One woman's experience with VSLAs and a tale of how Ugandan farmers saved 300 Million UGX in one year
Agriculture is the largest provider of employment to the Ugandan workforce. It accounts for over 70% of the total labour force in Uganda, employing predominantly women (76%) and youth (63%) living in the rural areas (FAO, 2018). Farming however is largely subsistence and the majority of farmers face a variety of challenges; lack of: knowledge and skills, access to credit, information about what to produce and how to produce to earn more money and unpredictable prices, which are often low. Lending by financial institutions to the farmers is very minimal due to the high risks associated with farming and lack of collateral. This has forced many farmers to borrow from unscrupulous money lenders who lend at exorbitantly high interest rates.
The village savings and loan association (VSLA) scheme is a micro-finance model that was started by CARE to reduce poverty by financially and socially empowering poor and vulnerable people. The VSLA provides its members a safe place to save their money, to access loans and to obtain emergency insurance. Governance and management is entirely by members. The strength behind the VSLA methodology is that it encourages a culture of saving among members who are required to save weekly by buying shares ranging from one to five. The share price is determined by the members of the association at the beginning of the cycle. Members can then borrow from the VSLA using their savings as collateral without necessarily having to sell their property or crop at a cheap price in times of need or emergencies.
VSLA members meet to collect weekly savings and disburse loans
SNV has been promoting the VSLA model in its agricultural projects such as the Agriculture and Market Support project funded by the World Food Programme. By promoting a culture of saving through the VSLA, farmers can keep their crop during the harvest season and bulk together for sale at a higher price during the off season. The VSLAs thus act as a financial buffer to the farmers from which they can borrow for their urgent needs without having to sell their crop when times became hard or having to borrow from money lenders.
One person who appreciates the value of being part of a VSLA is Gladys Kiiza, a member of Tugonzangane Village savings and Loan Association (VSLA) in Hoima district. Gladys joined the group in the hope of finding better borrowing terms. Prior to joining the VSLA, Gladys used to borrow money from money lenders to pay her children’s fees. Unfortunately these short term loans always came with high interest rates of up to 25% per month! Failure to pay back the loan in time led to additional increments in the interest according to the number of days defaulted or confiscation of property.
Gladys financial woes did not stop with money lenders alone. Charging her phone and buying paraffin was also draining her of what little money she had left. “Every month, I spent UGX 3,000 to charge my phone and UGX 3,200 to buy paraffin for my household use. Sometimes the children could not read well or do their homework with the paraffin lantern because the lighting was poor and this affected their performance in school,” Gladys recalls.
In 2017, following the signing of a new contract with World Food Programme, SNV was able to launch the Agriculture and Market Support Programme in Hoima. One of the things that SNV did was to mobilise farmers and encourage them to form groups so that they could bulk their grain and sell as a group since this gave them better bargaining power. SNV also introduced the VSLA concept to the groups. Gladys was one of the farmers who attended the VSLA training. Armed with her new knowledge, Gladys painstakingly embarked on her savings journey, saving UGX 5,000 every week. So far she has been able to save UGX 200,000 against which she borrowed UGX 300,000 at an interest of 5% per annum to buy a solar panel for lighting and charging her phone. Today, Gladys is celebrating with her household. She has clean light for her children to read with and she is no longer spending money to charge her phone or buy paraffin. Gladys has now increased her savings to UGX 10,000 per week, having experienced first-hand the benefits of saving and being part of a savings association.
Between June 2017 and May 2018, SNV supported the establishment of 122 VSLAs (40 in Hoima) and trained 502 VSLA leaders on the VSLA methodology and financial literacy. By the end of the project in May, the 122 VSLAs had an aggregated membership of 3,717 members (64% female) and accumulated savings of UGX 300 Million.
By James Kebirungi, Project Officer Agriculture & Market Support Project
For more about SNV's work in Uganda