A weapon against poverty

2008-07-08 00:00

FROM Rwanda to Cambodia, community savings and lending groups are increasingly being recognised as one of the NGO sector’s most effective weapons against poverty.

The idea that poor people want to take on risky debt to invest their way out of poverty is increasingly coming under scrutiny. Mostly, very poor people prefer to save and this should be encouraged.

These are the views of micro-finance expert Hugh Allen who was in Pietermaritzburg last week to conduct a course on community managed microfinance in conjunction with Pietermaritzburg NGO SaveAct.

“Like everybody else, poor people are mainly concerned with improving their livelihoods and reducing risks to that livelihood. They want to have the right clothes for a special occasion, gain the respect of their neighbours and send their children to school,” says Allen over lunch at the Reformed Mission in Komane, Nhlazuka, a remote and spectacularly beautiful area about one hour’s drive south of Pietermaritzburg. Here, course participants were given a chance to observe one of the monthly meetings of the established savings groups from the area.

The six-day course, which exposed participants to best practice in the field, attracted development workers from as far afield as Cambodia and Canada, as well as a range of countries in Africa including Burundi, Malawi, Mozambique and Rwanda. SaveAct founder Anton Krone said interest in the course exceeded the places available. A second round of training is set for later in the year.

According to Allen, Care International, which pioneered the Village Savings and Loan Association (VSLA) model of microfinance in Niger in 1991, now realises the model is the most effective intervention it has and is investing R250 million over the next 10 years in a project called Access Africa that will take the model to 30 countries in Africa.

The strength of the VSLA programme is its capacity to improve cash-flow management by helping people save and borrow in small amounts. Thus, it meets the need for sustainable and profitable savings, insurance and credit services to people who live in areas where banks and microfinance institutions do not reach. The model also has the effect of building self-respect and social capital, particularly among its mainly female membership.

The groups are completely self-sufficient and Allen is unconvinced of the need to link them to banks or other institutions, a step that will inevitably involve more expense and bureaucracy for borrowers.

A seasoned development practitioner with an engineering background, Allen worked with international NGO Care in Africa for 13 years as the organisation’s chief technical adviser for small economic activity development. When Care introduced the VSLA model, Allen was initially sceptical, but within two years of its introduction, it had attracted 20 000 members and the bigger microfinance projects had folded. Allen became convinced of the model’s sustainability and, in 1999, resigned from Care and set up a company known as VSL Associates from his base in Germany to promote it full time.

Today, the model has one million active participants and operates in 16 African countries, and a couple of countries in Asia and Latin America. It has been adopted with some variation by a range of other organisations, including Catholic Relief Services (CRS), Oxfam, Plan International, the Peace Corps and World Vision.

Currently, the highest number of participants in Care’s programmes are found in Niger (196 000 members). According to Allen, Zimbabwe has increased its VSL membership by 20 000 in the past 12 months and now sits at 91 000. The model has helped people deal with hyperinflation and economic collapse in that country.

South Africa has lagged behind the rest of the world in the introduction of the VSLA model. “The concept was perceived as paternalistic and unsuitable for so upwardly mobile a population,” says Allen. “Now we are past that, but as a result we are running a bit behind.”

Allen says the model has enormous potential for South Africa and has been well received in Lesotho and the Northern Province. “With some modifications, it bolts well on to the existing stokvel system,” he said.

Krone, who founded SaveAct in Pietermaritzburg in 2005 to facilitate the setting up of savings and lendings groups using the VSLA model, says demand for the organisation’s services is picking up. SaveAct currently has 560 members in 45 savings groups, including the three visited during the course in Nhlazuka.

Given the organisation’s expansion into the Eastern Cape, Krone expects membership to reach 2 000 by the end of next year.

Ninety-three percent of SaveAct participants are women, although Krone says the NGO is about to train an all-male farmers’ association based in the Okhahlamba/Drakensberg area. The group has been unable to secure credit for their farming activities from mainstream banks and lending institutions.

Krone believes in the model’s power to challenge the legacy of apartheid and the pervasive emphasis on state service delivery which works to entrench dependency rather than encourage empowerment.

“SaveAct believes that this [VSL] model gives people a way of ... creating their own livelihood options, using social grants and investing in a way that builds self-reliance. That’s the key difference this work can make in South Africa.”

How do the VSLA groups work?

• According to the Microfinance Gateway, the VSLA is a self-selected group of 10 to 25 people who invest money in a loan fund from which members can take interest-bearing loans. The interest rate is determined by the members.

• Members can save any amount depending on their disposable cash and withdraw their savings at any time.

• VSLAs are independent and self-managed and all the original capital and earnings from interest stay in the community. Annual returns of savings average 40%.

• All transactions are conducted at meetings in full view of all members. Members are given passbooks in which their financial transactions are recorded.

• Money is kept in a locked cash box, the key to which is held by three different members between meetings. The box is only opened at meetings.

• At the end of an agreed period, savings and earnings are paid out to members.

• Both savings groups in the Nhlazuka area managed to accumulate total funds of about R6 000 in a few months.

Course participants from other African countries indicated that individual contributions by South Africans are high compared with contributions made in their own countries. VSL co-ordinator for Care Malawi, Jozzy Maulana (pictured), ascribes this to South Africa’s social grant system.

A view from Rwanda

IN the sprawling refugee camps of Rwanda where food, education and health services are provided by international donor organisations, dependency syndrome is a constant challenge for aid workers. For Louise Ruhr (pictured), programme manager for American Refugee Committee which runs the three major semi-permanent camps in Rwanda housing over 45 000 Congolese Tutsis, the recent introduction of VSL groups has been a big step towards building self-reliance among the refugees.

Since December, 2000 refugees have become members of the VSLAs. The programme is staffed mainly by refugees who are trained in the methodology and its application. Refugees use money gained through employment in the camps or by selling part of their monthly food parcel received through the World Food Programme.

Ruhr says the model will stand the refugees in good stead when they eventually have a chance to go home. “They may find that there is nothing there for them [at home]. With this model of saving and lending they will be able to build capital to rebuild their lives. They believe in it because they see that it works.”

The VSL model builds on the area’s existing informal savings and lending model known as “tontines”, but Ruhr says the VSLA model is more flexible, allowing members to withdraw their money at any time.

The 10% interest rate for lending services offers an attractive alternative to the 50% to 100% rates charged by moneylenders.

As in other parts of the world, most of the participants in Rwanda are women. The VSLA model, which recommends that two of the groups’ five-person management committees must be filled by women, has given women the confidence to assert themselves and build personal capacity. The model also appeals to school leavers who can use their literacy and numeracy skills in the running of the groups.

What about defaulters? Ruhr says: “There are almost none. The groups are made up of friends. If they fail to repay, they will never again have access to credit. That’s something they can’t risk because in a situation of limited resources, credit is critical.”

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