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Savings at the Frontier

Millions of people across rural and peri-urban areas in sub-saharan Africa use savings groups and other informal savings mechanisms (ISMs) as financial services delivery channels. Village Savings and Loans Association (VSLA) is a fast-growing savings group methodology.

VSLAs are self-managed groups which provide savings, loans, and insurance products to members only. Each group is made up of 15—35 members who meet weekly and save through the purchase of shares. The share-price is decided by members of a group at the beginning of a 10 to 12 months-cycle and remains fixed for that entire cycle. Members are required to purchase between 1-5 shares at every meeting. Their savings are maintained in a loan fund.

Group members are allowed to borrow up to three times their individual savings from the loan fund. Loans are repayable in flexible installments at an interest rate determined my members within a maximum period of 4 months. Groups distribute share-contributions and gained interests on their contributions among themselves at the end of a cycle.

The loan fund and social fund are kept in a lock-box which is safe-guarded by an elected box-keeper. Laws governing VSLA operations are strictly enforced by members.

The following are identified as key challenges in VSLAs operations:

  • Risk of armed robbery- there are reported cases of stolen lock-boxes with monies by armed robbers.
  • Disappearance of box-keepers with lock-boxes.
  • Some members conspire to steal monies from the lock-box.
  • Access to limited financial services particularly for long-term project financing.

Despite these challenges, VSLAs are resistant to save with formal financial institutions due to the following reasons:

  • Long distance between communities and formal financial institutions.
  • Bureaucracy in the formal financial system.
  • Delays in accessing funds from formal financial institutions.
  • High transactional cost in operating with formal financial institutions.
  • Illiteracy- lack of understanding of the operations of formal financial institutions.

Formal financial institutions are also resistant to deal with the VSLAs due to the following:

  • High transactional cost in operating with VSLAs.
  • Cash suppression by field officers.
  • Motor accident and possible armed robbery.
  • High level of illiteracy among members making it difficult to appreciate formal banking culture.

SatF in collaboration with Interpay, will expand the range of financial services available for the underserved rural and peri-urban populations in Ghana through migration and digitization onto a platform called Maximus.

Maximus is a new universal mobile money-based group funding and savings platform built by Interpay which interacts with all mobile money platforms operating in the country. Interpay will provide partner FSPs with the technology and support needed to migrate existing and new VSLAs onto Maximus.

The digitization will increase profitability and give engaging VSLAs in rural and peri-urban communities access to loans. It will eliminate risks of theft and ensure VSLA members pay back loans which will ensure longevity of savings groups. Savings at the Frontier helps VSLAs gain access to financial products and services that best meet their everyday needs.

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