VSL groups give money lenders the boot

Written by Krystle Praestiin, ADRA Malawi Intern

Money Lenders- those two words can stir up very different thoughts for different people. When you combine money lenders and the poor, depending on the organisation, there is little confidence that they are there in the best interest of their clients. This is largely due to various terms and conditions like high interest rates that see the poorer clients giving more than they receive. However, often borrowing money from money lenders is the only option for people to invest in starting or running small businesses.

Enter Village Savings and Loans Associations (VSLAs). ADRA Malawi has been facilitating the formation of Village Savings and Loans (VSL) groups and training these groups to learn the concept of saving and loaning. In brief group members come up with their own rules to govern the group’s function such as the interest rate for loans and the maximum amount of shares a member can buy at each meeting. The act of buying shares and using that pool of money to give out loans provides its members with an alternative option for accessing loans. The best part of this is that interest on loans is paid back into the group’s savings box and this money is shared at the end of the year among its members according to each members share value. This means that each member gains rather than loses money in the process of borrowing.

The Village of Chilungulo has two thriving VSL groups with 25 members in each group. Since the establishment of these groups money lenders have had a very difficult time getting people to apply for loans. Before the VSL groups they received applications for loans at a total of 80,000MKW (USD$480). The last time they visited Chilungulo village they only managed a total of 19,000MKW (USD$114) and this was even after throwing in free fertiliser and three months interest free. 

The reason for this lack of interest in loans from money lenders is that people now have a better alternative. They see the value in VSL groups because they are encouraged to save and they receive good returns for their investments. VSL groups have allowed members of the Chilungulo VSL groups to pay for their children’s school fees, start small businesses and make improvements to their houses (e.g. iron sheets and pit latrines). VSL groups are contributing greatly to the development of communities and improvements in people’s lives.