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 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 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 Poor people are more interested in loans than they are in savings These loans have to be provided by regulated formal institutions These loans have to be provided by regulated formal institutions

1 Household basic needs (food, clothing, medical) 82% 2Emergency (burial, medical)70% 3Education35% 4Business19% 5Inheritance12% Why Ugandans save

1 Household basic needs (food, clothing, medical) 61% 2Emergency (burial, medical)32% 3Education19% 4Business15% 5Pay off debts9% Why Ugandans borrow

Preference - Where Ugandans save

Preference - Where Ugandans Borrow

What is a VSLA VSLAs: VSLAs: are informal groups that invest in a fund from which members can borroware informal groups that invest in a fund from which members can borrow are owned and managed by their members on a voluntary basisare owned and managed by their members on a voluntary basis are autonomous: they do not depend on external linkagesare autonomous: they do not depend on external linkages provide very high returns on investment to their member ownersprovide very high returns on investment to their member owners retain all of their capital and profits in their communitiesretain 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 How does a VSLA Work – Current products and features Savings: Savings: Regular, frequent contributionsRegular, frequent contributions Varying, voluntary savings or share purchase. May allow withdrawal on demandVarying, voluntary savings or share purchase. May allow withdrawal on demand Loans: Loans: Regular opportunities to borrow (usually a multiple of savings)Regular opportunities to borrow (usually a multiple of savings) Loan criteria, loan term and interest rate set by groupLoan criteria, loan term and interest rate set by group Flexible repaymentsFlexible repayments Insurance/Social fund Insurance/Social fund Eligibility criteria and benefits set by groupEligibility criteria and benefits set by group Benefits in the form of grants or loansBenefits in the form of grants or loans

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

How does a VSLA Work– the Kit How does a VSLA Work – the Kit A large, well- made, 3- lock cash- box is a must!

How does a VSLA Work 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/ Training and 3-Stage Supervision/ Follow-up Phase Graduation/ Action Audit Graduation/ Action Audit

VSLA Survival 90% + long-term (5 years) 90% + long-term (5 years) VSLAs have a tendency to self- replicate VSLAs have a tendency to self- replicate

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

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

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

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