a social fund. This is a smaller pool of money used to help members in emergencies, such as illness or funerals.
Interest and Dividends: Interest earned from loans is added back to the group fund. At the end of a cycle (usually 9-12 months), the total savings and interest are distributed back to members based on their contributions.
Record Keeping: Accurate record-keeping is crucial. Members are trained to maintain records of savings, loans, and repayments. This ensures transparency and trust within the group.
Governance: VSLAs are self-managed. They elect leaders (chairperson, secretary, treasurer) who oversee the operations. Regular meetings are held to discuss financial matters and make decisions collectively.
Annual Share-out: At the end of every annual cycle, all of the loans are paid back and the total money is shared out among members in proportion to their savings. This share-out includes all of the profits of the group from interest income and fines. Any member who wants to can then plough this money immediately back into the group, so that they start a new cycle with a large balance, which makes them quickly eligible for a large loan
Village Savings and Loan Associations (VSLAs) play a crucial role in empowering communities, especially in rural and underserved areas. Here are some key benefits:
Financial Inclusion: VSLAs provide access to financial services for people who are often excluded from traditional banking systems. Members can save money, take out small loans, and access emergency funds.
Economic Empowerment: These groups help members, particularly women, gain control over their finances. This empowerment extends to decision-making within households and communities.
Community Development: VSLAs foster a sense of community and mutual support. Members often collaborate on small business ventures, negotiate better prices in markets, and advocate for social issues.
Resilience Building: By pooling resources, VSLAs help members manage financial risks and cope with emergencies. This collective approach strengthens the overall resilience of the community.
Skill Development: Participation in VSLAs often includes training in financial literacy, business management, and leadership, which are valuable skills for personal and community development.
Training and Support Continuous training and support are provided to ensure the group operates effectively. This includes training on financial literacy, business skills, and conflict resolution.
