Rotatory saving and credit associations

A rotatory savings and credit association is a group of people who agree to meet for a certain period of time in order to save money together. This enables everyone in the group to have access to loans. F.J.A. Bouman described ROSCAs as “the poor man’s bank, where money is not idle for long but changes hands rapidly, satisfying both consumption and production needs.”[1]

rotatory-saving-group-in-Mali

Application across different cultures

Rotatory saving as a mean to access financial loan is widespread in many regions in the world. It is known as tandas in Latin America, partnerhand in West Indies, cundinas in Mexico, ayuuto in Somalia, hagbad in Somaliland, susu in West Africa and the Caribbean, hui in Asia, palawugang in Philippines, Gam’eya in Middle East, kye in (계) South Korea, tanomosiko in (頼母子講) Japan, pandeiros in Brazil, juntas or quiniela in Peru, C.A.R. Țigănesc/Roata in România, and arisan in Indonesia.

The structure of rotatory saving

The meeting sessions for these groups are based on member’s agreement. At the meeting each member contributes some amount and only one member (loan receiver) gathers all the amounts once. It is usually agreed that the loan receiver pays back the original loan plus a very small interest. This helps members have access to larger loans at the future. Since each transaction is seen by all the members and no money is kept, there is high transparency and trust inside such groups.

These groups have two very important features that give the low-income class of a society extra benefit. One, normally due to the unstable economics and inflationary conditions in some societies, purchase power for an accumulated saving is gone or weakened. A rotatory saving group provides loan is relatively shorter time and easier process to the loan applicants. Two, credit associations and banks mostly prevent to serve credit worthy borrowers due to operation costs, regulations or other reasons. Meanwhile in a rotatory saving group the members known as highly creditable.

Usually the members in these groups select each other; this ensures the security and trust among the members. In some countries, Brazil for instance, a third party agent or intermediary hemps forming the group and process the continuous affairs. This is what Care organization is doing in some parts of the world. They provide a simple lockbox, train agents to teach VSLA groups and administrate this ongoing process till the end of each loan cycle.

How Care organization works on international development?

Care has spread standardized Accumulating Saving and Credit Associations (ASCAs) to reach 2 million people in Africa[2]. These standardized ASCAs are called Village Savings and Loan Associations (VSLAs), and they usually comprise 10 to 20 participants who conduct saving and loan activities for a fixed period, usually 12 months. Unlike informal ASCAs, these use a triple-locked box to secure the funds, have standardized election procedures and maintain a careful separation of various duties, such as record-keeping, money-counting, meeting facilitation etc. Interest rates on loans typically vary from 5-10% a month, while cycle-end pay-outs in most groups range from 30-60% of invested capital[3].

As of the end of June 2012 development agencies (including CARE, Oxfam, CRS and PLAN) were carrying out projects reaching 1.8 million members in 23 countries, mostly in Africa. The Savings Group Information Exchange, a project of the Bill and Melinda Gates Foundation, provides researchers with an on-line database where indicators like savings and loans per member, country, return on assets and percentage of female members can be compared.

References:

1. F.J.A. Bouman, Indigenous savings & credit societies in the developing world in Von Pischke, Adams & Donald (eds.) Rural Financial Markets in the Developing World World Bank, Washington, 1983
2. William J. Grant & Hugh Allen. CARE’s Mata Matsu Dubara (Women on the Move) Program in Niger. Journal of Microfinance, Brigham Young School of Business, Provo, Utah, Fall, 2002.
3. Hugh Allen and Mark Staehle. Village Savings and Loan Associations (VSLAs) Programme Guide, Field Operations Manual. VSL Associates, Solingen, 2007.

What is Village Saving and Loan Association program ?

vsla members
Micro loans that change lives

What is VSLA?

Village Saving and Loan Association is small groups of people who save their money together and by turn make use of these saving as a loan. As this activity goes on, saving become more accumulated hence members can earn more profit. In comparison with conventional financial services, VSLA provides a relatively simpler procedure for loan applicants.

Informal ways of saving among groups has been going on for years in numerous parts of the world. VSLA provides a clearer way of loan payment. This is a flexible method which can easily be implemented in rural regions to empower the local people.

There is usually a committee member team which is elected every year by the members. The committee members have clear roles but not limited. This is to make sure everyone plays a role in the whole system.

Every group has around 15 to 25 members which voluntarily choose to be in the group. Every week the group members meet and they decide to purchase a share in order to save.  The share price is determined by the group.

flexible saving scheme

Since the saving is flexible across the members, the system is very simple but is strong. The members do not have to save as much as each other. This allows the members with lower income to save more frequently though smaller.


VSLA


All savings are accumulated in form of loan which members can borrow later. Each member can borrow as much as three times their individual savings. Loans are for a maximum period of 90 days in the first year and loans may be repaid in flexible instalments at a monthly service charge which is determined by the group.

social loan

Social loan is a new service that provides members with a basic form of insurance. This loan functions as a community safety and may serve is special occasions – such as emergency assistance – for the entire community which includes members and non-members. Social fund is not aimed to grow, but is set a level which covers basic needs.


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The VSLA group does not use a complex accounting system. To record the individual saving and loan liabilities of the members, VSLA passbooks are used. This is appropriate for members with limited literacy. The Lock box contains the material, passbooks, loan funds and social funds which is safeguarded by the group box-keeper between meeting.

Swissjumprope as an athletic campaign, seeks to support women. Through the VSLA program which has been started by Care organization since 1991, you can read more about VSLA  or start donating online through Care’s international secretariat in Geneva, Switzerland .

References:

http://www.vsla.net/aboutus/vslmodel