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Community-managed Micro-finance Institutions (CMMFIs)

Community-managed Micro-finance Institutions (CMMFIs). How they work and perform. 4 commonly accepted myths. Poor people want to start businesses to get out of poverty Poor people don‘t have enough money to save, so they need loans (to start ‘productive‘ businesses)

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Community-managed Micro-finance Institutions (CMMFIs)

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  1. Community-managed Micro-finance Institutions (CMMFIs) How they work and perform

  2. 4 commonly accepted myths • Poor people want to start businesses to get out of poverty • Poor people don‘t have enough money to save, so they need loans (to start ‘productive‘ businesses) • Poor people are more interested in loans than they are in savings • These loans have to be provided by regulated formal institutions

  3. Why Ugandans save

  4. Why Ugandans borrow

  5. Preference - Where Ugandans save

  6. Preference - Where Ugandans Borrow

  7. What is a VSLA • VSLAs: • are informal groups that invest in a fund from which members can borrow • are owned and managed by their members on a voluntary basis • are autonomous: they do not depend on external linkages • provide very high returns on investment to their member owners • retain all of their capital and profits in their communities

  8. Results to date for CMMF (non SHG)

  9. How does a VSLA Work– Current products and features • Savings: • Regular, frequent contributions • Varying, voluntary savings or share purchase. May allow withdrawal on demand • Loans: • Regular opportunities to borrow (usually a multiple of savings) • Loan criteria, loan term and interest rate set by group • Flexible repayments • Insurance/Social fund • Eligibility criteria and benefits set by group • Benefits in the form of grants or loans

  10. How does a VSLA Work– Group norms • Group size range: 7 - 30, averaging 22 • Membership: Self-selected, open to both men and women • Meeting frequency: Chosen by group. Weekly, fortnightly, monthly • Attendance: Obligatory, but flexible • Leadership structure: Democratic. Committee (usually 5 members) elected annually. • Record-keeping: Based on passbooks and cash balance records only • Time to full self-management: 9-12 months

  11. How does a VSLA Work– the Kit A large, well-made, 3-lock cash-box is a must!

  12. How does a VSLA Work– The oral/visual tradition

  13. How does a VSLA Work –Starting Balances

  14. How does a VSLA Work –Share Savings

  15. How does a VSLA Work –Loans

  16. VSL:The Delivery System • Training and 3-Stage Supervision/ Follow-up Phase • Graduation/ Action Audit

  17. VSLA Survival • 90% + long-term (5 years) • VSLAs have a tendency to self-replicate

  18. Trends in VSL • Use of fee-for-service community-based trainers (sustainability strategy) • Very large scale national programmes • Technology

  19. Burning issues in VSL • Linkage to banks • Regulation • Federation • Keeping it simple (that’s really hard)

  20. Upside of VSLAs • Works in rural areas and is sustainable • Safe • Flexible • Simple and transparent • Accessible • Frequent opportunities to save • Regular opportunities to borrow • Incremental debt, proportionate to capacity • Savings (asset) based, not credit (debt)

  21. Downside of VSLAs • Limited size • Limited capital base (non-SHGs) • Limited range of products • May require annual distribution of assets to maintain transparency and safety • When not distributing assets annually , CMMFIs tend to have long-term dependency on external support

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