Building Social Capital, in IGA Friday, November 7, 2014 ......Building Social Capital, linkages...

Building Social Capital,

linkages with MFI and engaging

in IGA

Friday, November 7, 2014

Experience of CARE Ethiopia

VSLA

By

Anwar Ahmed

(AnwarA@care.org.et)

Background :

VSLA Model developed in Niger in 1991

CARE Started VSLAs as pilot in 2004 in two regions of

Ethiopia

Amhara - Lay Gaint

Oromia – West and East Harrargie zones

Scaled up in to regions:

6 Regions (Oromia, Addis Ababa, DD, Amhara, Afar,

SNNP, Tigray)

As of April, 2014 CARE is able to organize 9,000

VSLAs with 172,000 members

What are VSLAs?

Saving and lending Associations organized at village level

Self-selected, self-managed and independent

Mobilise and manage their resources –savings

Provide interest/service charge-bearing loans

Offer financial insurance- social fund

Flexible saving mechanism

Member’s share savings plus profit proportion to their

savings

Who are target groups?:

Poor rural people - FHH,

landless, pastoralist

Urban area -HIV affected,

OVCs

Vulnerable people- depleted

savings/coping mechanisms

Mostly illiterate

Handout/welfare support -

PSNP

Poor infrastructure /social

services

No access to the formal

financial services

VSLA

VSLA members: Oromia, E/Hararghe

Grawa woreda PSNP households

The methodology

The poor are constrained by Financial services preventing them from

Engaging into economic opportunities,

Enhancing their productive asset base

Demand flexible financial products and delivery systems

Do saving, repay loans and pay premium for insurance services,

Given they accessed convenient, and secured services in their own context

Design…

Community managed and savings-based financial system is

More accessible

and efficient (at lower cost)

Basic business literacy training and mentoring will have Significant impact on participant’s capacity to

improve the income derived from small business

How does this model work?

Awareness creation

Self selected 10-20 members

Both women and men

Receive training in:

Group formation

Group governance

Conflict resolution

Saving and loan management

Record Keeping

Election of committee members

Cont’d

Formulation of Internal

regulation

Cash box (two locks)

Cashier does not hold key

but two other members

Simple keeping - passbooks

(mainly memory based)

Graduate 9-12 months from

field officers support

Methodology Characteristics

Flexibility – groups decide norms, implementers simply facilitate

Transparency – transactions done openly

Reliability – community members can mobilize and train new groups

Sustainability –continuation without external assistance

Adaptability – has worked across different groups and cultures

Efficiency – low transaction cost and low information asymmetry

Products Features

Savings

100%

Regular (minimum) contribution

Double/triple amount of the agreed upon sum

Household loan

18%

Asset creation

Education/health care

Consumption (food, clothes etc)

Life cycle events (maternity, wedding, funerals etc)

Business loan

82%

Start/expand IGAs

Group IGAs

Insurance\ social

support

55%

loan (interest free)/grant

Emergency- illness, death, property loss

Life cycle events (weddings, funerals)

Impacts

Assets Protection/Building

Prevented distress sale and financial

vulnerability

Prevented girls from risky activities

(commercial sex, school dropout )

84% created new assets

(shoats, heifers, cow , ox, chicken,

new house…)

Asset diversification (%ge of their

members)

cash saving only 15.7%

2 types of assets 52%

3 and more types of asset 32.3%

Impacts

Livelihoods Diversification:

Foster income diversification.

87% engaged in IGAs

25% started IGA first time

More than 96% reported improvement in their business skills.

Impacts…

Empowerment:

Increased self esteem and confidence

Women financial independence

Improved Intra HH gender relations

Enhanced women leadership role

In mixed groups 80% of leadership held by

women

Impacts…

Social cohesion and support network strengthened.

Foster self-reliance, mutual solidarity and responsibility.

Improve negotiation skills and conflict resolution.

Encourage cross learning (HIV & AIDS,FP, resource management, business skill, market information).

Members, particularly women participation in other development initiatives increased.

Entry point for other interventions.

Success Factors

Built on the traditional CBOs (e.g Idder, Iqqub)

Simple and transparent system

No or limited external interference

Self managed and controlled

Use own resource - reducing liabilities, financial

insecurities

Responsive – Immediate access to services (loan, social

funds…)

Suitable for illiterate people

Creates strong and cohesive groups that can be a

springboard to other development initiatives

Challenges

Skepticism from the ‘elites’ at initial stage

(how can poor people living on food aid can save?)

Limited loan funds to satisfy all members.

Lack of recognition from regulatory bodies such as

Central Bank of Ethiopia

Lack of linkages to the formal financial sector to

satisfy their loan needs

Challenges

High self replication-unmanageable size for

facilitators and Village Agents (+ve).

Seen as competitors instead of

complementarities by few actors

Key Lessons learnt

While VSLA members have been

trained in basic business skill,

They are encouraged to involve in

value chain enterprises.

After they successfully completed the

training,

They demand more money

And linkage to the formal financial

market is critical

Risk taking capacity increased

Cattle and shot fattening, poultry etc

Establish market linkage with the

private sector

Action steps

The lessons learnt show that once VSLAs members acquire

knowledge, skill and develop confidence,

They need more capital beyond internal sources of finance

Get involved in more rewarding business

Progress out of food insecurity and government support

However, the existing regulatory framework does not allow VSLAs as a

group to access loans from the formal financial market( MFIs, Banks) as

they are informal groups

CARE has conducted a research and come up with

Harmonious business model that

Can take care of the concerns of regulatory bodies

Establish business r/n b/n VSLs and Financial providers

Harmonious Linkage Model

MFI

Coop. VSLA

VSLA, RUSACCO and MFIs are complementary to

each other

Considerations •Regulations

•Address issues of

SACCOs

•Leverage strengths of

VSLAs

Regulatory

environment

Harmonious Linkage model

VSLA committee VSLA committee VSLA committee

RUSACCO committees

VSLAs as Mgmt units of SACCO akin to branches of MFI

Structure

Cont…

Committee members are vital link

Facilitate information exchange: VSLA RuSACCO

VSLAs act as management units for RuSACCO (like

branches of MFI). Enable:

Better governance

Better management

Better planning and controls

Thank You

Galatooma

Ameseginalehu