Our approach to Village Savings and Loan Associations

Learn about our global work to build tea farmers and workers’ economic resilience through community lending and savings schemes.

What are Village Savings and Loan Associations?

Village Savings and Loan Associations (VSLAs) are informal self-managed groups of 15-25 people that provide their members with basic and practical financial experience. In 2016, The Ethical Tea Partnership (ETP) began to use this model – originally developed by CARE International – for tea farmers and plantation workers in Malawi, and soon after also Kenya and Rwanda.

When a VSLA is established, members put individual savings together in a joint fund. At any one time, a few group members will borrow money from it at an agreed rate of interest (typically 20-30%). Over time, the groups’ profits grow as loan repayments are made. After 6-12 months, the accumulated savings are distributed back to the members in proportion to the total savings each person puts in (savings can be added throughout the savings cycle). After the ‘share-out,’ the group can then start a new savings cycle.

ETP found that on average, VSLA members take out loans amounting to USD 38. We also found that average share-out amounts range from USD 30-64 per person, whilst inputted savings range between USD 12-30 per person. 

This means that throughout a savings cycle, savings increase between 2-2.5 times.

A VSLA group will appoint three leaders from among its members (a Secretary, Chairperson, and Treasurer) and they are trained by ETP to fulfil their role correctly. In addition, each VSLA will also receive external support from a Village Agent or lead farmer. ETP established a network of 60 Village Agents during the Malawi Tea 2020 programme. They ensure that the groups adhere to the core VSLA principles, facilitate proceedings, and will also help to resolve any disputes that may arise. They have also helped ETP with collating monitoring, evaluation and learning (MEL) data. Village Agents receive a small fee for their service.

Alongside ETP delivers additional training for the VSLAs on the following topics

  • Record-keeping training to the groups’ Secretaries: to strengthen the performance of the group and minimise irregularities. One more person from the group is trained as ‘back-up’, in case the Secretary is indisposed.
  • Entrepreneurship/business idea generation training: to provide further support to members that show a keen interest in developing side-businesses.
  • Pilot gender training: a few members of a few VSLAs have also received this training (developed as a small-scale pilot in some of ETP’s VSLA programmes). It aims to address gender inequality and cultural norms that act as barriers to the advancement of women.

It should also be noted that VSLAs provide a solid platform or entry point for other interventions or skills transfers. The groups meet frequently and because the VSLAs provide the members with economic muscle, this means that participants are better set up to invest in other aspects that improve quality of life. In summary, although the above trainings are organised to enhance the functioning of the VSLAs, the VSLA structure in itself can also act as the foundation for other messaging and action.

Impacts of VSLAs

VSLAs allow participants to access loans and save money – and achieve a good financial return. It also helps to create a savings culture, and this mindset change is a crucial first step towards the development of sound financial management skills. Two-thirds of the 512 respondents who took part in ETP’s 2020 VSLA evaluation survey stated that they did not have savings before joining the VSLA group, and 73% said that at present, the VSLA is their only savings mechanism.

Access to credit is valued by both workers and farmers, given that most are unable to access formal financial services. ETP found in its evaluation that members mainly use the loans and savings to cover food and other basic household expenses (e.g. house repairs, children’s school fees, healthcare bills). In addition, money is invested in side-businesses and/or the tea farm. A significant proportion of respondents also used dividends to purchase household assets:

  • 91% now have iron sheets on their roofs vs. 41% before VSLA participation.
  • 74% of respondents now own a cell phone vs. 33% before VSLA participation.

Group members tend to foster strong relationships, which can help strengthen community cohesion and resilience – not least because members contribute to a Social Fund from which money can be withdrawn in time of acute need. Participants say that since they joined a VSLA, they experience a better quality of life, referring to emotional well-being and increased food security. The impacts of Covid, such as market disruptions and higher food prices, have made life even harder for tea workers and farmers. However, VSLA members have anecdotally told ETP that they would have been worse off if it wasn’t for the VSLAs.

VSLAs contribution to gender empowerment

ETP has also found that 

the VSLA programme has empowered female participants through increased agency, confidence, and decision-making power.

In our survey, we found that more than 70% of female participants said they were now very involved in household decision-making regarding income generating activities and the use of savings. This figure had stood at just over 20% before joining a VSLA. VSLAs can dramatically raise the self-respect and social status of individual members. Partly because they improve people’s financial literacy skills, VSLAs can also be seen as a first step for people to reach a more formal and wider array of financial services.