Evaluating Village Savings and Loan Associations in Ghana
What type of people participate in Village Savings & Loan Programs (VSLAs)? What impact do these programs have on households and communities?
Although during the last decades microfinance institutions have provided millions of people access to financial services, provision of access in rural areas remains a major challenge. It is costly for microfinance organizations to reach the rural poor, and as a consequence the great majority of them lack any access to formal financial services. Traditional community methods of saving, such as the rotating savings and credit associations called ROSCAs, can provide an opportunity to save, but they do not allow savers to earn interest on their deposits as a formal account would. In addition, ROSCAs do not provide a means for borrowing at will because though each member makes a regular deposit to the common fund, only one lottery-selected member is able to keep the proceeds from each meeting.
Village Savings and Loan Associations (VSLAs) attempt to overcome the difficulties of offering credit to the rural poor by building on a ROSCA model to create groups of people who can pool their savings in order to have a source of lending funds. Members make savings contributions to the pool, and can also borrow from it. As a self-sustainable and self-replicating mechanism, VSLAs have the potential to bring access to more remote areas, but the impact of these groups on access to credit, savings and assets, income, food security, consumption education, and empowerment is not yet known. Moreover, it is not known whether VSLAs will be dominated by wealthier community members, simply shifting the ways in which people borrow rather than providing financial access to new populations.
The Northern region of Ghana is one of the least developed parts of the country. The majority of its residents make their living in agriculture. Services including mail delivery, telephone, and medical clinics are very limited in this sparsely populated part of Ghana.
In Ghana, researchers are working to measure the dynamics of self-selection with VSLAs. This study is conducted with 180 communities selected by our partner, CARE, after being identified as villages in which VSLA programs could be initiated. Ninety villages were randomly selected to receive the VSLA intervention, and the remaining 90 villages are used for comparison. For those villages randomly assigned to receive the intervention, a CARE representative will enter the village to meet with residents and begin to form VSLAs there. Interested participants form groups of 15 to 30 community members, pooling their capital to create a fund from which members can borrow. Members pay back loans with interest, and savings also earn interest, with the rates determined by the group at its founding. The CARE representatives initiate the formation of new VSLAs, but the eventual goal of the intervention is to provide the community with the capacity to make these groups self-sustaining by providing training on initiation and administration of new VSLAs.
Three years after full implementation, a follow up survey will allow researchers to understand who chooses to participate in VSLAs in Ghana, as well as how their lives may be affected as a result.