Building Social Capital, in IGA Friday, November 7, 2014 ......Building Social Capital, linkages...
Transcript of Building Social Capital, in IGA Friday, November 7, 2014 ......Building Social Capital, linkages...
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Building Social Capital,
linkages with MFI and engaging
in IGA
Friday, November 7, 2014
Experience of CARE Ethiopia
VSLA
By
Anwar Ahmed
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Background :
VSLA Model developed in Niger in 1991
CARE Started VSLAs as pilot in 2004 in two regions of
Ethiopia
Amhara - Lay Gaint
Oromia – West and East Harrargie zones
Scaled up in to regions:
6 Regions (Oromia, Addis Ababa, DD, Amhara, Afar,
SNNP, Tigray)
As of April, 2014 CARE is able to organize 9,000
VSLAs with 172,000 members
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What are VSLAs?
Saving and lending Associations organized at village level
Self-selected, self-managed and independent
Mobilise and manage their resources –savings
Provide interest/service charge-bearing loans
Offer financial insurance- social fund
Flexible saving mechanism
Member’s share savings plus profit proportion to their
savings
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Who are target groups?:
Poor rural people - FHH,
landless, pastoralist
Urban area -HIV affected,
OVCs
Vulnerable people- depleted
savings/coping mechanisms
Mostly illiterate
Handout/welfare support -
PSNP
Poor infrastructure /social
services
No access to the formal
financial services
VSLA
VSLA members: Oromia, E/Hararghe
Grawa woreda PSNP households
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The methodology
The poor are constrained by Financial services preventing them from
Engaging into economic opportunities,
Enhancing their productive asset base
Demand flexible financial products and delivery systems
Do saving, repay loans and pay premium for insurance services,
Given they accessed convenient, and secured services in their own context
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Design…
Community managed and savings-based financial system is
More accessible
and efficient (at lower cost)
Basic business literacy training and mentoring will have Significant impact on participant’s capacity to
improve the income derived from small business
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How does this model work?
Awareness creation
Self selected 10-20 members
Both women and men
Receive training in:
Group formation
Group governance
Conflict resolution
Saving and loan management
Record Keeping
Election of committee members
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Cont’d
Formulation of Internal
regulation
Cash box (two locks)
Cashier does not hold key
but two other members
Simple keeping - passbooks
(mainly memory based)
Graduate 9-12 months from
field officers support
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Methodology Characteristics
Flexibility – groups decide norms, implementers simply facilitate
Transparency – transactions done openly
Reliability – community members can mobilize and train new groups
Sustainability –continuation without external assistance
Adaptability – has worked across different groups and cultures
Efficiency – low transaction cost and low information asymmetry
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Products Features
Savings
100%
Regular (minimum) contribution
Double/triple amount of the agreed upon sum
Household loan
18%
Asset creation
Education/health care
Consumption (food, clothes etc)
Life cycle events (maternity, wedding, funerals etc)
Business loan
82%
Start/expand IGAs
Group IGAs
Insurance\ social
support
55%
loan (interest free)/grant
Emergency- illness, death, property loss
Life cycle events (weddings, funerals)
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Impacts
Assets Protection/Building
Prevented distress sale and financial
vulnerability
Prevented girls from risky activities
(commercial sex, school dropout )
84% created new assets
(shoats, heifers, cow , ox, chicken,
new house…)
Asset diversification (%ge of their
members)
cash saving only 15.7%
2 types of assets 52%
3 and more types of asset 32.3%
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Impacts
Livelihoods Diversification:
Foster income diversification.
87% engaged in IGAs
25% started IGA first time
More than 96% reported improvement in their business skills.
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Impacts…
Empowerment:
Increased self esteem and confidence
Women financial independence
Improved Intra HH gender relations
Enhanced women leadership role
In mixed groups 80% of leadership held by
women
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Impacts…
Social cohesion and support network strengthened.
Foster self-reliance, mutual solidarity and responsibility.
Improve negotiation skills and conflict resolution.
Encourage cross learning (HIV & AIDS,FP, resource management, business skill, market information).
Members, particularly women participation in other development initiatives increased.
Entry point for other interventions.
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Success Factors
Built on the traditional CBOs (e.g Idder, Iqqub)
Simple and transparent system
No or limited external interference
Self managed and controlled
Use own resource - reducing liabilities, financial
insecurities
Responsive – Immediate access to services (loan, social
funds…)
Suitable for illiterate people
Creates strong and cohesive groups that can be a
springboard to other development initiatives
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Challenges
Skepticism from the ‘elites’ at initial stage
(how can poor people living on food aid can save?)
Limited loan funds to satisfy all members.
Lack of recognition from regulatory bodies such as
Central Bank of Ethiopia
Lack of linkages to the formal financial sector to
satisfy their loan needs
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Challenges
High self replication-unmanageable size for
facilitators and Village Agents (+ve).
Seen as competitors instead of
complementarities by few actors
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Key Lessons learnt
While VSLA members have been
trained in basic business skill,
They are encouraged to involve in
value chain enterprises.
After they successfully completed the
training,
They demand more money
And linkage to the formal financial
market is critical
Risk taking capacity increased
Cattle and shot fattening, poultry etc
Establish market linkage with the
private sector
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Action steps
The lessons learnt show that once VSLAs members acquire
knowledge, skill and develop confidence,
They need more capital beyond internal sources of finance
Get involved in more rewarding business
Progress out of food insecurity and government support
However, the existing regulatory framework does not allow VSLAs as a
group to access loans from the formal financial market( MFIs, Banks) as
they are informal groups
CARE has conducted a research and come up with
Harmonious business model that
Can take care of the concerns of regulatory bodies
Establish business r/n b/n VSLs and Financial providers
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Harmonious Linkage Model
MFI
Coop. VSLA
VSLA, RUSACCO and MFIs are complementary to
each other
Considerations •Regulations
•Address issues of
SACCOs
•Leverage strengths of
VSLAs
Regulatory
environment
Harmonious Linkage model
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VSLA committee VSLA committee VSLA committee
RUSACCO committees
VSLAs as Mgmt units of SACCO akin to branches of MFI
Structure
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Cont…
Committee members are vital link
Facilitate information exchange: VSLA RuSACCO
VSLAs act as management units for RuSACCO (like
branches of MFI). Enable:
Better governance
Better management
Better planning and controls
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Thank You
Galatooma
Ameseginalehu