Saving has become increasingly crucial in today’s environment due to the rising cost of living and economic pressures.
For those in rural areas, accessing traditional banking services can be both challenging and expensive, primarily due to transportation costs.
In contrast, Village Savings and Loans Associations (VSLAs) offer a more accessible and community-based alternative for managing finances, making them a vital resource for rural Ugandans seeking financial stability and support.
According to a survey conducted in 2022 by the Uganda Bureau of Statistics (UBOS), 87% of Ugandans aged 10 years and above lack a functional bank or savings account. This significant gap in traditional banking underscores the critical need for alternative financial solutions like VSLAs.
A Village Savings and Loans Association (VSLA) is a self-managed savings and credit group that operates without external funding. It is self-capitalised using the Rotating Savings and Credit Association (ROSCA) model, allowing people to pool their savings and borrow from the group. VSLAs have transformed development in marginalised communities by providing members with resources to handle emergencies, build capital, and reshape social dynamics. This supports the genuine self-reliance of the members.
A study by Makerere University on Kasangati Town Council found that Village Savings and Loans Associations (VSLAs) have made several positive economic impacts. These include boosting household incomes, encouraging a culture of saving, and supporting investments in agriculture and other areas. VSLAs also help with household expenses by providing funds for essential items like furniture and electronics.
According to the FinScope Uganda 2023 Survey Findings Report, Village Savings and Loans Associations (VSLAs) are the most prevalent savings and credit mechanisms in local communities, with three out of every ten Ugandans participating in a VSLA. The main reasons for joining these community-based savings and credit groups are the opportunity to receive a lump sum payment and the influence of peer pressure from fellow community members.
Members of Village Savings and Loans Associations (VSLAs) express various reasons for their enjoyment and participation in these groups. “Being part of the VSLA has been a game-changer for me. I appreciate the chance to receive a lump sum payment, which provides a significant financial boost. It also encourages me to save more consistently, and the ability to borrow money when needed offers invaluable support and flexibility.” Doris Nansubuga, VSLA Member in
Anita Nakate, who is actively involved in Village Savings and Loans Associations in Ndejje Lubugumu shares that the VSLA has been a game-changer for his financial stability. He values the lump sum payments he receives, which provide a significant boost. Being part of the group also helps him save more consistently. Plus, the ability to borrow money when he needs it gives him the financial flexibility that makes a big difference in his life.
The FinScope Uganda 2023 Survey Findings Report highlights that around half of community-based savings groups are registered and have a constitution. About 20% of these groups have accounts with formal financial institutions, and nearly 30% use mobile money services. However, less than 10% utilise digital wallets to store their members’ savings.
“On average, Ugandan adults saving with community-based groups contribute Ushs40,103 per month, leading to an estimated annual gross savings of Ushs3.4 trillion from these systems. This accounts for 9% of the total estimated annual savings across all channels. Notably, over 80% of adults in these groups save less than Ushs50,000.” reports the FinScope Uganda 2023 Survey Report
The report further reveals that, on average, members of community-based savings groups borrow Ushs169,807, which is four times the average amount they save with the groups. This borrowing translates into an estimated loan portfolio of Ushs771.9 billion per month and an annual total of Ushs9.3 trillion. Most members save weekly but borrow more frequently on a quarterly basis. The funds borrowed are primarily used for medical expenses and school fees. At the end of each year, members receive a pay-out from the accumulated savings and profits.