A savings group meets in Uganda. Photo courtesy of Mercy Corps
Access to financial services is crucial for households to meet their basic needs. Financial services help families anticipate, adapt to, and recover from shocks in a manner that protects their livelihoods, reduces their vulnerability to further shocks, and sparks economic growth.
Village savings and loan associations (VSLAs) play a critical role in bringing financial services to rural areas where access to them is generally limited. In particular, they provide simple savings and loan facilities to a community that does not have easy access to formal financial services.
A VSLA is a group of people who save money together and take out small loans from those savings. The group’s activities run in one-year cycles, after which the accumulated savings and loan profits are distributed back to members.
The BRACED programme managed by Mercy Corps in Karamoja, northeastern Uganda, is helping communities embrace VSLAs and find alternative sources of income.
It encourages VSLA members to invest in climate-smart production and alternative income activities like trade to increase their capacity to cope with long-term climate shocks and stresses.
Participants are shifting away from loans to finance day-to-day needs like food, to loans to invest in resilience.
For example, a recent assessment found that investment in activities like small trade was members’ biggest loan expenditure, with an average of 100,000 Ugandan shillings ($28) spent per borrower.
In contrast, the second biggest expenditure was investment in education, averaging 20,000 shillings ($5.60) per borrower.
Living in Mogoth parish, Mariam Ongole‘s family is vulnerable to recurring drought and erratic rainfall. She struggles to earn a reliable income, but is hopeful things will change.
After attending a training conducted by Mercy Corps on savings and investments, she and 20 women formed a savings group. With her loan, she has set up a business selling beers and soft drinks, and uses that income to provide basic needs pay her children’s school fees and for loan repayment.
Mariam’s husband does not give her any money or food, so she is left to fend for the family. So far, she has saved 60,000 shillings ($17) and accessed loans to expand her business.
She also bought 10 goats, which she keeps at her brother-in-law’s home – her husband would sell them if she kept them at home, she says.
‘‘I am a mother of six and was forced to drop out of school and get married very young, so my family would receive dowry,” she explained.
“For several years, I have been struggling to buy food by burning and selling charcoal. But now through the VSLAs we know our rights and our group leaders cannot take advantage of us. And now I have a small business,” she added.