I’m feeling pretty speechless after a week in Sierra Leone. We have seen and done so much – including assessing a potential conservation livelihoods project in the Gola rainforest, and visiting two financial inclusion projects being expertly implemented by CAFOD/Caritas and Restless Development. There is too much to talk about so I’m just going to pick savings groups for now and come back to cocoa farms, hornbills and Freetown’s informal settlements another day.
Savings groups (know as VSLAs – village savings and loans associations) were a thread that ran through all of our project visits during the week. Of the VSLAs we saw, some of these were women-only and others were mixed men and women.
VSLA groups are self organised and structured with a chair-lady (or chairman), treasurer, secretary and other leadership roles.
They offer ‘informal’ financial services as opposed to ‘formal’ (being the likes of banks, mobile money operators or micro finance institutions).
How VSLAs work
Every VSLA we visited operated slightly differently depending on the needs of the group so I’ll use a women-only group that CAFOD are working with as an example.
- A group of 25 women hold a weekly meeting on Wednesday mornings sitting in a big circle with the chair lady leading the meeting.
- Every member contributes a minimum of 1000 leones (approximately 10 US cents or $0.1) to the social fund. The social fund can be used for emergency needs of the community – for example repairs to the school or fixing the well or clearing drains before the rainy season.
- Every member must contribute between 1000–5000 leones ($o.1 – $0.5) towards the separate savings fund as well.
- If a member of the group wishes to take out a loan, they may do so providing the other members approve – for example if they need to pay for school fees or buy school uniforms for their kids. They may loan up to three times the amount they have contributed.
- The loan interest is an annual 10%.
- The cash contributions are all held in a metal cash box that is looked-after by one of the senior members of the group.
- All of the payment and loan records are documented by the treasurer.
- Loan interest is rolled over into the next year or alternatively used for community needs at the end of the year.
It’s a model that has worked for many generations and is very successful. However, there are ways to save more and access larger loan facilities through community banks and micro finance institutions. Formal financial services give women the potential to start their own micro businesses, save better and access things like insurance products. They are also more secure than having cash kept in a box.
However, there are challenges with formal finance that our in-country partners are addressing through the projects funded by JOA:
- Financial services providers don’t always understand what the communities need or can afford and therefore don’t offer accessible products and services to people.
- General literacy and financial literacy is low, however the VSLA structure offers a way for people to understand about savings and loans before going down the formal services route.
- Banks and financial institutions are not well trusted and often seen as expensive (which in some cases is very true).
- Often there isn’t the infrastructure available locally. Without a mobile tower or a mobile phone then mobile money is useless. Similarly, without a banking agent on your doorstep you’re less inclined to want to use the bank’s services.
- You need identification to open a bank account. This is being worked on by the government but there is still a way to go and not everyone has ID.
The people in these groups are an inspiration. VSLAs are incredibly well-led and well-organised, respectful, and hugely empowering for women. And they really do work.
So you might ask, why change from the informal VSLA system to formal financial services? There are a number of reasons, but the one that sticks with me the most is this: if people don’t get on board with formal financial services soon then they will get left even further behind and the divide between rich and poor, educated and uneducated, those with food and those without, will undoubtedly keep increasing.