How to save money without a bank
May 13, 2015
Given the hand-to-mouth existence of people living in the communities we serve, saving money for larger purchases is challenging. A Village Savings and Loan Association (VSLA) offers a solution as a self-regulated group of 10-30 people who provide financial services to each other. They are especially useful in places where there are no banks.
In Ghana, we plan to use VSLAs to assist in economic empowerment. They give people the opportunity to contribute to a fund that grows and is inaccessible for impulse spending. This allows members’ money to accumulate to a level that will provide them with the chance to invest in business growth or an educational endeavor.
VSLAs are made up of people who come together voluntarily and agree to meet once a week. Each member is required to buy at least one share each week, which typically ranges in price from $1 to $3 per share. This money goes into a savings fund, which is actually a metal lock box that requires at least three members to open. After a few months of contributions, people can borrow from the fund with a service or interest fee and a short-term payback period. After one year, the fund is dissolved equitably among the members. They can then choose to start another year together.
VSLAs are strong ways of building social trust and local leadership. They encourage the idea that the people themselves are the key to solving their own problems, rather than handouts or looking to outsiders for aid. VSLAs encourage people to turn to one another for help and see themselves as capable of financial independence.
Members of each VSLA write a constitution to set the cost of a share, interest rates and all other terms. The constitution provides checks and balances to keep the fund from being raided or overextended.
Just Hope has hired a local Ghanaian and VSLA expert, Joshua Fiagbedzi, to facilitate the establishment of VSLAs with interested groups. Joshua has more than six years of experience in helping groups set up a VSLA. After an initial round of establishments, we foresee Joshua embarking on a “train the trainer” program to expand the use of VSLAs in Ghana.
“Beyond providing financial services, VSLAs can help change the perspective of individuals from hopeless victims to empowered community members, and demonstrate that positive outcomes can be reached when people work together to better manage available resources,” said Peter Mueller, who has been organizing a Just Hope base of operations in Ghana.