Community-managed Micro-Community-managed Micro-finance Institutions finance Institutions (CMMFIs)(CMMFIs)

How they work and How they work and performperform

4 commonly accepted myths4 commonly accepted myths

• Poor people want to start businesses to get out Poor people want to start businesses to get out of povertyof poverty

• Poor people don‘t have enough money to save, Poor people don‘t have enough money to save, so they need loans (to start ‘productive‘ so they need loans (to start ‘productive‘ businesses)businesses)

• Poor people are more interested in loans than Poor people are more interested in loans than they are in savingsthey are in savings

• These loans have to be provided by regulated These loans have to be provided by regulated formal institutionsformal institutions

1Household basic needs (food, clothing, medical)

82%

2 Emergency (burial, medical) 70%

3 Education 35%

4 Business 19%

5 Inheritance 12%

Why Ugandans saveWhy Ugandans save

1Household basic needs (food, clothing, medical)

61%

2 Emergency (burial, medical) 32%

3 Education 19%

4 Business 15%

5 Pay off debts 9%

Why Ugandans borrowWhy Ugandans borrow

Preference - Preference - Where Where Ugandans saveUgandans save

Preference Preference - Where - Where Ugandans BorrowUgandans Borrow

What is a VSLAWhat is a VSLA

• VSLAs:VSLAs:• are informal groups that invest in a fund from are informal groups that invest in a fund from

which members can borrowwhich members can borrow• are owned and managed by their members on are owned and managed by their members on

a voluntary basisa voluntary basis• are autonomous: they do not depend on are autonomous: they do not depend on

external linkagesexternal linkages• provide very high returns on investment to provide very high returns on investment to

their member ownerstheir member owners• retain all of their capital and profits in their retain all of their capital and profits in their

communitiescommunities

Results to date for CMMF Results to date for CMMF (non SHG)(non SHG)

How does a VSLA WorkHow does a VSLA Work – – Current products and Current products and featuresfeatures

• Savings:Savings: • Regular, frequent contributionsRegular, frequent contributions• Varying, voluntary savings or share purchase. May Varying, voluntary savings or share purchase. May

allow withdrawal on demandallow withdrawal on demand

• Loans:Loans:

• Regular opportunities to borrow (usually a multiple of Regular opportunities to borrow (usually a multiple of savings)savings)

• Loan criteria, loan term and interest rate set by groupLoan criteria, loan term and interest rate set by group• Flexible repaymentsFlexible repayments

• Insurance/Social fundInsurance/Social fund• Eligibility criteria and benefits set by groupEligibility criteria and benefits set by group• Benefits in the form of grants or loansBenefits in the form of grants or loans

How does a VSLA WorkHow does a VSLA Work – – Group normsGroup norms

• Group size range: Group size range: 7 - 30, averaging 227 - 30, averaging 22• Membership: Membership: Self-selected, open to both men Self-selected, open to both men

and womenand women• Meeting frequency:Meeting frequency: Chosen by group. Weekly, Chosen by group. Weekly,

fortnightly, monthlyfortnightly, monthly• Attendance: Attendance: Obligatory, but flexibleObligatory, but flexible• Leadership structure:Leadership structure: Democratic. Committee Democratic. Committee

(usually 5 members) elected annually. (usually 5 members) elected annually. • Record-keeping:Record-keeping: Based on passbooks and cash Based on passbooks and cash

balance records only balance records only • Time to full self-management:Time to full self-management: 9-12 months 9-12 months

How does a VSLA WorkHow does a VSLA Work – – the the KitKit

A large, A large, well-well-made, made, 3-lock 3-lock cash-cash-box is a box is a must!must!

How does a VSLA WorkHow does a VSLA Work – The oral/visual tradition

How does a VSLA Work –How does a VSLA Work – Starting BalancesStarting Balances

How does a VSLA WorkHow does a VSLA Work – – Share SavingsShare Savings

How does a VSLA WorkHow does a VSLA Work – – LoansLoans

VSL:VSL: The Delivery The Delivery SystemSystem

• Training and Training and 3-Stage 3-Stage Supervision/Supervision/

Follow-up Follow-up PhasePhase

• Graduation/ Graduation/ Action AuditAction Audit

VSLA SurvivalVSLA Survival

• 90% + 90% + long-term long-term (5 years)(5 years)

• VSLAs VSLAs have a have a tendency tendency to self-to self-replicatereplicate

Trends in VSLTrends in VSL

• Use of fee-for-Use of fee-for-service service community-based community-based trainers trainers (sustainability (sustainability strategy)strategy)

• Very large scale Very large scale national national programmesprogrammes

• TechnologyTechnology

Burning issues in VSLBurning issues in VSL

• Linkage to Linkage to banksbanks

• RegulationRegulation

• FederationFederation

• Keeping it Keeping it simple simple (that’s (that’s reallyreally hard)hard)

Upside of VSLAsUpside of VSLAs

• Works in rural areas and is sustainableWorks in rural areas and is sustainable

• SafeSafe

• FlexibleFlexible

• Simple and transparentSimple and transparent

• AccessibleAccessible

• Frequent opportunities to saveFrequent opportunities to save

• Regular opportunities to borrowRegular opportunities to borrow

• Incremental debt, proportionate to capacityIncremental debt, proportionate to capacity

• Savings (asset) based, not credit (debt)Savings (asset) based, not credit (debt)

Downside of VSLAsDownside of VSLAs

• Limited sizeLimited size

• Limited capital base (non-SHGs)Limited capital base (non-SHGs)

• Limited range of productsLimited range of products

• May require annual distribution of assets to May require annual distribution of assets to maintain transparency and safetymaintain transparency and safety

• When not distributing assets annually , When not distributing assets annually , CMMFIs tend to have long-term CMMFIs tend to have long-term dependency on external supportdependency on external support