Friday, February 3, 2012

A Savings and Loan Association

I attended a meeting last week of a self-help group in Muhokya sub-county, approximately 20 kms from Kasese town. Its formal name is Muhokya Abalema Tweyambe Group and it is organized on the model of a Village Savings and Loan Association (VSLA).

The purpose of VSLAs is to financially help the poor in the developing world. However, a VSLA does not receive any external capital to give as credit to its members like a typical micro credit institution which gives out credits. A VSLA, on the other hand, begins by emphasizing and getting groups members to save first. Their group savings go into a common fund out of which loans are advanced to members based on the criteria agreed by the group.

The Muhokya group was organized by the Kasese District Union of Persons with Disabilities (KADUPEDI) in October last year. Its membership includes both, persons with disabilities (PWDs) and able-bodied individuals. Of its 28 members, 14 are PWDs (8 men and 6 women) and the other 14 are able-bodied.

The group received some seed funding from external sources in order to get organized and group members received training from Mirambo Barnabas, an experienced facilitator of VSLAs whom I have known for two years. He has facilitated establishment of several VSLA groups and he attends group meetings to help them with unexpected issues and to guide them in the right direction. However, all decisions are made by the group which has an elected chairperson and treasurer. The group meets at 3:00pm in the afternoon of every Thursday, but, it being the cotton-picking season, these days attendance is not always full. Yesterday, there were 25 members in attendance.

Financial management of the group is simple. Each member contributes a minimum of 1,000 Uganda shillings each week in the savings fund. Those who can afford to contribute more may do so, but, to ensure that no member dominates the group, there is a limit of 5,000 shillings per week per member. Each thousand shillings is equivalent to a share. There is a group record book in which all transactions are recorded by the treasurer and there is also an individual record book for each member in which their savings and loans are recorded and verified by the treasurer with a rubber stamp.

As for the loans, the group reviews each request and decides on which request to accept. The two main criteria are: how well has the member served the group and what is purpose for which the loan is requested. Most of the loans are advanced for starting a new business or expanding an existing business or for investing in farming. At the end of each month, if a member earns enough income, he/she may pay back the loan. If not, they pay an interest of 10%, the rate that has been agreed to by the group. So far, 13 loans totaling approximately 260,000 shillings have been advanced.

Perhaps the most fascinating aspect of the groups’ financial management is their system of banking. Instead of depositing funds in a commercial bank, they store all their funds in a small steel box. The box has three locks and three different individuals keep the key for each lock. So, one member cannot open the box by her/himself. And, the box is always opened at a meeting in presence of everyone. At yesterday’s meeting, after opening the box, the treasurer tallied the funds in the box with the record book and sorted out a couple of minor discrepancies.

After a few other formal matters including the election of a new chairperson, the meeting adjourned around 4 p.m.

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