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Dear all,

This blog is no longer updated but I do not delete it as I sometimes get emails regarding the content on here.

To keep following the discussions in the field, check out the latest at FinDev Gateway, previously Microfinance Gateway.

Thanks for your support.

 

New film on savings group

The first three minutes video presentation on savings group I’ve seen.

It’s good.

VSLAs are inclusive

This is the last guest post by Anne Sofie Hansen, who spent six weeks studying VSLAs in Northern Malawi

I am listening to an interview. Engaged in the torturous task of transcription I recall the atmosphere of the conversation. Sitting on a woven mat, in the shade of a tree. Gija, my translator and organizer, on the one side asking me how I keep my sunglasses so neat, the interviewee on the other, reminding me to stay in touch! ‘You forget us when you go back to your country. No, I will never forget Kamphenda!’. I am reminded that the distance between Copenhagen and Kamphenda is not only geographical. It stretches across culture and social divides – divides that microfinance is intended to bridge. On the long term. So, what have 5 weeks in the village taught me about the outreach and depth of Village Savings and Loans Associations? Is membership for everyone?

General Inclusiveness

Generally, the findings give an impression that the VSLAs in this northern part of Malawi are very inclusive. The trend among members, drop-outs from VSLAs and non-members has proven very positive towards including even the most vulnerable groups of the community, HIV/AIDS affected, the disabled as well as elders. However, despite the fact that many groups allow both men and women to join, it was clear that too many men in a group was not encouraged. Even though this area houses a relatively gender-enlightened population, power structures still favor men: ‘Too many men shifts power structures, they are too strong’, said one member. Only one or two male members were usually found in groups with no gender policy. Interestingly, the four groups I was investigating also represented the stretch of social levels, from the very poorest to the least vulnerable. Composition did vary between the groups but most had a broad representation.

Basic Demands – Social Networks

Despite these first encouraging words, participation did have its criteria. The basic demands for membership revolve around personal reputation and financial management skills. Firstly, during the formation process the initiators, be it after mobilization meetings from an NGO or interest created through observations of other groups, generally look to their friends and other acquaintances to create a group. Many times the individuals of the initiating group will ask other individuals within their social network to join, to reach the usual limit of 25 members. Hence, the groups are mainly formed on the basis of people who have some form of relation beforehand with at least a few other individuals of the group. A prerequisite for participation, hence, seems to be a social network.

Reputation is Everything

A few personal characteristics seem to be seminal for access to a VSLA. These characteristics were largely cross-cutting for trained and un-trained groups. This is noticeable, since the training of VSLAs includes emphasis of certain personal traits in the group selection process. The most important characteristics include trustworthiness, collaborative attitude, ability to listen to others views, hard working (as opposed to being lazy), time-consciousness, discipline, ability to pay the weekly contributions and repay loans as well as business skills. The latter two indicate that some form of financial education in terms of planning is necessary. The years of schooling seemed to be influential on this characteristic.

Characteristics that were generally exclusionary entailed reputation of stealing, being a drunkard, being a liar and moving too much between different locations whereby representation at the weekly meetings would be difficult. Hence, to gain access one must assure to keep a clean reputation. I say reputation, because most groups gathered individuals from an extensive area and many interviewees claimed that they did not know the other members very well. Hence, the words that are spoken about an individual in all corners of a village become instrumental in opening the doors to a VSLA.

Finances are Necessary

In terms of financial capacity there is an obvious barrier to access if the minimum requirements of weekly contributions cannot be met. Furthermore, most VSLAs seem to require that members take up loans during the cycle. The individuals I spoke to that were not members of a VSLA listed initial fees (including contribution to purchase of the start-kit for a group) as well as the weekly payments as the most important to non-participation. Even if initial financial help was offered to individuals with difficulties to pay these fees, some of the non-members refused to join due to expected inability to repay.

Other Issues

A few other inhibiting factors became clear from focus group discussions and interviews. Family relations, for instance, seem to play an inhibiting role. The tighter the relation, the less conducive for the running of a VSLA. Interconnectedness hinders family issues to be debated freely at the weekly meetings (an important non-financial advantage of the VSLAs), and if problems hit one member, that same problem is likely affecting a number of other members, who will consequently all need access to the pool of money at the same time. Thus, ‘our village bank will bankrupt too easily’ as one interviewee noted. Sadly, but not surprisingly, some women are prevented by their husbands to join. Interestingly though, it is not due to the enhanced economic empowerment of the woman, but rather a fear that the woman may spent her time with other men instead of attending the VSLA meeting.

Lack of sensitization is furthermore an obstacle. Some interviewees had little knowledge of VSLAs and rumors of how defaulters where treated prevented them from joining: ‘After getting something from the village bank they would come and sophisticate your belongings’, was one comment where ‘sophisticate’ is the local term for confiscate. One interviewee was reluctant to join before she had become more familiar with how a group had fared. Also, some believed that the VSLAs already provide capital from which loans can be taken directly. It therefore seems important to get the right information to the intended populations, to ensure correct understanding of the workings of VSLAs. Lastly, some failed to join merely because a group had enough members or because they missed the opportunity at the time of group formation.

‘They simply do not understand the importance of the VSLA’

To conclude the basic requirements for participation are seemingly linked to social network, personal reputation, financial planning and business skills which are linked to educational level and, off cause, capital. Even though I was overwhelmed by the success of the VSLAs in this area, and the apparent inclusiveness, I was reminded that gender issues prevail despite a relatively enlightened population and that knowledge is evermore the key to development. If you don’t understand how VSLAs work you will not understand how important it can be for you, as a very engaged VSLA member reminded me. As I grasped the core of his message: If you know, you develop!

And these shall be my final words on VSLA membership in the Northern Region of Malawi. Any comments, suggestions, additions etc. are most welcome.

Please Send More Training in Microfinance

Stories from the Northern Malawi

Three weeks have passed and I find myself at the end of my stay in Kamphenda in Northern Malawi. I have spent an incredible five weeks in the field with only one short visit to the office of the implementing organisation, C&S, in Mzuzu since my fist update to gather a few things of appreciation for my host family. I found that time is better spent in the field rather than at an office two hours drive from ‘action’. Furthermore, funerals and fertilizer somewhat disturbed plans. I shall return to this below.

Successful Self-Replication
As off now I have gotten a better understanding of the project which C&S has been carrying out in Kamphenda and the surrounding area, with funding from DanChurchAid (DCA). Something that has caught my attention is the fact that, out of numerous groups found in the area, only a few Village Savings and Loan Groups (VSLA) have been fully trained by C&S staff. The remaining groups are a product of self-replication. C&S is not the first organisation to provide training within the VSLA method in the area, and at the initial mobilization meeting of Kamphenda more than 30 groups had formed. In the light of limited funding only two groups received training in this area. Despite this, numerous groups are now operating, though the aptness of the groups varies somewhat. Nevertheless, it indicates that the demand for VSLAs in this area is high and that self-replication of the methodology is possible. My translator and organisor, Gija works as a volunteer for C&S to provide some training for the VSLA groups and to assist in organising purchase of a box for the money and the individual pass books. The extent to which he is able to assist the groups however is limited in comparison to full training of a VSLA. And many groups are created without the assistance of Gija.

Send Further Training
Despite the apparent success of replication of VSLAs, I have met a recurring plea for more training of the groups I spoke to. The extent to which this is really necessary is hard to determine. The groups seem to work well and are highly appreciated by its members. Perhaps the need arises partly from an expectation that with training follows allowances in the shape of a meal and perhaps coverage of transportation expenses, even though this is actually not common practice, and partly, because the association with a development organisation is believed to be beneficial in terms of visibility of a group. The first must be considered an artificial need of training, whereas the second is more legitimate as exposure can lead to many different benefits. As far as my observations self-replication works and the need for training is more connected to literacy levels and years schooling of group members rather than the mere fact of being an untrained group.

Limitations and Options
What does call for attention is the limited capital of the groups. Since the capital within the VSLAs is only the sum of the members’ own savings and interest rates on loans, the total sum remains limited. One way of accessing larger amounts of loans is to join several groups, which a few members did. One might expect the villagers to take more advantage of this option but possibly the need to also manage several loans puts a limit to its occurrence. Some group-members point to the fact that you need ability to plan well when taking up a loan. Depending on the level of schooling this is challenging and hence poses an obstacle as to join more groups. During the 26 interviews that Gija and I conducted we came across people of this community with severe difficulties in terms of financial managing, and in particular need of training to be able to participate in a VSLA. In all cases, however, the interviewees pronounced a desire to be part of a group as the rumor went that access to a group also means access to money.

To return to the need for a larger capital base, several groups as well as interviewees mentioned the need for links to larger financial institutions. This I find is a particular pressing need, as the group-members seemingly have the ability to develop businesses further as well as manage larger sums of capital, and are mainly hindered by the lack of access to such capital. In terms of delivering these services, however, there seems to be a ‘missing link’ in the area. First, of all the formal banks within reach are not familiar with the demands of the poor, hence, special services may need to be developed to serve this client group. Secondly, the banks that have shown interest in accommodating this, upon request from C&S, require a certain population of interested groups to maintain profitability of such a service. This would be possible because there are many of in the Kamphenda area and beyond. Lastly, further financial training of the groups may be necessary for the members to be able to take up larger loans, not least as these loans are most likely to be taken up by the group, representing collateral, and then distributed to the members. Hence, repayment to the formal institution depends on all members and not just the single loan taker.

Funerals and Fertilizer
The need for large amounts of capital is especially pronounced when it comes to funerals. The social fund of the VSLA, which is intended to cater for instances of death and illness within the closest family of a member, does not even remotely cover the need for capital when it comes to funerals. A number of distant and close family must be feed and housed for at least 3 days, and there is the obvious purchase of a coffin. In the rural areas, however, the whole village and area takes part in the preparations and contributes to financing the funerals either in cash or in kind. Nevertheless, it becomes clear that no family can cover the expenses of a funeral on their own, as all contributors to the funeral are mentioned with gratitude at the actual burial.

What furthermore, makes life difficult in the village is the fact that you must attend all funerals in your area. Due to extended family relations the whole population of an area such as Kamphenda is usually interrelated somehow. Hence, I experienced that my host family had to attend five funerals within only five weeks. First of all, this takes a lot of time away from running your small scale business or working in the field. Secondly, you may have to travel to get to the funeral, which you may be an expense if you cannot reach the place by foot. Also, you are obliged to pay small contributions during the funeral. All in all, there are a lot of expenses and time involved in funerals both for those organising it and for the participants.

For me, doing research, a funeral completely disrupted all plans. It was impossible to get hold of anyone for three days if death had taken place. Furthermore, distribution of subsidized fertilizer was significantly more interesting than a chat with the mzungo (white person). Now, you may think that funerals gets top priority always, but I did understand that the families planning the funerals attempt to accommodate for instance market days, so that the funeral ends in due time for traders to attend the market. But still, reaching the market one hour later than usual may mean a significant cut in your profit. Basically, funerals are one of the largest recurrent expenses for a rural family, an expense that could be catered for by access to larger capital, but which potentially also create problems in terms of repayment of loans. When a loan is spent on non-income generating activities, repayment obviously becomes a challenge. The need to develop solutions to this challenge is apparent as funerals dig into family budgets and hence pose an obstacle to economic improvement. And when funerals are ‘seasonal’, as I was explained by Gija it puts further stress of the family economy during such a ‘season’. ‘You know, when one funeral has taken place you will see the next and the next and so on’, Gija commented to me, ‘It always happens when the rains come’.

And so, I have ended my stay in Kamphenda, a day later than planned, as even my farewell function was postponed – due to funerals.

Savings groups live: “Money can be misused if kept at home. Money can disappear if kept at home”

Stories from the Northern Malawi

Introductory Words

As a guest blogger let me first of all introduce myself.

My name is Anne Sofie Hansen and I am a master student in Business & Development Studies at the Copenhagen Business School, Denmark. I will be supplying this blog with a few accounts on Village Savings & Loans Associations (VSLAs) from the northern part of Malawi during the next month and a half. I will be spending most of my time in the rural area of Kamphenda in Rumphi District, northern Malawi where I am collecting data for my master thesis on VSLAs. My particular interest is the composition of the groups and their membership criteria in relation to outreach of the VSLA method.

The savings and loans groups are an element in a larger program undertaken by a local organisation: Church & Society (C&S) and the program is supported by DanChurchAid, through which I got connected to C&S. C&S is facilitating my stay in the villages I work within, and have provided me with excellent contact persons in the field. Such assistance is essential as my Chitumbuka, the local language of northern Malawi, is rather limited (though improving by the day), and the vast knowledge of the communities my translator possesses is invaluable in getting access to information.

Of my three weeks in Malawi so far, half of the time has been spent in the field. I am hosted by the Nkoswa family a typical rural Malawian family where the family relations of members living under the same roof or at least eating the same Nsima (the pasta of Malawi) extend to cousins, aunties and in this case a child from a disadvantaged family which cannot themselves afford schooling for their son. I have been placed with this family as Mrs. Nkoswe is a member of a VSLA: Chazimya which means quenching fire.

From ROSCA to VSLA

Chazimya is a newly started VSLA of 20 members, but as I met the group at their weekly sharing everything was done by the book. Perhaps this close accordance to procedures is a result of the fact that the group was created on the basis of a 10 member ROSCA (rotating savings and credit association a forerunner to the VSLAs) which had been working for nearly two years. Half of the members have as such been used to the weekly handing over of funds to one member. This is the only instance of ROSCAs I have come across so far. As I later ask my host family I find out that ROSCAs are relatively known in the area. The apparent advantages of the VSLA, however, is explained to me as, first of all, the larger amount of capital in the group, as up to 25 members are involved, as well as the interest paid on loans which adds to the pool of funds.

It is my clear impression that the VSLAs are perceived as a great development to the area and often times the only access to any financial service. The nearest town, Rumphi, which provides banking, is about 52 km away or 2½ hours by bus, if you can afford the ticket. The importance is underlines by a female member of the group. ‘I might refrain from paying to the church, but not to the VSLA’. It should be noted that religion is a matter of what church you belong to, not if you belong to one.

Group meeting in the local school

Accommodating Features

Getting back to my first meeting. Upon arrival at the meeting site for Chazimya, the classroom of the local orphanage, my translator and companion, Gija, are received with singing and dancing arranged for the occasion. In my capacity as a ‘researcher’ and walendo: visitor or stranger, I am placed on a chair alongside Gija, while the rest of the group finds themselves in a circle on the floor. After an opening prayer the session begins with the step by step sharing and payments into the social fund takes place. A new arrival to the group pays what amounts to 45 shares (approximately 12 US$) which is a considerable amount in this context, e.g. nearly 3 return trips to Rumphi. This serves to bring this member up to the same amount of shares as the rest of the group members despite the agreed maximum purchase of 5 shares per meeting. In this way each group finds its own ways of accommodating the needs of its members.

Another local feature and a common way to boost the capital of a VSLA in this area is for all members to, for instance, offer their labor for one day in the field of one member and the salaries collected for the work then goes into the VSLA to boost the pool of capital. Interestingly, an apparent competitive atmosphere arises as share-out approaches and each member do their outmost to buy as many shares as possible. The larger share-out must serve as an incentive.

But Why the Enthusiasm

As the above may have revealed, the amounts that are pooled in the VSLAs are rather infinite in a western context, but not to a rural farmer in the northern Malawi. The essentials that are purchased by the means saved up in the VSLA in Malawi are soap, salt, clothes, fertilizer and sometimes school fees. What makes the difference is a safe place to keep the money. Money can be misused if kept at home. Money can disappear if kept at home. A metal box with 3 locks and three key-holders seems to provide the security needed to progressively save up for larger expenditures.

What further encourages the female members is the slight freedom from the husbands grip on the family fortunes. Through the opportunity to start small scale businesses one their own and to make basic contributions to the family income, some women have expressed a freedom to act on their own without constant consent from the husband. In many cases, however, the husbands are the sponsors of the initial capital to the VSLA. Noted it must be, that most of these groups are made up of women, but in this area many groups do not exclude men. However, there is a certain understanding that too many male members distorts power structures in a group, hence I have mainly come across groups with one or two male members. Finally, some women find men rather unreliable, as expressed here ‘Men are crocks! You get problems from having men in the group’.

These will be my final words of these initial accounts from my field stay in Kamphenda.

Group meeting in the local school

Microfinance and agriculture

Most of the world’s poor are subsistence farmers. So the connection between microfinance an agriculture is of great importance. A friend and former colleague, Bernard Kamanga, has just finished a PhD on soil fertility, which is relevant to microfinance in general and the project I’m involved in Malawi in particular. The story he is telling in hsi PhD goes like this: Compared to their richer colleagues, poor farmers do not weed, they don’t use manure and they don’t use fertilizer. Are they stupid? No. They know the benefits. They are simply to poor. To get enough food immediately for their family, they employ themselves as informal labourers looking after the richer farmer’s fields. Because of this, they miss out on looking after their own fields.
The relation to microfinance is this: If these poor farmers had savings, they might be able to smooth income and ensure their’ families’ livelihoods even in hungry periods. Then they would take better care of their own fields and over time escape the “low productivity trap”, as Bernard calls it.

Watch Bernard’s defense online, live or recorded (follow links on the right).

Cool animation from Kiva

Here is a cool graphic Kiva made, tracking their global loans:

Quote of the day: Microsavings in NYT

Some of you might know Nicholas D. Kristof. Today he agrees with me that microsavings is the future. Not bad:

“Another approach is microsavings, helping poor people save money when banks aren’t interested in them. It’s becoming increasingly clear that the most powerful part of microfinance isn’t microlending but microsavings.

Microsavings programs, organized by CARE and other organizations, work to turn a consumption culture into a savings culture. The programs often keep household savings in the women’s names, to give mothers more say in spending decisions, and I’ve seen them work in Africa, Latin America and Asia. “

Read the entire article.

Successful launch of Danish Forum for Microfinance

Last week we launched the new umbrella organization “Danish Forum for Microfinance”, or DFM. It was a pleasure to see around 150 people coming to attend the launch and there was great enthusiasm on the topic. Notably, some large commercial actors were present, too. Axel de Ville made a very engaging talk and gave us some great advice and good ideas for our future work as an organization and how to ensure that we are relevant to the members. Axel’s experience is very relevant to us as he is chairman of the European Microfinance Platform and director of ADA – a Luxembourgish NGO doing microfinance. As chairman of the board I also got the chance to speak. Here’s my presentation and more info on the event at DFM’s website.

Microsavings

Just two months ago I started writing a PhD. My topic is – surprise – microfinance, but more specifically, microsavings, i.e. the provision of savings services to poorer populations. The Economist recentely wrote on this topic, so apparently, someone else than me is interested. That’s great. The Economist agrees with me that microsavings is overlooked, that it’s important and that it will grow in the future. Even greater. The newspaper writes that “the industry remains dominated by credit”. I’m not too sure about that. At least it depends on who you ask. In 2004, CGAP looked at the world’s MFI’s and found that the world’s poor had just above 100m savings accounts but only around 50m active loans. There are quite some uncertainties in this data and it’s old too. Indeed, there are signs that there is a great demand for savings services (see the box on this page), but not much research seems to have been done on microsavings – at least not compared to the vast amount of research on microcredit. For example, nobody seems to have answered simple questions like why people are savings and what the effect is. Hopefully, I can contribute here just a little bit. Comments and suggestions are more than welcome.