How do savings and loans groups empower people?
Most of us have either heard or read the quote “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”
This quote very much applies to the work that we deliver through our village savings and loans projects. A question we often get asked by people is how do our savings and loans groups empower the poor?
One of the easiest ways to explain this is to understand the impact being a member of a savings group has on an individual.
Susan is a feisty and funny 20-year-old woman in Kampeke, a remote area of the Luweero district. She has two young children, aged 2 and 5, meeting the basic daily needs of her family were a constant struggle. Susan has hairdressing skills which she knew she could use to make some extra income, but she could not afford to start a business to use her skills.
Susan finds it very hard to save any money due to a lack of steady income as well as unexpected demands. She a does not have, nor can afford to have, a bank account, and she has no access to borrowing money. Susan is like the 2.5 billion unbanked people across the planet, with no access to formal financial services. However, this is where our savings and loans projects come in and have an impact.
Step 1: Savings
In December 2015, Susan joined a Village Savings and Loan group (VSLA) set up with support from This Is EPIC. Susan, along with 24 others selected themselves and formed the group. The group was accompanied on a weekly basis by a This Is EPIC trainer who taught them how to set up their group’s function.
Within the group, any member was able to put aside savings on a weekly basis, equivalent to 10 pence each week or as high as 1 pound. The saving process is quite formal: each group has their own special cash box, which has three padlocks, each with a separate key, each held by one of the three key-holders nominated by the group. The rules are strict: the group agrees that the box can only be opened at their weekly group meeting. Everyone’s savings are tracked by allocating them shares which are recorded in the VSLA ledger and their personal passbook.
Step 2: Loans
Members of the group have a methodical way of saving on a regular basis. The weekly pooled savings form a loan fund, from which members can borrow money at a rate of interest they themselves have set.
All a member has to do is state the nature of their loan request and the amount needed and their peers serve as a loan review committee. Collectively they decide whether it is a good idea for their money to be invested in a small enterprise or income generating activity. After giving out loans to multiple members, at the end of a 12-month group cycle, the interest from the loans is then divided up among the group members in proportion to their shares – so the group members get a good rate of return on their savings.
Susan persuaded her group to lend her the money that she needed to start her hairdressing business.
Step 3: The Impact
Susan took out a loan of 300,000 UGX, approx. £60 to buy hairpieces and materials to help develop her hairdressing business. She now uses her living room as her hair saloon. Th income from her hairdressing business has empowered her to pay back the initial loan but also develop a steady and stable income for her family.
Susan told us that this is just the start for her. “In the future I want to use my savings to build a better kitchen for my family. I also want to work hard and increase my hairdressing business with more services to my community. Being in the group has helped my confidence and I want to help others in the future.”