Community-managed Micro-finance Institutions CMMFIs How they work and

Community-managed Micro-finance Institutions (CMMFIs) How they work and perform

4 commonly accepted myths • Poor people want to start businesses to get out • • • of poverty Poor people don‘t have enough money to save, so they need loans (to start ‘productive‘ businesses) Poor people are more interested in loans than they are in savings These loans have to be provided by regulated formal institutions

Why Ugandans save 1 Household basic needs (food, clothing, medical) 82% 2 Emergency (burial, medical) 70% 3 Education 35% 4 Business 19% 5 Inheritance 12%

Why Ugandans borrow 1 Household basic needs (food, clothing, medical) 61% 2 Emergency (burial, medical) 32% 3 Education 19% 4 Business 15% 5 Pay off debts 9%

Preference - Where Ugandans save

Preference - Where Ugandans Borrow

What is a VSLA • VSLAs: • are informal groups that invest in a fund from which members can borrow • are owned and managed by their members on a voluntary basis • are autonomous: they do not depend on external linkages • provide very high returns on investment to their member owners • retain all of their capital and profits in their communities

Results to date for CMMF (non SHG)

How does a VSLA Work – Current products and features • Savings: • Regular, frequent contributions • Varying, voluntary savings or share purchase. allow withdrawal on demand May • Loans: • Regular opportunities to borrow (usually a multiple of • • savings) Loan criteria, loan term and interest rate set by group Flexible repayments • Insurance/Social fund • Eligibility criteria and benefits set by group • Benefits in the form of grants or loans

How does a VSLA Work – Group norms • Group size range: 7 - 30, averaging 22 • Membership: Self-selected, open to both men and women • Meeting frequency: Chosen by group. Weekly, fortnightly, monthly • Attendance: Obligatory, but flexible • Leadership structure: Democratic. Committee (usually 5 members) elected annually. • Record-keeping: Based on passbooks and cash balance records only • Time to full self-management: 9 -12 months

How does a VSLA Work – the Kit A large, wellmade, 3 lock cashbox is a must!

How does a VSLA Work – The oral/visual tradition

How does a VSLA Work – Starting Balances

How does a VSLA Work – Share Savings

How does a VSLA Work – Loans

VSL: The Delivery System • Training and 3 • -Stage Supervision/ Follow-up Phase Graduation/ Action Audit

VSLA Survival • 90% + longterm (5 years) • VSLAs have a tendency to selfreplicate

Trends in VSL • Use of fee-for- • • service community -based trainers (sustainability strategy) Very large scale national programmes Technology

Burning issues in VSL • Linkage to banks • Regulation • Federation • Keeping it simple (that’s really hard)

Upside of VSLAs • Works in rural areas and is sustainable • Safe • Flexible • Simple and transparent • Accessible • Frequent opportunities to save • Regular opportunities to borrow • Incremental debt, proportionate to capacity • Savings (asset) based, not credit (debt)

Downside of VSLAs • Limited size • Limited capital base (non-SHGs) • Limited range of products • May require annual distribution of assets to • maintain transparency and safety When not distributing assets annually , CMMFIs tend to have long-term dependency on external support