Village Savings and Loans Associations (VSLAs) are thought to play a critical role in bringing financial services to rural areas of developing countries, where access to formal financial services is typically very limited. However, evidence on the impact of these groups has been sparse. In Ghana, Malawi, and Uganda, Innovations for Poverty Action worked with researchers and CARE to rigorously evaluate the impact of VSLAs on rural households. Overall, the promotion of the groups led to an improvement in financial inclusion, household business outcomes, and women’s empowerment. There was also evidence of improved resilience: in villages affected by drought, households experienced improved food security and income. However, researchers did not find evidence of impacts on average consumption or other welfare outcomes. 

Policy Issue 

While financial institutions and digital financial service providers continue to increase the reach of formal financial services, offering such services to the rural poor is costly and a great number of them remain unbanked. Without formal financial services such as credit and savings products it can be difficult for the rural poor to afford major expenses, invest in their farms or businesses, and pay for unexpected events like illnesses or funerals. Traditional community saving methods, such as rotating savings and credit associations (ROSCAs), are popular and provide an opportunity to save, but they have limited flexibility and functionality since this model does not allow savers to earn interest or borrow money. Village Savings and Loan Associations (VSLAs) build on the ROSCA model to create groups of people (often women) who pool their savings to have a source of lending funds: members make savings contributions to the pool and can also borrow from it. VSLAs are thought to play a critical role in bringing access to financial services to rural areas, but there is limited rigorous evidence on their impact. Researchers conducted three evaluations in Ghana, Malawi, and Uganda to evaluate how VSLAs impact rural households’ financial well-being and women’s empowerment.

Context of the Evaluation 

CARE, an international NGO and one of the leading promoters of the VSLA model, served as the main partner for this evaluation. This research took place in rural areas of Ghana, Malawi, and Uganda, where access to formal financial services remains limited in spite of the recent growth of digital financial services; bank account ownership is 40 percent, 18 percent, and 44 percent, respectively. Across all study sites, the average village consisted of around 800 residents and was an approximately three hours’ walk from the closest paved road. Households were composed of about six people on average, with nearly all engaging in agricultural activities and one out of four running businesses, as well. 

In these rural contexts, access to a suite of financial services through VSLAs is thought to help households weather shocks, set aside resources for the lean season, and invest in their farms and other income generating activities. The program’s focus on women and their financial inclusion is also thought to support household empowerment and economic activity. 

Details of the Intervention 

In Ghana, Malawi and Uganda, researchers partnered with CARE and 13 local NGOs to evaluate the impact of VSLAs on households’ usage of financial services, business activity, income, empowerment, consumption, and the ability to cope with unexpected events such as droughts. Researchers randomly assigned around half of the 561 clusters of villages to the treatment group and half to a comparison group. Across the three countries, 15,221 households participated in the study.

In treatment villages, a representative from CARE or one of its partners met with village leaders, conducted promotional activities, and facilitated the formation of VSLAs. Interested participants (mostly women) formed groups of 19 to 30 members, pooling money to create a fund from which members could borrow. With rates determined at the group’s founding, members pay back loans with interest, thus allowing members to also earn a return on their savings. In addition, most VSLAs included a social or solidarity fund managed by the group to help members in need through interest-free loans or cash grants in case of emergency. While the representatives from CARE and its implementing partners supported the formation of new VSLAs, in Malawi and Uganda the program also aimed to train local agents to continue forming new groups beyond the duration and reach of the program.

Between 22 and 30 months after the first VSLA groups were formed in each country, Innovations for Poverty Action conducted endline surveys to evaluate their impact.