Microfinance Practice: RE: [MFP] Microfinance's position

Thanks so much Hugh!

And a strong "yes" to your view that VSLAs need to manage account opening and relations with the bank alone. Correct, and so for them to manage this well on their own, my other concern is whether they are being adequately equipped to manage this. Also, are there suitable MFIs that can meet the needs of these clients well? Organic linkages managed by groups themselves require the presence of a range of options to select from as well as adequate financial education. I think voluntary linkages is what we used to encourage back in early 2000 and I remember that the last VSLA module focused on updating groups about various services they may need individually or as groups, where they are offered and how to access them. There is need to build on this.

I supported phase one of the Grad project as well as the second phase focusing on VESAs - glad to learn you support the approach. I am not sure though how the legal demands of needing to register VSLAs has progressed just as is demanded in Rwanda which I am not convinced should happen at the VSLA level but higher representative network mandate.

I am happy to reconnect. Let me know if you hear of any consulting or full time opportunities.

Sophie

Sent from Samsung Mobile

-------- Original message --------
From: Hugh Allen <hugh@vsla.net>
Date: 19/09/2014 10:47 (GMT+02:00)
To: 'Sophie Chitedze' <sophiechitedze@yahoo.com>,MicrofinancePractice@yahoogroups.com
Cc: jong-hyon.shin@fundacioncapital.org,richard@ole.org,william.maddocks@unh.edu,frances@smallplanet.org,PaulRippeyPDX@gmail.com,kylaneilan@gmail.com
Subject: RE: [MFP] Microfinance's position - Greed is good!

Here are the numbers Sophie (as of 2300 last night while I was waiting for the results of the Scottish referendum).

One thing I disagree about is the idea that 'innovative linkages with formal MFIs are needed'. I am not arguing against linkages as such and certainly believe that opening a group savings account is a very good idea, but I think that such next steps should be something that VSLAs do for themselves, if they feel the need. The whole point of a VSLA is that it is powerfully transformative of the people who are members, such that after a couple of years they start to consider for themselves what other services they might like and start to look for them as individuals.

I used to be of the view that if a VSLA was linked to a bank for credit there were ways of doing this, most of which needed careful management. But I'm now of the view that most credit linkage activities are inherently risky and most VSLA members are better off just becoming MFI members, while retaining their membership in VSLAs. I've just come back from Ethiopia doing an evaluation of the financial services component of the USAID-funded GRAD project and implemented by a CARE-led consortium. What CARE has done here is to form VSLAs (which they call VESAs) and at the same time, using loan guarantees, introduced MFIs to the individual members in these VESAs who then take loans. The beauty of this arrangement is that the VESA is just a channel and doesn't take on a guarantee role, thereby putting member savings at risk. Most of these VESAs have opened bank accounts. But the majority of the savings mobilised by the VESAs stays with the VESAs, if only because the returns offered by VESAs are better. A VESA having a savings facility with an MFI or bank to mop up excess liquidity is a very good idea, but I think that de-linking the VESA from any liability for external loans, while facilitating access is a great idea and eliminates all sorts of distortions and complicated internal administrative procedures. It helped that these loans were disbursed through VESAs and VESA meetings were where the once-a-year repayment was made. So for the MFIs it was a good deal because they had low delivery costs and could meet the borrowers at one time in one place. It was great for the VESAs because they became seen as key facilitators of external access. Having a one-time annual reimbursement in line with rural cash flows (mostly after crop or livestock sales, and linked to selected value chains also helped.

Hugh

From: Sophie Chitedze [mailto:sophiechitedze@yahoo.com]
Sent: 19 September 2014 10:26
To: MicrofinancePractice@yahoogroups.com
Cc: jong-hyon.shin@fundacioncapital.org; richard@ole.org; william.maddocks@unh.edu; frances@smallplanet.org; hugh@vsla.net; PaulRippeyPDX@gmail.com; kylaneilan@gmail.com
Subject: Re: [MFP] Microfinance's position - Greed is good!

Thank you Jeff!

Honestly and in line with your recommendation, what is needed is to empower savings groups thoroughly from the start so that they are able to improve their economic, social as well as political well being. They need to know their client rights and hold service providers accountable - even refuse to be exploited. So are we doing enough as capacity builders to enable them know their client rights and act in an organized manner? With the large scale currently achieved and still going on, is it time to think of the next steps for VSLAs? I believe it is beyond proof that innovative linkages with formal MFIs are needed. Only those linkages should happen in a way that addresses needs on both the client and supplier side. If adequate training is the key to protecting clients, how about in conflict and unstable communities where communities can be displaced any time? How can we design programs to ensure that people's savings are protected from the start? An informal micro finance sector may continue being at risk of exploitation if there are no innovative measures for curbing the risk that is staring at us right now. We have a challenge to facilitate sustainable solutions that address these clients' needs and demands.

Jeff, do you have Hugh's report on current VSLA numbers to share with me? Thanks for the links to your book too!

Hey Hugh, greetings!

Sophie

On Friday, September 19, 2014 2:02 AM, "jaashe@aol.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com> wrote:

Sophiechitedze,

Thank you for your report back from Malawi. You are correct. Savings groups are springing up in a great number of Malawian villages, there are 554,706 savings group members according to the latest statistics collected by Hugh Allen and VSLA Associates. There are over a million savings group members in Kenya, Tanzania and Uganda and 772 thousand in Mali with many other countries with more than 200 thousand savings group members. Savings group outreach has outpaced microfinance in many countries in terms of numbers served which is at it should be since microfinance is better adapted to urban areas and the entrepreneurial poor where it often provides a valuable service. The priority for most of Africa (and much of the rest of the world) is a safe convenient place to save and easy access to small loans which to quote from from "In Their Own Hands: How Savings Groups are Revolutionizing Development" is "as convenient as meeting under a tree in a village and as flexible as the rules members design for themselves." Savings group membership worldwide has grown from 1 million to 10 million in just seven years probably a speed record for the expansion of any development initiative.

With that said you raise two questions in your posting that I would like to address. The first is the treasurer running off with the group fund just before it is to be divided among the members. I am sure there must be examples of this but I can't say that I have ever heard of this happening. If this is the case I believe the response is better training not regulation or incorporating members into the formal financial sector (with this no guarantee as banks have often failed in developing countries) As for the sustainability of these groups, according to a study carried out by Hugh Allen after four years 89% of the groups are still saving and lending, as on average the assets of groups have doubled, 85% of the group fund is on loan and upon dividing the group fund members received back $1.38 for each dollar they saved. But then there is the 11% of the groups that disbanded - a subject for further study. Of the cases I have heard it is often because there is conflict within the group with the two factions forming their own groups and sometimes there is opposition from community and religious leaders.

The other problem you mention - the groups being targeting by unscrupulous MFIs - is a more immediate threat. Paul Rippey carried out a study of savings groups in Niger where taking a loan from an MFI was correlated with groups shrinking in membership while those that did not take out these loans grew in membership. The process which I have observed in Guatemala (and heard about for Niger from Paul) is distressingly similar. The MFI hires away staff from the NGOs that trained the groups and building on the trust the NGO staff has with the groups pays them substantially more to convince the group to take out a high interest MFI loan. The proper relationship with banks and MFIs is that members of groups take out loans from MFIs individually without putting the group at risk and also use banks for long term savings, insurance and as a place to store the excess cash a group has accumulated. CARE is promoting this kind of relationship with banks in Africa and it often occurs spontaneously.

I would be interested in hearing from others on reading this posting of examples of group leaders running off with the group's fund and if so what has been done to deal with this issue. It must happen. As the is said in Indonesia "were there is sugar there are ants."

Check out www.intheirownhands.com for a preview of the first two chapters of "In Their Own Hands" that tells the story of what we are calling the "savings group revolution." Also check out savings-revolution.org for a comprehensive posting on everything related to savings groups.

Thank you for your interest,

Jeff

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Posted by: sophiechitedze <sophiechitedze@yahoo.com>

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