Microfinance Handbook for Smallholder Farmers in South Africa Nqe Dlamini

MICROFINANCE HANDBOOK FOR SMALLHOLDER FARMERS IN

SOUTH AFRICA. February 2023

Written by Nqe Dlamini and Erna Kruger

With support from the Water Research Commission, in partial fulfilment of

Deliverable 3 for Project number C2022/2023-00746.

Contents!

Foreword................................................................................................................................................3

Acknowledgements................................................................................................................................3

List of Abbreviations..............................................................................................................................4

Executive Summary...............................................................................................................................5

1.Background....................................................................................................................................5

1.1.Community-based microfinance services...................................................................................6

1.1.1.Burial societies.....................................................................................................................10

1.1.2.Stokvels................................................................................................................................10

1.1.3.Savings and credit groups.....................................................................................................10

1.1.4.Investment groups................................................................................................................11

1.1.5.Multi-function groups..........................................................................................................11

1.2.Provision methodologies of community-based microfinance services.....................................11

1.2.1.Microfinance NGOs.............................................................................................................11

1.2.2.ROSCAs...............................................................................................................................14

1.2.3.ASCAs................................................................................................................................. 14

1.2.4.VSLAs..................................................................................................................................15

1.3.Making connections.................................................................................................................16

1.3.1.International best practice....................................................................................................17

1.3.2.South African practice..........................................................................................................18

2.Study Aims and Objectives..........................................................................................................20

2.1.Research methodology.............................................................................................................20

2.2.Sampling..................................................................................................................................22

2.3.Data generation methods..........................................................................................................23

2.4.Data analysis............................................................................................................................23

2.5.Results and analysis.................................................................................................................24

2.6.Financial Services in the Villages............................................................................................27

2.7.Discussion................................................................................................................................30

2.7.1.Introduction of themes.........................................................................................................32

2.7.2.Discussion of theme 1: social intelligence competency.......................................................33

2.7.3.Discussion of theme 2: cultural competency........................................................................44

2.7.4.Discussion of theme 3: collaborative learning competency.................................................49

2.8.Key lessons...............................................................................................................................57

2.9.Microfinance options available for smallholder farmers..........................................................60

3.Governance and Operation of VSLAs..........................................................................................63

3.1.Users of VSLAs.......................................................................................................................63

3.2.Institutional, governance and management structure...............................................................64

3.3.Beneficiation protocols............................................................................................................65

3.4.VSLA operations......................................................................................................................65

3.5.Monitoring and evaluation.......................................................................................................67

3.6.Limitations of the study............................................................................................................67

3.7.Conclusions and future considerations.....................................................................................67

4.Good Practice and Success Factors..............................................................................................68

4.1.Adaptation................................................................................................................................68

4.2.Taking smallholder farmer-operated VSLAs to the next level.................................................69

4.3.Implications for external supporters and donors......................................................................69

References............................................................................................................................................70

Annexure 1: Data Collection Instrument: Questionnaire.....................................................................75

Annexure 2: Data Collection: Focus Group Discussion Schedule.......................................................80

Annexure 3: Contents of a VSLA Constitution and Rules...................................................................84

Annexure 4: Example of Group and Individual Savings Books...........................................................91

Annexure 5: Training Outlines for Setting up VSLAs.........................................................................95

Annexure 6: Record Keeper Training Outline.....................................................................................96

Foreword

This handbook is meant for those individuals and organisations who are interested to understand how

microfinance works for the rural poor in practise. The handbook provides short descriptions and

analysis of services available to the poor and provides comment on best practise in these options.

It also provides a recent study on microfinance options for focus groups in 7 villages across KZN and

Limpopo. In addition, guidance is provided in the implementation of village savings and loan

associations (VSLAs) for those interested in implementation of such processes.

This handbook is the culmination of around 10 years’ worth of implementation and is being published

as one of a series of handbooks and case studies within a Water Research Commission study and

dissemination process entitled “Dissemination and scaling of a decision support framework for CCA

for smallholder farmers in SouthAfrica” (Project number:C2022/2023-00746). As per project cycle

requirements, this handbook in part fulfils the requirements for the deliverable entitled “Handbook on

scenarios and options for successful smallholder financial services within the South Africa”.

Acknowledgements

This research study would not have been possible without the financial support of the Water Research

Commission (WRC) and the dedicated field team employed by Mahlathini Development Foundation

for being there during data collection. The participating smallholder farmers are also gratefully

acknowledged.

List of Abbreviations

ASCA

Accumulating Savings and Credit Associations

CARE

Cooperative for Assistance and Relief Everywhere

CbCCA

Community-based Climate Change Adaptation

CBDA

Co-operatives Banks Development Agency

CRA

Climate Resilient Agriculture

CRS

Catholic Relief Services

DALRRD

Department of Agriculture, Land Reform and Rural Development

FGD

Focus Group Discussion

HCD

Human-Centred Design

Informal Economy

ILO

International Labour Organisation

MFI

Micro-financial Institution

NGO

Non-Governmental Organisation

ROCSA

Rotating Savings and Credit Associations

SCG

Savings and Credit Group

SACCO

Savings and Credit Co-operative

SEF

Small Enterprise Foundation

SMME

Small Micro and Medium Enterprise

VSLA

Village Savings and Loans Association

WIEGO

Women in Informal Employment: Globalising and Organizing

WRC

Water Research Commission

Executive Summary

In this qualitativestudy we examined microfinance options which are available for smallholder farmers

participating in the Community-based Climate Change Adaptation (CbCCA) programme and to draw

lessons for broader applications. Microfinance is the provision of financial services such as savings,

loans and insurance to people who are too poor to qualify for financial services from formal financial

institutions (Wrenn, 2007). We explored experiences of members participating in Village Savings and

Loans Associations (VSLAs) in the villages whereMahlathini Development Foundation implements

community based climate change adaptation. Human-Centred Design (HCD) was used in the study to

examinedifferent group-based financial services, identify challenges and dissect microfinance options

that savings groups present to smallholder farmers. Data was generated through in-depth interviews

followed by seven focus group discussions in selected rural communities in KwaZulu Natal and

Limpopo provinces.

The study found that group-based savings provide opportunities for integrating VSLAs into smallholder

farming and the rural enterprise development agenda.This is because VSLAs provide an alternative

and structured system for providing accountable and transparentfinancial services that is backed by

decades of practice and has a good track record for the attainment of tangible livelihood outcomes.

However, this study concludes that further research is still required to use the wealth of experiences of

group-based savingsin designing additional responsive financial services for smallholder farmers.

1.Background

The financial services landscape in developing countries such as South Africa is a complex one. There

are formal and informal financial services offered by different institutions or entities to different income

levels. Generally, underserved populations are serviced primarily by community-based informal

financial institutions, unregulated money lenders and non-governmental organisations (NGOs). South

African government have a basket of financial servicesavailable to qualifying smallholder farmers.

These financial services are provided mainly by the Department of Agriculture, Land Reform and Rural

Development (DALRRD), Development Bank of South Africa (DBSA), Land Bank and Small

Enterprise Finance Agency (SEFA).Our interest in VSLAs was triggered by the unsung role of these

groups in generating financial and entrepreneurship education and practice that is fit-for-purpose despite

the brutal economic realities of the poor.

Financial inclusion aims to contribute to long-term sustainable human development impacts. Given the

uncertainties faced by smallholder farmers participating in climate change adaptation programmes,

adaptive planning approaches hold promise to connect planning, implementation and evaluation of

community-based informal financial institutions operated by smallholder farmers within this process.

Therefore, in this study we set out to examine microfinance options which are available for smallholder

farmers participating in the Community-based Climate Change Adaptation (CbCCA) and to draw

lessons for broader applications. The study aimed to understand practices happening in VSLAs and

similar community-based informalfinancial institutions for the purposes of suggesting best practise

options in microfinance for smallholder farmers in South Africa.

There are two broad categories of community-based informal microfinance institutions. These

categories are Rotating Savings and Credit Associations (ROSCAs) and Accumulating Savings and

Credit Associations (ASCAs). Members of a ROSCA contribute an equal amount of money on a regular

basis, typically on a monthly basis. In each meeting,a different member picks up the pre-determined

lump sum. This practice continues until every member of a group has received his or her payout.

ROCSAs are also known as “merry-go-rounds”. ASCAs use members’ regular savings to build a group

fund that is used to provideshort-term micro-loans to the members of the group. At the endof a savings

cycle, which is usually a year; the group dissolves and distributes group funds proportionally to the

deposits of individual members. Community-based financial services and institutions are discussed later

in this report.

The main problem is that many development programmes that seek to improve incomes of vulnerable

households and their livelihoods are struggling to mainstream the microfinance aspects of their

interventions, especially for rural low-income earners. Worse, smallholder farmers remain with the

stigma of low productivity. The South African smallholder farmer support programmes fail smallholder

farmers on multiple levels, but mostly on access to financial services, information, education,

technology and markets.

Microfinance institutionsare not widely promoted and used for broad-based SMME development

objectives and appear to be marginalised. Besides short-term project based funding sourced mainly by

NGOs, there is no evidence of support provided by the South African government. This means that the

practice and wealth of experience of community-based informal financial institutions such as the

VSLAs is devalued, and as a consequence, learning opportunities that promise to improve and facilitate

broader financial inclusion objectives are missed.

The inspiration of this study is drawnmainly from the role these groups play specifically in the rural

development space in South Africa. This research study argues that VSLAs can help smallholder

farmers with some financial services which support financing of their operations and meaningful

interaction with local markets. Such groups have proved helpful to millions of under-banked households

in developing countries worldwide, allowing them to save and borrow money outside the formal

banking system(CARE, 2017; FAO, 2016; Alkire et al., 2013).

1.1.Community-based microfinance services

The role and the importance of community-based financial institutions such as VSLAs and Stokvels in

national economies across the globe have been recorded by many development institutions and

researchers in the field of community economic development(Entz et al., 2016; Custers, 2016;

Dallimore, 2013; Allen, 2018). However, the interest of this section is to describe the relationship that

these institutions have with the informal economy (IE). Drawing from the International Labour

Organisation (ILO) (2002), Women in Informal Employment: Globalising and Organizing (WIEGO)

provides the most practical description of the informal economy. WIEGO sees informal economy as

constituted largely by unincorporated small enterprises that may also be unregistered, however, the

informal economy is not just the bottom of the pyramid but it is the broad base of the economy (WIEGO,

in IIED, 2016).

According to Clause 3 of the 2002 Resolution of the ILO on Decent Work and the Informal Economy

(IE), informal economy refers to:

“... all economic activities by workers and economic units that are – in law or in practice –

not covered or insufficiently covered by formal arrangements. Their activities are not

included in the law, which means that they are operating outside the formal reach of the law;

or they are not covered in practice, which means that – although they are operating within

the formal reach of the law, the law is not applied or not enforced; or the law discourages

compliance because it is inappropriate, burdensome, or imposes excessive costs” (ILO,

2002).

Box 1: Definition of informal economy

Community-based financial institutions remain a lifeline for many poor and vulnerable households

which are essentially marginalised and excluded. Based on this lifeline narrative, these groups are

purported as safety nets which mitigate the negative consequences of spatial dislocation of rural

settlement to urban centres. Common bonds, be it occupational or geographical (community) are known

for binding members of these groups together (CBDA, 2016). The significance of common bonds is

that it determines the level of participation and discipline as well as mitigating risks stemming from

group dynamics.

These groups are specifically known for cushioning vulnerable households against food insecurity,

constrained access to productive land, lack of collateraland low levels of potential profit. The ugly

consequence of spatial dislocation is that it imposes higher transactional costs on rural households when

compared to their urban counterparts. Each month, millions of South Africans meet in their respective

groups to save and to grant micro-loans that borrowers then use primarily for consumption smoothing,

but also to manage their informal businesses.

Figure 1showing providers of microfinance services, adapted from Ledgerwood (2013)

As shown in figure 1 above, today the term microfinance describes a basket of financial services which

include micro-loans, micro-savings and micro-insurance designed to serve not only microenterprises

but the unbanked and under-banked populations (Collinset al., 2009). However, Kirsten and van Zyl

(1998) point out that access to insurance is almost non-existent for smallholder farmers as it is either

unaffordable and/or insurance providers do not have appetite to service small premium payers. Outside

of the formal financial sector, community-based financial institutions have been operating for decades.

The 1990s were characterised by rapid growth of microfinance financial institutions providing a basket

Providers of

microfinance

services

Regulated

financial

institutions

Community-

based informal

financial

institutions

Development

Financial Institutions

(DFIs)

South African DFIs, e.g.

iThala Bank, DBSA, Land

Bank, SEFA

Commercial banks

and insurers

Micro-finance

Institutions (MFIs)

•Financial co-ops

•Micro-loan providers

•SACCOs

•Microfinance NGOs

Individual

providers

Indigenous

groups

Facilitated

groups

•Money lenders

•Shop owners

•Families

•Friends

•Burial societies

•Stokvels (ROCSAs &

ASCAs)

VSLAs

South African banks, e.g.

FNB, Nedbank, etc.

Financial

intermediaries

•Agents

•Franchises

•Retailers

of services to the poor (Ryne, 2014). Description of community-based financial institutions and mainly

ROCSAs, ASCAs, traditional stokvels and VSLAs are discussed later in the report.

Rutherford (2000) echoes that poor people use community-based financial institutions as livelihood

strategies for savingmoney for life-cycle events such aschildbirth, burials, traditional ceremonies,

marriages, construction of dwellings; and to mitigate disruptive shocks that risk depleting the financial

resource base of vulnerable households. Similarly, Storchi (2018) and Ngcobo (2018) confirm the

positive impact of these groups with regards to betterment of dwellings and income generating

initiatives.

Internationally, VSLAs are praised for contributing immensely to informal economy and to livelihoods

of the poor and vulnerable populations(Delany & Storchi, 2012; Högman, 2009; Hulme, 2009).

The significance for adopting the concept of the informal economy as described by ILO (2002) is that

the “economic units” referred to in the description above include social enterprises, social and solidarity

institutions such as cooperatives, member organisations, and other informal entities providing products

and/or services. Community-based financial institutions fit squarely into this description of economic

units.

The South African experience demonstrates a strong bond between the informal economy and informal

financial services. The continued growth of theseinformal financial institutions demonstrates its

popularity amongst low-income earners (FinMark Trust, 2020). FinScope 2019 survey shows that

informal savings have grown from 18% in 2018 to 24% in 2019 despite high levels of financial inclusion

interventions by the South African banks (ibid). In addition, Lukhele (2018) the President of the

National StokvelAssociation of South Africa (NASASA) confirmed that there are over 11 million

members in over 800 000 Stokvels circulating over R49 Billion per annum in the South African

economy. NASASA is a self-regulatory organisation that represents the interest of Stokvels aslegislated

by the South African Reserve Bank.

Financial Advisory and Intermediary Services Act (FAIS), Act Number 37 of 2002 requires that all

financial institutions register in order to provide financial services and Section 7(1) in particular

requires all advisors to be fully compliant in order to render financial services to the members of the

public. However, Section 7(1) and Section 44(4) of FAIS Act exempt community-based informal

financial institutions, and specifically, stokvels or savings groups and burial societies from licensing

to be able to render financial services to, or on behalf of its members in respect of its members

(Government Gazette Number 36316 of 2 April 2013, and Financial Services Board (FSB) Notice

Number 43 of 2013). Again, the Government Gazette Number 35368 of 25 May 2012, and

subsequently Government Gazette Number 37903 of 15 August 2014 of the South African Reserve

Bank, confirms that activities of Stokvels and Savings Groups do not fall within the meaning of "the

business of a bank" as pronounced in the Bank Act number 94 of 1990.

Box 2:Exemption of community-based informal financial institutions by South African legislation

Community-based informal financial institutions thrive through meaningful participation of creators of

the groups. Dlamini (2016) draws on Arnstein’s (1969) and Freire’s (1970) description of participation

– where members should have total control and continuously core-create usable knowledge during

participation. This is very important for the study because it recognises that participation is learning and

transformative.

In South Africa, community-based informal microfinance institutions take many formssuch as burial

societies, year-end grocery stokvels, savings and credit groups, rotational groups, investment groups

and multi-function groups. These groups either take ROCSA or ASCA methodology depending on the

goal of each individual group. The purpose of this section is to describe the most used community-

based microfinance service vehicles in South Africa.

1.1.1.Burial societies

Burial societies are group-based micro-insurance funeral providers based on the notion that neighbours,

friends, family members and relatives will experience the tragedy of death. A burial society is a local

institution and usually composed of people who know each other very well and who agree to build a

social relief fund that is used to support a bereaved family. A burial society is established by a

constitution which regulates its governance and operation. A constitution specifies rules of

participation, premium amount and benefits policies. In the event of death, benefits are paid to the

member’s family to cover some funeral costs, in some cases, all funeral costs (Dube,2016). Despite

high risk of simultaneous claims that may substantially reduce individual payments, or worse,deplete

the group’s fund, burial societies remain the most common micro-insurance service found in rural

communities.

1.1.2.Stokvels

Product-specific groups like year-end grocery stokvels are known for consumption smoothing.

Members of the group contributea fixed amount of money towards purchasing of specific consumer

goods and products at the end of each savings cycle. Besides bulk buying of groceries, it is now common

to find groups that are established to buy specific consumer products such as blankets, furniture,

appliances, house building material, etc. Looked at differently, the aim of such groups has nothing to

do with investments, but has to do with accumulation of household assets and lowering costs of buying

consumer goods.

1.1.3.Savings and credit groups

Savings and credit groups provide financial servicesto members and non-members of the groups.

Members of these groups contribute either fixedor varying amounts of money into a common pool

which is used to give short-term credit to members and non-members of the group. In some cases, these

groups are referred to as borrowing stokvels and are known for charging high interest rates especially

to non-members. At the end of the saving cycle, members receive back their contributions with interest

earned from providing loans. There are three basic approaches that are used to divide and share interest

in this category. Firstly, interest is divided equally only where members have contributed equal

investments. Secondly, where investment amounts differ, interest is distributed proportional to the

individual’s investment. Lastly, whether members have made equal or varying investments, the interest

generated becomes the property of the borrower. This means that members who do not take out loans

during they cycle are given back their investments without interest.

1.1.4.Investment groups

Investment groups are becoming very common amongst the working population and in particular, the

black middle class. Members pool their regular contribution to meet a specific investment purpose, for

example, to earn high interest from financial institutions or to undertake business ventures. Basically,

investment groups are established purely for investment goal that is decided by each individual group

at its establishment.

1.1.5.Multi-function groups

Multi-function groups usually emerge from strengthened social bonds and sustained operation of any

type of a group. For instance, a savings and credit group may include a funeral insurance, bulk buying

service and any other financial service in support of the founding goal.

In summary, user-operated financial institutions provide at least three financial services. Firstly, they

mobilise regular micro-savings that they use to build jointly owned loan funds or capital. Secondly,

they thenuse loan funds to provide micro-loans to borrowers, who in many instances are either creators

of a group or trusted borrowers in the village. Lastly, they dissolve group funds in order to pay lump

sums proportionally to shares owned by each creator of thegroup.

1.2.Provision methodologies of community-based microfinance services

The purpose of this section is to describe three main methodologies that are used to provide community-

based financial services in South Africa.

1.2.1.Microfinance NGOs

Microfinance NGOs, popularly known as Non-Governmental Organisation Microfinance Institutions

(NGO MFIs) are not-for-profit financial institutions. Examples of microfinance NGOs in South Africa

that provide micro-loans are Small Enterprise Foundation (SEF), Marang Financial Services and

Women’s Development Businesses Group (WDB). There are other South African microfinance NGOs

such as SaveAct that promote VSLA methodology. International microfinance NGOs include

Cooperative for Assistance and Relief Everywhere (CARE) International, Opportunity International,

ACCION International, World Vision International, Catholic Relief Services (CRS), Save the Children,

Freedom from Hunger and Oxfam. The significance of microfinance NGOs is that they have extensive

experience in terms of structuring financial services and reaching excluded populations.

Funding for microfinance NGOs come from different sources and mainly from international donors and

in some cases, central governments. However, they are not supervised by the central banks, but are

governed by boards that are regulated by country laws (Ledgerwood, 2013). A key feature of

microfinance NGOs is their ability to generate interest from loans that they re-invest and use to finance

their operational costs and to extend their reach. Generally, microfinance NGOs use solidarity groups

to grant business loans.

The pioneer of the solidarity group model is the Grameen Bank. A solidarity group model is when

members of a savings group guarantee a loan granted to a borrower by an external lender (microfinance

NGO). In other words, the legal obligation to repay the loan becomes the responsibility of the group. In

the event that a borrower defaults on a loan, group members must settle the loan as no further loans will

be extended to the group members without settling the group loan. In this way, savings groups are used

as collateral security.

Methodological approaches and services offered by South African microfinance NGOs are summarised

below.

Small Enterprise Foundation (SEF)

Founded in 1992 and headquartered in Tzaneen in Limpopo, SEF operates in seven provinces in South

Africa. SEF provides small microenterprise loans, mainly to rural women (www.sef.co.za). By the end

of 2022, the average loan size was just over R4 300 from over 175000 active borrowers. Most funded

microenterprisesare in the trading space which includes fruit and vegetable vendors, second-hand

clothing hawkers, dressmakers and convenience shops. SEF uses the Grameen Bank solidarity group

model as collateral to loans. SEF does not provide savings groups; however, applicants formicro-loans

are required to build a group fund by operating a SA Post Office savings account where they put their

regular savings.

Phakamani Foundation

Phakamani Foundation is microfinance NGO that provides small loans to rural women to start and

operate microenterprise operations. Phakamani Foundation operates mainly in Mpumalanga, Limpopo

and KwaZulu Natal. It uses the solidarity group approach where six women undergo selection and

training before they could access a business loan (www.phakamanifoundation.org).

Marang Financial Services

The collapse of the Get-Ahead Foundation and Rural Finance Facility in 2000 saw the establishment of

Marang Financial Services. Marang Financial Services took over the infrastructure, clients and the staff

from Get-Ahead Foundation and Rural FinanceFacility. With over 23 branches, Marang Financial

Services operates in Eastern Cape, Gauteng, KwaZulu Natal, Limpopo and Mpumalanga. It also

employs the Grameen Bank solidarity group model to grant microenterprise loans of up to R10 000 to

borrowers who do not have the required collateral required by formal banks.

Women’s Development Businesses Group (WDB)

Women’s Development Businesses Group (WDB) was established in 1991 and operates in the Eastern

Cape, KwaZulu Natal, Limpopo and Mpumalanga. The core businessof WDB is provision of

microcredit to rural women in order to improve their livelihoods through economic empowerment.

There are two main categories of borrowers. WDB offers basic financial skills and credit management

training for entry-level income microenterprises. Borrowers in the category qualify for loans of between

R300 to R4 000. The second category is made up of entrepreneurs who receive more substantive

business skills training and who are assigned business mentors. This category receives loans of between

R5 000 to R10000.

Common features of microfinance NGOs

The purpose of this section to discuss the most common features of microfinance and criticism levelled

against them by some dissenting voices. The following are common features of microfinance NGOs.

•Microfinance NGOsare largely registered as not-for-profit companies or trusts. They have no

shareholder capital which makes it difficult to finance growth through commercial loans.

•They are caught between social welfare andeconomic development objectives. Many microfinance

NGOs target rural women with the aim of helping them to claw their way out of poverty.

•They use donor funds to provide loans and to finance their operations. Although they may provide

financial education and some technical development support, their principal product is credit.

•They do not provide savings products; however, they do promote group savings accounts with a

reputable bank.

•They use the Grameen Bank solidarity approach to guarantee individual loans.

Shipton (1990) notes:

“Farmers need not just credit, but more and better opportunities for savings, partly to reduce

their dependency on borrowing. A financial policy based on only credit without savings is not

only ethically dubious, but also impractical; it is like walking on one leg” (pg.2).

The impact of microfinance NGOs on the poor and vulnerable populations has been under scrutiny for

a while. While microfinance services are often seen as a positive move toward improving access to

financially excluded populations, Shipton (1990), Hulme (2003), Bond (2006), Ditcher and Happer

(2007), Harper (2010), Bateman (2011), Duvendack et. al., (2011) and Mader (2015) have beenvery

critical of the usefulness of microfinance programmes. These researchers make the following arguments

against these microfinance programmes:

•The dominant financial regime is predatory in that it traps low-income earners into consumption

and debt thereby reinforcing poverty (Bateman, 2010; Duvendack etal., 2011; Mader, 2015). Mader

(2015) argues that interest generated from microloans is living proof that the formal financial

institutions have commercialised poverty. Poor and vulnerable households participating in savings

groups across the globe saved about US$ 86.5 Billion, and were issued about US$ 100 Billion

microloans mainly by microfinance NGOs and about US$ 21.6 Billion interest was generated from

the poor Mader (2015).

•Stuart Rutherford worked with poor people in the slums ofDhaka for over 20 years. He documented

their experiences with regards to their sources of income, their relationship with money and what

their expenses were. He also conducted his research in selected settlements in South Africa,

Bangladesh and India and collected household financial transactions on a fortnightly basis for

nearly a decade. He subsequently published an essay in 2000 entitled ‘The Poor and their Money’.

Rutherford argues that poor people are risk averse, fear credit but need greater than their usual sums

of money from multiple income streams in order to meet life-cycle events (Rutherford, 2000).

•Bond (2006) and Gleason (2013) argue that microfinance institutions tend to extend small loans to

the poor at very high interest rates, in an attempt to recover costs of lending and to achieve

profitability.

•Poor people qualify for small loans for businesses. Poor people do not take loans that risk their

livelihoods hence they tend to take conservative loans that they are able to repay (Karnani, 2006).

As a direct consequence, small loans flood the local market, create competition and make it

impossible for borrowers to make any substantial profits from their enterprises and in particular,

from agriculture (Bond, 2006; Karnani, 2006).

However, there arefew NGOs that have provided intermediary financial services. Lima Rural

Development Foundation (www.lima.org.za) is non-profit organisation that has piloted a revolving

credit facility for smallholder farmers though the Jobs Fund (www.jobsfund.org.za). The Jobs is the

South African Treasury initiative that co-finances projects that significantly contribute to job creation.

This funding is open toNGOs, businesses and government organisations. Farmers apply for the loan

which is needed, through a formal application process. The loan is then assessed by a credit committee.

A repayment plan is created and issued to the farmers. The approved loans arethen granted, through

the purchasing of actual inputs required by that farmer. There is no handing-over of cash. Average loan

size is R10000 and all loans are interest free.

Payments are made according to repayment schedule and usually soon after a farmer has sold his or her

produce. Although the revolving credit fund has been successful, some challenges associated with crop

failure and market complications. The main weakness regarding the provision of financial services by

an NGO that is not a MFI is that it does not have the instruments and capacity to manage its revolving

credit facility. It can be argued that the true cost of providing a loan is not known. The cost of providing

these loans is likely to be very high. This is because loan application processes through to approval and

recovery is hidden the salaries of the field staff.

1.2.2.ROSCAs

ROSCAs are also known as “merry-go-rounds” or “self-help groups (Samer, 2015; Wrenn, 2007).

These are arguably the oldest and most common practice for mobilising money. Basically, members of

the group agree to make regular cyclical contributions to a group, which is then given as a lump sum to

one member of the group in a given meeting. Once all members have had a turn to receive their lump

sums, the group closes the cycle and starts afresh with old members or a combination of new and old

(Duvendack et al., 2011). This method is simple. Safe keeping of the group fund is not required. All

members’ contributions go straight to borrowers. There is no interest involved on loan repayments.

Record keeping is minimal.

1.2.3.ASCAs

Generally, in ASCAs members save regularly and usuallyon monthly basis in the case of South Africa.

Members of the group pool their savings in order to build a group fundthat is used to provide microloans

to members. Borrowing is not compulsory. Loans are issued to members who need the loans. The rest

of the members must be confident that borrowers will repay the loans in accordance to the rules of the

group. The VSLAs fall into this category and is discussed in details in the next section.

1.2.4.VSLAs

Members of VSLAs pool regular savingsthat build what is known as group funds. Members of the

group establish a share price and interest rate at the start of a savings cycle. A savings cycle is a measure

of time (usually weeks or months), which a group takes to execute and complete its business.

A share price is the amount of money that members agree to pay each time they meet. A share price

and maximum number of shares that a member can buy in a meeting are decided at the establishment

of the group. Generally, the VSLA model allows members to purchase between 1 and 5 shares in a

meeting. There are groups that allow members to purchase up to 10 shares in a meeting.

The share price is set low enough to ensure that every member canpurchase at least a share in every

meeting. For example,if a share price isR100, a member can save between R100 and R500 in a meeting.

Group funds are used to give micro-loans to internal borrowers. All interest payments are added to the

group fund. Borrowing by non-membersof the group is not allowed. At the end of the cycle all the

money in the group fund which is made ofsavings, interest and fines are paid out the members

proportional to the deposits (savings) of individual members. Further operating procedures are

presented as annexure of this report.

Figure 2showing the structured approach to VSLA development, adapted from Hugh Allen (2021)

Establishment

phase

Community

sensitisation

meetings

VSLA establishment

Training and VSLA

formalisation

Supervision

phase

Recruitment

Monthly

supervision and

re-training

Graduation

VSLA

performance

evaluation

Post supervision

phase

MDF uses the VSLA model. Themodel is savings-led and is designed to empower poor households to

build up assets and to achieve levels of financial stability better than credit-led programmes (Dlamini,

2016 citing Delany & Storchi, 2012). There is anorganised and accountable system or structure of

conducting group meetings and recording of transactions that is largely trusted by every member (ibid).

MDF chose the VSLA model because groups save and then lend out the accumulated savings (group

fund) to others without seeking externallyprovided micro-loans. Interest generated stays with the group

and is not siphoned out byanexternal loan provider. In this way, members of the groups are not exposed

totherisks and complexities associated with external loans.

VSLAs can be establishedanytime during the year but set a firm time period after which they will

distribute the group fund. Figure 2 shows the 4 main phases in the first year of a VSLA. At the start of

the programme, VLSAs are trained by field staff, that is, programme facilitators who are employed by

MDF. Programme facilitators usually dedicate between 3 and 4 weeks for recruitment, establishment,

and initial training of VSLAs. Programme facilitators are notallowed to manage VSLAs on behalf of

its members. This includes writing and keeping records, counting money and safe-keeping money box.

These functions are always carried out by the members of the VSLA.

1.3.Making connections

The purpose of this section is to show the connections between smallholder farmer-focused VLSAs and

the CbCCA that is implemented by MDFas well as African cultural practices in the context of

community development. CbCCA is inclusive of CRA, community-based water management to

improve access, food systems, environmental rehabilitation and conservation management, livestock

management, community infrastructure enhancement and local economic development. MDF operates

in the pro-poor agricultural innovation space. Since its inception in 2003 and focussing on agro-

ecological approaches, MDF has worked in the field of integrated agricultural development in selected

communities in KwaZulu-Natal, Eastern Cape and Limpopo provinces of South Africa. Its head office

is located in Pietermaritzburg in the province of KwaZulu-Natal.

MDF collaborates with other non-profit organisations to design and implement food and nutrition

security programmes that are aligned to sustainable livelihoods and an agricultural innovation agenda

that is underpinned by strong community partnerships, participatory researchand learning.

The vision is to support the harmonious living of people in their natural, social and economic

environments in ways that supportand strengthen the ruralpoor to better their lives, to diversify their

livelihoods and to face their challenges with resilience. MDF believes that in this way vulnerable rural

populations will be able to live harmoniously with their immediate environment while improving their

sources of income and consequently their quality of life. This vision aligns perfectly with MDF’s

mission that seeks to keep MDF at the cutting edge of development methodology and processes by

integrating social learning, participatory action research, on-the ground training and supervision of

implementation solutions with participating communities.

Broadly, MDF’s development programmes integrate sustainable natural resource management,

intensive homestead food production that is informed by Climate Resilient Agriculture (CRA), low

external input farming systems, rain water harvesting, and integration of VSLAs and entrepreneurship

education in food production. The significance of VSLAs is two-fold. Firstly, they provide for

consumption smoothing and secondly, they provide access to finances for agricultural production and

small businesses. Community-based farmer centres allow for the timely availability of agricultural

inputs in smaller quantities at affordable prices at a village or across neighbouring villages.

MDF has adapted VSLAs to help achieve the objectives of CbCCA. CRA aims to improve yields while

rehabilitating and conserving the environment, i.e. soil and water resources. VSLAs improve access to

flexible financial services in a village through short-term loans and group fund share-out lump sums

which farmers use for: consumption smoothing, production of nutritious food, investment in farming;

establishment of micro-enterprises and other income generating activities.

This methodologypresents incentives and tangible rewards which encourage participation of the

farmers in the CRA programme. In other words, it presents a structured process to help the members of

the VSLA to achieve tangible rewards which includes achieving group goals of providing a financial

services vehicle to take deposits and to provide short-term loans to members for production purposes.

In the contextof African traditional practices, culture would refer to the totality of the pattern of

behaviour and the primacy of philosophical beliefs,taboos, social norms and practices of a distinct

group of people (Aziza, 2001). A value has something to do with a very strong conviction or worldview

that permeates every aspect of human life (Idang, 2015). Igboin (2011) maintains that certain cultural

values consistently define the African personality despite damage caused by colonialism. In the context

of development, Idang (2015) argues that cultural and economic values of traditional African societies

promoted cooperation, for example, friends, relatives, neighbours would help one another in performing

laborious production chores like farming and house construction. The practice of savings groups is a

microcosm oftheAfrican way of life because it provides support to members of the groups (Oduyoye

1997) and strengthens communal living which disallows the vulnerable to perpetually struggle in

poverty (Moyo 1999). The significance of Zulu cultural and economic values forthis study isthe

tradition of ukwenana, ukusisa and ilimo.

•Ukwenana is a form of exchange of property where the recipient would reciprocate

•Ukusisa is another form of exchangeof property. In many instances, the property would be

livestock and in particular heifers. The giver presents the gift knowing that the recipient would

keep the offspring as his property when returning the cow. In other words, the recipient takes

the gift knowing that he will eventually return the exact cows to the giver.

•With regards to ilimo, the initiator is the recipient. She or he will prepare food and drinkand

invite people to help with planting preparations and/or harvesting. On top of food and drinks,

the helpers would receive a small portion of what was harvested and the saying in isiZulu goes:

“umvunisi ubuya nenjobo”. The recipient would reciprocate the same to others.

In all instances, the givers and recipients are equals during and post the transaction. All three practices

are mechanism of building reciprocating social economy on the foundations of reciprocity and social

justice.

1.3.1.International best practice

From Niger in 1991, CARE-Int haspromoted the VSLA modelin 54 countries across the globe with

13.7 million(www.care.org). Many international NGOs such as CARE,World Vision, Oxfamand

Catholic Relief Services (CRS)mainstream VSLAs to support their development programmes in areas

of education, reproductive health, water, sanitation,food securityand nutrition, smallholder farmer

development, woman economic empowerment, gender-based violenceand enterprise development.

A VSLA is described as a community-based informal financial institution, whose founders (members)

areself-selected and agree to save regular amounts of money to build a Group Fund. VSLAsare self-

managed groups of people who meet regularly to save their money in a safe space, access small loans,

and obtain emergency insuranceknown as a Social Fund.VSLAs allow members to save flexibly,

access small loans forinvestment and build a Social Fund in order to strengthen their resilience to

external shocks such as illness, crop failure, droughts, disasters and so forth. VSLAs have been used to

address a number of challenges communities face.They have been used to;

•help household deal with irregular household incomes

•improvecash circulation in villages

•improve access to financial services

•promote income generation projects

•build resilient to economic shocks and emergencies

Groups meet on regular basis which can be weekly, bi-weekly or monthly for the duration of a savings

cycle.Basically, an association builds a Group Fund, provides interest-bearing short-term micro-loans

and distributes Group Funds proportionally to individual members’ savings at the end a saving cycle.

At the end of the cycle all the money in the Group Fund (savings, interest and fines) are paid out the

members proportional to their savings. A Group Fund is also known as a Loan Fund.

Well-functioning and successful associations must demonstrate shared goals, democratic governance

principles, full and inclusive participation, transparency, and accurate record keeping. This means that

each association must develop its constitution which makes clear pronouncements in terms of

governance and operations. VSLAs are often supported by external development agencies especially in

their first year of operation. Development agencies employ Field Officers who mobilize communities,

recruit members, train and supervise associations from establishment through to maturity.

1.3.2.South African practice

In South Africa the informal savings and credit groups are popularly known asstokvels which is

inclusive of supervised and unsupervised groups. According to FinMark Trust (FMT),there are limited

organisations that have adopted VSLA model (www.finmark.org.za).FMT is an independent Southern

African financialservices research and policy advocacy group that is focused on financial inclusion.

Founded in 2005, SaveAct Trust is one of the key promoters of VSLA model. Besides MDF, other

organisations that implement VSLAs includeFarmer Support Group (FSG) at the University of

KwaZulu-Natal (UKZN), Africa Co-operative Action Trust (ACAT),andZimele Developing

Community Self-Reliance (Zimele).

Pictures showing members of savings groups conducting their meetings

The common goal of all these organisations is supporting communities to improve their sources of

income and ultimately their livelihoods by mainstreaming VSLAs in their development programmes.

Through partnering with other NGOs, SaveAct has reached just over 105000 members in VSLAs

across 6 provinces in South Africa (www.saveact.org.za).

The South African version of VSLA involves the promotion of savings clubs, along similar lines to

those of stokvels. Members save and deposit on monthlybasis, and then on-lend to members of their

groups according to agreed terms for a defined purpose. Interest on the loans is charged, and so

members are ableto grow their savings. Members the groups are provided with VSLA training when

they start and followed by life skills, enterprise developmentand technical skills such as croppingand

broiler production.

The reasons for opting for the VSLA by South African NGOsare as follows:

•VSLA model builds on stokvel experience, indigenous knowledge and culture and is widely

accepted by communities.

•VSLA is savings-led. No money is lent by the development agency to the participating groups.

There is little financial risk involved.

•Capital growth is structured so that funds circulate amongst the members and within the

communities, rather than being absorbed by microfinance NGOs and credit providers.

•Lastly, the VSLA model readily accommodates and catalyses a wide range of livelihoods

strategies. VSLAs transform into platforms of community action. They become ‘the glue’ that

moulds and holds these groups together, and provides the platform for addressing a range of

issues., including: food and nutrition security, access to communal resources such as water,

natural resources and pastures, income generation, asset accumulation, purchasing agricultural

inputs, etc.

2.Study Aims and Objectives

This study aimed to examine microfinance options which are available for smallholder farmers

participating in the Community-based Climate Change Adaptation (CbCCA) and to draw lessons for

broader applications. The practices of VSLAs and other similar community-based informal financial

institutions were examined for the purposes of suggesting best practise options in microfinance for

smallholder farmers in South Africa. The study had the following objectives and key research questions.

Objectives

•To understand learnings and practices of rural communities resulting from participating in VSLAs.

•To examine the impact of VSLAs on participants’ financial behaviours andlivelihoodscompared

to stokvels or other microfinance services available in rural communities.

•To explore microfinance optionsVSLAs provide tosmallholder farmers.

Key research questions

•How internal and externalperceptions influence the operation of VSLAs?

•To what extent do practices in VSLAscontribute to better livelihoods?

•Which collaborative learning competencies describe VSLAsas agents oflearning, practice and

change?

•What is the significance of VSLAs, and what microfinance options do VSLAs provide to

smallholder farmers?

2.1.Research methodology

This study was located within the interpretivist paradigm.It sought a deeper understanding of the

significance of community-based informal financial services as one of the microfinance options

available to smallholder farmers and related village-based microenterprises. The purpose of this

interpretive research was to develop a deep understanding and insights members of community-based

informal financial institutionshave tomake sense of the context in which they live and work (Bertram

and Christiansen, 2010); and to discover the problems and opportunities that exist within these groups.

The studyemployedHuman-Centred Design (HCD). As an adaptive planning tool, HCD was used in

the study toexaminedifferent group-based financial services, identify challenges and dissect

microfinance options that are available to smallholder farmers. The significance of HCD is its ability to

transform participants into active designers of solutions for problems they face.

Essentially, HCD provides an alternative lens to understand the relationship between people and their

development. The founder of HCD, Don Norman (2022), presents the hierarchy of at least four

principles that should guide adaptive planning and community-based planning tools like HCD.

Figure 3 showing four principles of HCD adapted from Norman (2022)

Based on the above four principles of HCD, it is clear that microfinance institutions are working within

complex socio-economic systems with problems that go beyond the scarcity of cash in rural villages.

For instance, communities are isolated from areas of employment and development. Households resort

to unhealthy behaviours like alcohol and substance abuse, gender-based violence and eating

inappropriate food hence many households are unable to afford nutritious food.

There are at least five stages that are involved in the application of HCD as shown by figure 3 below.

People

Principle 1: Total focus on people who are looking for solutions

to their problems

Problem

System

Iterating

Principle 2: Always finding the right problem and not the

symptoms of the problem

Principle 3: Think of everything as a system because everything

is connected

Principle 4: Iterating and continuous improvement of solutions

designed and used by people

Figure 4showing five stages of the application of HCD, adapted from Norman (2022)

2.2.Sampling

Purposive sampling was applied in this study. The decision to employ purposive sampling was

influenced by the aim of the study, the anticipated role of the respondents and having prior insights

(Leedy and Ormrod, 2010) about the VSLA programme. The sample was made up of people who

participate in development programmes that are implemented by MDF, and in particular,farmer

learning groups and VSLAs. Stokvel participants were interviewed asa control as they were not

Empathise

Define

Ideate

Prototype

Test

This stage describes

people that are facing a

problem. For instance,

this phase describes

where people live, what

they do, how they earn

their living, etc.

This stage identifies,

describes and prioritises

the problems and needs

the targeted people. It also

explores and draws in the

capacities, experiences

and insights the targeted

people already have that

can be used in designing

solutions to their

problems.

The focus of this stage

is development of ideas

and potential matches

and prioritisation of

ideas that promise

solutions.

This stage transforms

ideas into simple

testable solutions (or

prototypes).

This is the final stage. It

tests prototypes. Iteration

and continuous

improvement dominate

this stage. However, if

the outcomes of the tests

fail to resolve the

problems people face,

designers may revert to

earlier stages until a

solutions if found.

members of the VSLAs. Participants in the study live in rural KwaZulu-Natal (Bergville, Appelsbosch

and Ixopo) and Limpopo (Worcester, Turkey and Santeng).

2.3.Data generation methods

Six months of intensive engagement with participants ensured quality and rigour of the study through

collaborative research (Maree, 2012). Data was generated through four main steps.

The first step involved collecting from secondary data sources which included financial records of

VSLAs and MDF’s reports. The second step involved observations of groups during their meetings. An

observations schedule was used to understand meeting procedures, recording of transactions and other

processes involved in a VSLA meeting. The third step involvedin-depth interviews and the final step

involved seven focus group discussions with participants from VSLAs and traditional stokvels. The size

of focus groups ranged between 8 and 15 participants. A focus group discussion schedule was used to

guide the engagements.

2.4.Data analysis

Finally, thematic content analysis was used. Data analysis in an interpretivist study begins as soon as

data collection starts. Thematic analysis is a procedure for identifying, analysing, and reporting patterns

within data (Braun & Clarke, 2013). According to Maguire and Delahunt (2017), the significance of

thematic content analysis is that it helps the researcher to interpret and make sense of data generated as

well as analysing findings across a number of cases, drawing categories and common thematic elements

(Riessman, 2008). Similarly, Braun and Clark (2006), thematic analysis is a useful research tool that

provides flexibility in identifying,analysing, and reporting patterns. Thematic analysis is used in this

study for two main reasons associated withovercoming the challenge of cluttering the reader with

disconnected data. Firstly, thematic analysis allows the researcher to present perspectives for the

participants and especially in capturing unanticipated insights from the participants. Secondly, thematic

analysis helps the researcher to adopt a structured approach in synthesising data and consequently

producing a clear and organised report that is friendly to read. All interviews were conducted in IsiZulu

and translated back to English. The followingthree major stages of analysing data were used:

•Coding and searching for themes: In this phase, significant patterns in the datawere identified.

Related codes were groups in relation to their significance in the study and how they responded to

the research questions.

•Reviewing themes: The interest of this phasewas to identifyoverlapping themes in relation to

empirical data and HCD theoretical framework.

•Defining themes: This stage involved further refinement of themes and generating sub-themes. The

main focus of this stage was to see how the themes relate to each other resulting in a thematic map

that provided the narratives of community-based informal financialservices as told by the

participants.

2.5.Results and analysis

Study Area

Participants for the study were drawn from rural KwaZulu Natal (Bergville, Appelsbosch and Ixopo)

and Limpopo (Worcester, Turkey and Santeng). These rural villages are challenged by land degradation

that is slowly eating away arable land and frustrating the interaction of facets of smallholder farming

systems and livelihoods. Likemost rural communities in South Africa in general, women and the youth

are the bearers of social and economic marginalisation. The study areas are characterised by high levels

of poverty, inequality and unemployment making it most relevant for the research. High levels of

poverty, inequality and unemployment are persistent despite the provision of electricity, access roads,

schools and a regional hospital by government agencies.

The vulnerability among rural households is exacerbated by inability of decision-makers to identify and

accommodate the specific needs of those who are most vulnerable and certainly not represented by the

loudest voices in their communities. VSLA members participate in food security and small scale

farming, producing largely maize and other field crops, vegetables and fruit as well as rearing livestock

(mainly chickens, goats, pigs and cattle).

The study area bears the following significance. First, peoplefrom these villages must make provisions

for travel and associated opportunity costs to commute to nearest urban centres in order toaccess goods

and public services. Secondly, female-headed households and smallholder farmers struggle to produce

enough food to meet their needs and consequently miss the opportunity of supplying the local markets.

In other words, they grow food to eat first and sell small quantities of surplus irregularly. Although

they have some access to land, however, high levels of competition suppress profitability because

farmers tend to produce similar crops to other villages.

Profile of participants

Participants of the study were drawn from smallholder farmers participating in MDF programme.

Smallholder farmers are members of village level CRA learning groups and work with a basket of CRA

practices to improve production and productivity across the whole farming system - vegetables, fruit,

field crops and livestock. Further committees and structures emanate for the learning groupssuch as

the VSLAs, local marketing groups, livestock associations, farmer centres, water committees etc. These

learning groups link with traditional councils, local municipalities and other external role players.

Gender, marital status and age

44 (88%) respondents were drawn from MDF supported VSLAs, 3 (6%) participated in stokvels that

are not supported by MDF and 3 (6%) did not participate in any VSLAs or stokvels.

Gender

Marital Status

Age

Women

Men

Single

Married

18 – 35

26 – 55

55+

Table 1showing gender and age of participants

The above table shows that 88% of the participants were women. 11 were women aged 35 years and

younger. All men were older than 55 years. These participants lived with 172 adults and 181 children.

However, only 165 children received child support grants from the government. Only 12 participants

have senior certificates (grade 12).

Sources of income

Participants receive an average of R4 787 from state and non-state sources on monthly basis as shown

below.

Graph 1 showing sources of income of the respondents

About 78% of the participants had households with children that receive government’s child support of

R480 per child per month followed by 38% recipients of old age pension grant. About 19.4% of income

(R46450) comes from 28 farming enterprises and 16 mixed enterprises such as buying and selling

clothing, house wares and making dresses.

The biggest monthly expense is food at 46.4% of their disposable income. Other major monthly

expenses are transport (10.6%), education for children (9.7%), electricity (8.7%), medical (2.4%) and

miscellaneous (3.6%). The remainder of 18.6% is spenton financial services as shown in table 3 below.

Participation in financial services

Members of community-based informal financial institutions spend an average of R946 which is about

18.6% of their monthly income on financial services as shown in the table below.

Type of Financial Service

MDF supported VSLAs

52.5

Other groups, e.g. stokvels

25.6

Funeral parlour policies and burial Societies

13.2

16 19

Child Support Grant

Forster Care Grant

Old Age Pension

COVID-19 Grant

Farming

Business Enterprise

Employment

Remittances

Other

Type of Financial Service

Life insurance with a formal insurer

2.9

Savings accounts with banks

5.8

Table 2showing financial services that are used by participants use

This means that an individual member of a VSLA has a capacity of spending about R11352 per annum

where about R1800 is spenton insurance products and the rest is invested in VSLAs’, stokvels and

savings accounts with banks.

Annual expenses

Participantsshared stories that their income sources are highly constrained. This is demonstrated by

their dependency on state welfare grants and income generating activities. This is one motivation for

participating in community-based informal financial institutions. Respondents specifically use VSLAs

to finance mainly their farming enterprises, traditional ceremonies, house construction and/or

renovations, furniture and appliances. Short-term loans and savings that would have earned interest at

the end of a savings groups are generally used for the following annual expenses.

Graph 2showing total spend of share-out lump sums on different annual activities

Graph 1 shows that participants use more money for non-productive purposes. The biggest expenses

relate to traditional ceremonies (35.1%), followed by house construction and/or renovations (21.2%)

and last by food production for consumption (15.9%). It was noted even during FGDs that participants

prioritize food security over enterprise development. However, 20.3% was used for enterprise

development activities split between farming (12.9%) and non-farming enterprises (7.4%). Over the

last 5 years participants have used loans and share-out lump sums for enterprise development activities

as listed below.

0510 15 20 25 30 35 40

Farming for consumption

Farming for selling/trading

Other business enterprise/s

Building house

Jojo tank

Furniture, e.g. sofas

Appliances, e.g. fridge

Traditional ceremony, e.g. umemulo

Graph 3showing the use of loans for enterprise development

The tables and graphsabove showed the socio-economic information of the participants in the study.

These are gender and age distribution, marital status, income sources and monthly and annual expenses.

These graphs demonstrate that the significance not only lies on their sources of income, but also on the

use of loans and lump sums of money they receive at the end of saving cycles. The top three uses of

money are traditional ceremonies, house building and/or renovations and farming. Itwas found that

farming was dominated by cropping which was split between consumption and farming enterprise.

2.6.Financial Services in the Villages

The study confirmed that all the villagers have access to the following group-based financial services.

Description

Challenges and Risks

Traditional burial

societies

The main purpose is to provide social relief

and support during the bereavement of a

member. Membership, rules of participation,

premiums, policies for pay-outs, etc. are

governed by the constitution. Some group pay

cash, some provide a service and some do

both. Premiums can be paid weekly of

monthly as determined by a constitution.

Simultaneous claims can reduce individual

payments or worse, deplete the group fund.

Members who do not experience death

tragedies in their families tend to withdraw

after few years. Lesser death claims grow

the group fund and can lead to fraudulent

behaviours by the leadership of the group.

66.1%

17.5%

4.9%

0.5% 10.9%

Cropping

Broilers

Layers/eggs

Farmer Centre

Other enterprises

Description

Challenges and Risks

Traditional stokvels

Traditional stokvels take many shapes.

However, the most common feature is that

these groups have a clear target goal, for

example, bulk buying of groceries at the end

of the year, house construction, buying

furniture and appliances, etc. A fixed

contribution is decided at the start of the

savings cycle and monthly contributions are

usually deposited at the bank. These groups

are built on the concept of delayed

gratification. The most obvious benefit of

these groups is that they help their members to

buy household assets and to afford expensive

goods.

Many of these groups are constrained by the

fixed mentality that their cycles must run

alongside the calendar – in that their goals

must be achieved at least by end of the year.

While it is good to keep the money in the

bank, inflation, low interest rates and bank

charges tend to depreciate the group funds.

Silent voices, that is, the most poor are

usually disadvantaged by louder voices in

these groups.

Investment clubs

The purpose of investment clubs is to run a

lending business in the village. Members pool

their contributions on monthly basis. The total

fund is forcefully given to few members of the

group as loans for them to extend these loans

to non-members of the group.These groups

charge anything between 30% and 40%

interest per month. Interest earned accrues to

individual members who are successful in

settling their loans.

These groups have complex record keeping

systems to capture interest due to borrowers

(who are members of the group). Interest

does not accrue to the group.This means

that members who do not take out loans do

not receive interest. Obviously, these groups

risk their funds by lending to external

borrowers. Lastly, these groups are

infamous for high levels of fraud by their

leaders.

Merry go rounds

Members of these groups take turns to receive

total contributions made by all members in a

month. The group dissolves when all members

have received their lump sums. Record

keeping is very simple as there are no loans

issued and interestcalculation.

The biggest risk is carried by members at the

tail-end of the cycle because they remain

unsure if they will be paid as the first few

members were. Similarly, those who receive

pay-outs at the start of the cycle are likely to

miss making contributions due.

Saving up and saving down

Members agree to start with small amounts

which grow by an agreed percentage rate. This

is referred to as “saving up”. The most

common saving up model starts with R50 in

the first month, R100 in the second month,

R150 in the third month and growing to R600

by the 12thmonth. Saving down is thedirect

opposite, for example,members will start

saving R600 in the first month down to R50 by

the 12thmonth. All contributions are deposited

in the bank.

This approach attracts similar weaknesses

and challenges faced by traditional stokvels.

However, members tend to face additional

stresses stemming from changing

contributions – and especially, the “saving

up” method.

Description

Challenges and Risks

VSLAs

This model is described in detail insub-section

3.5 above. VSLAs draw good and progressing

practices from traditional groups as well as

from formal financial institutions when it

comes to developing loan terms. This helps to

curb the appetite for charging exorbitant

interests and extending loans to non-members.

Most groups cap loan amounts as a risk

management strategy to mitigate

delinquency. The largest majority of

VSLAs cap loans to R5000. There are two

limitations stemming from this. Farmers

need more than R5000 and more than three

to four months to settle the loan.

Bulk Loan Fund

Bulk Loan Fund (BLF) is established by

members ofexisting VSLAs for the purpose of

bulking of loan fund. VSLAs must operate in

the same community. Members agree on a

once-off annual lump sum contribution at the

establishment meeting. The minimum

duration of the cycle is 5 years. There are no

monthly contributions. Loans specifically

ring-fenced for productive activities. A flat

interest rate of 15% is charged on loans which

are payable over6 months. Interest is shared-

out at the end of the third year.

Members of this group struggle to invest

larger once-off lumps that they require to

meet financialexpectationsof thefarmers in

the first year. However, this is circumvented

by additional contributions made at the start

of each year.

Table 3 summarising financial services in the villages

The study found that borrowers can access loans up to R5000 at 10% per month and repayable in 3 to

4 months. There were few instances where loans exceeding R5000 were issued mainly to members

who operate business enterprises. Loan delinquency was raised as a common stress for investmentclubs

and VSLAs.

Participants in the study shared additional financial services that are available to the villagers. Besides

formal banks and regulated insurance providers, participants listed the following financial services.

Description

Challenges and Risks

Unregulated money

lenders

These providers mainly operate in villages but

may be found in urban centres. They are

accessible. It is very easy to get credit.

Village-based and unregulated money

lenders charge exorbitant interest and are

infamous for using atrocious debt collecting

tactics. These providers are also infamous

for creating dependency by burdening

borrowers with loans that are not easy to

settle.

Description

Challenges and Risks

Regulated money

lenders

These providers are mainly found in urban

centres and operate from fixed addresses.

Borrowers are required to qualify for

unsecured loan by meeting the minimum

requirements set by the National Credit

Regulator (NCR). Borrowers must submit

proof of income such as salary advice, 3

months bank statement and financials of a

business if the applicant is self-employed.

Funeral parlors

A funeral parlour provides funeral services

based on the service package chosen by the

premium payer. Packagesusually include

coffin, tent, mortuary services and

transportation of the deceased.

Not all funeral parlours provide genuine

service according to the regulations

governing them. Many people sign up for

services without checking the credibility

and reputation of funeral parlours of their

choice. Older insured tend to pay expensive

premiums.

Cash withdrawal and deposit

facilities

These facilities are mainly provided by shops.

They are essentially agents of the banks. In

most cases, these services are limited to cash

withdrawals in villages. Urban retailers tend to

offer both deposit making and cash withdrawal

services. The agent agreement between

retailers and banksallows retailers to charge

customers transaction fees for services

rendered. The greatest benefit offered by these

facilities is that they bring financial services

closer to the people and in particular recipients

of state welfare grants.

Few complaints have been raised by users

of these facilities especially for retailers that

operate in villages. Firstly, users are forced

by retailers to buy something before they

can withdraw some cash. Secondly, some

retailers are known for charging higher

transactional fees. Lastly, load shedding

compromises internet connectivity which

makes it impossible for customers to benefit

from these facilities especially in rural

towns.

Microfinance NGOs

In the case of South African, these are not-for-

profit microfinance companies. These

companies are run by independent boards but

are exempted from few regulations of

Treasury (central bank).Their mandate is to

offer micro-loans to borrowers who would not

qualify to secure credit products from formal

banks. However, microfinance NGOs use

solidarity groups as collateral security for

individual loans.

In communities where microfinance NGOs

operate, the two main challenges have been

recorded: (i) establishment of a solidarity

group, and (ii) “forced” savings account

with a reputable bank before individual

members of the group can qualify for a loan.

Loan sizes are no different from loans

offered by VSLAs and traditional groups.

Table 4 summarising financial services available outside the villages

2.7.Discussion

There were 7 focus group discussions were attended by 83 members from VLSAs. 84.3% were women

and 15.7% were men across two provinces, namely, KwaZulu-Natal and Limpopo.

The purpose of this section is two-fold. Firstly, this section aims to summarise different group-based

financial services found in the study communities. Three themes are discussed. These are common

social intelligence competency, cultural competency and collaborative learning competency.Secondly,

this section wants to dissect microfinance options available to smallholder farmers.

Three themes that respond to all research questions have been drawnfrom the field research data as

shown in table 5 below. These themes flow from categories of learning and practice as reflected by

perceptions and experiences of the participants regardingtheir groups. Quotes from the participants

were categorized into 23 categories and ultimately into 7 themes via an inductive approach. I iterated

several times during the coding process looking for similarities and differences before coming up with

the final categories and themes using relevant concepts from the literature. The final coding resulted in

10 categories and 3themes as presented in table 5 below.

Focus

Category

Theme

•Evaluation past and present

challenges

•Prediction of the future

•Defining success indicators

•Conundrum of financial inclusion

•Design for use

•Perspectives in financial education

Social intelligence

competency

•Critical understanding of

complexity of development

•Emancipatory knowledge

•Exploration of new possibilities

•Building relationships and

partnerships

•Liberatory perceptions about

community-based financial

institutions

•Reciprocity and social currency

•Partnerships

•Drivers for participating in

community-based financial

institutions

Cultural

competency

•Transformative interventions

•Problem-solving frameworks

•Respond to change

•Socio-economic values

•Controlled money channel

•Personal and business loans

•Social learning spaces

•Selective non-formal learning

•Scaffolding and knowledge

transferability

Collaborative

learning

competency

Table 5showing focus, categories and themes deducted from data

Besides theorising how community-based financial institutions as agents of financial education and

practice, the significance of these themes is that they:

•Identify users’ perspectives infinancial education that empower community-based financial

institutions to build cash reservesandhow it empowers participants to moderate their cash;

•Demonstrate how financial education happening in these community-based financial institutions

areperceived by participants and by formations outside them, and how external perceptions

influence how savings groups operate their business; and

•Demonstrate the role of social and cultural practices with regards to the operation of community-

based financial institutions.

2.7.1.Introduction of themes

Social intelligence competency:This is thefirst theme ofthe study. This theme responds to the first

key research questions: how users perceive their groups; and how village perceptions influence financial

education in community-based financial institutions?

In this study, social intelligence competency refers to the ability of participants to work with one another

as a unit in managing personal relations in order to achieve shared goals and associated rewards. This

means that participants collectively share the responsibility of operating a well-functioning group. They

analyse and evaluate past and present challenges, build rich pictures and define leading indicators of

success of their savings group. They are able to predict a better future for the collective.

The purpose of this theme is to identify and dissect specific social intelligence competencies that present

users’lens to make meaning ofthe practice foundincommunity-based financial institutions. This

section argues thatthe practice found in community-based financial institutionsis responsible for

empowerment, which is,helping groups to build cash reserves and helping participants to moderate

their cash.

Cultural competency:This is the second theme of the study. This theme respond to the second key

research question: to what extent do practices in community-based financial institutionscontribute to

better livelihoods? The purpose of this theme is therefore to demonstrate how practices in community-

based financial institutionsinfluence perceptions within the groups and how external perceptions

influence theiroperation.This theme does thisby exploring how participants build portfoliosof

reciprocating social investments in their communities. In this study, emancipatorycompetency

encompasses the ability of groups to facilitate collaborative culture and appreciation of different

perspectives in taking a common path. This competency is associated with the dynamics of

collaboration and in particular governance, justice, fairness, adherence to rules and resolving conflicts

amicably. Further to this, this competency extends to include strengthening social networks,building

relationships and partnerships with external development agencies and harmonisation of stakeholder

interests.

Collaborative learning competency:This is the final theme of this study. Itresponds to the last key

research questions: which collaborative learning competencies describe community-based financial

institutionsas agents of learning, practice andchange; and what is the significance of VSLAs, and what

microfinance options do VSLAs provide to smallholder farmers? In this study, collaborative learning

competency refers to the ability of participants to support learning from each other within their groups.

Collaborative learning is informed by constructivist theorywhich asserts active construction of

knowledge by learners – and in this instance, participants stimulate active involvement and provide

multiple opportunities of engagement. Given the hostilities imposed by financial and economic

exclusion, the dependence of community-based financial institutionson social networks play a

particularly important role in reconciling conflicting views and experiences that come alongwith

members of the groups.Participants develop problem-solving frameworks that deal with uncertainty

and risk. In this context, collaborative competencies are related to identification and pursuance of

products and services that meet the needs of participants in groups. This competency reflects the need

to think about scalability of solutions beyond participants in groups but to their networks as well. The

significance of this competency is that it promotes knowledge generation and specifically, governance

and operation of the groups.

2.7.2.Discussion of theme 1: social intelligence competency

The purpose of this section is to discuss social intelligence competencythat isconsidered as the main

pillar of success of savings groups. Using users’compass, social intelligence competency dissects

collective actions that empower thegroups to build cash reserves and ultimately participants to

moderate their cash.This section does this by identifying and dissecting perceptions participants hold

aboutfinancial inclusion; how village perceptions influence financial education in thegroups; and key

drivers of legitimacy for participating in savings groups.

In most basic terms this section is interested in relationship management and the ability of participants

in promoting and sustaining positive influence that positively impact others. Participants interpret their

local environment and build savings groups as their financial institutions in anticipation offinancial

services that participants wouldaccess in order to resolve their financial challenges. Lastly, this

competency is interested on the ability of participants to work towards shared goal and sharing both

responsibilities and rewards in theirgroups.

Perceptions about financial inclusion

Picture showing a savings group share-out meeting

The purpose of this section is to describe and apply the concept of financial inclusion asperceived by

the participants and to identify the conundrum of financial inclusion.Thrown together by adversity,

participants believe that groups help them survive crises resulting from strategic exclusion from the

mainstream financial services. Participants perceive their groups as responsive financialinstruments

that help participants to withstand difficulties associated with scarcity of cash in their villages.

Participants identified community-based financial institutions, government’s social grant programme

and burial societies as key platforms of financial inclusion.

“I am only happy when I receive money when I need it. Who can do that for us other than our

groups?”

“We operate burial societies. We also have bank cards to receive our government grants and

to buy groceries from town.”

The above quotes confirm the state welfare grant card as the most used financial service. Participants

also confirmed stokvels, savings groups, burial societies, small funeral undertakers and co-operative

buying of groceries usually towards the end of each year as priority financial services. Basically,

participants need to have access to productive banking services and protective financial products in

order to reduce their vulnerability.

Arguments presented by participants highlight growing challenges regardingthefinancial inclusion

agenda as defined by the regulated financial sector. This is because if participants are to draw

meaningful benefits from financial inclusion as defined by the regulated sector, formal financial

institutions would need to design products that satisfy the needs of the participants. Participants believe

that financial institutions are very aware of their needs, but over the years they have only chosen to

develop products that push them to the periphery. It is for this reason that participants see financial

institutions and specifically banks asexploiters of the inability of the poor to access formal financial

services (Mader & Sherratt; 2020). The perception of regulated financial institutions was found to be

very negative in the minds of the participants.

“I don’t understand this thing of these businesses helping us. How exactly? Banks do not give

use credit. Ask them, many people have paid for years but got their furniture re-pocessed

instead.”

“This thing of these businesses helping us with financial services is planned dishonesty and

betrayal.”

In very raw terms, participants perceive formal financial institutions as only interested in making money

and not helping them. There is an outcry that people have lost their money from dealing with formal

financial institutions.

“I bet you, banks eat our money. If you deposit R1000 into the bank, a month later you cannot

get the entire thousand rand. We don’t make the rules, but we take the rules banks make

about our deposits.”

“We transact with shops in town. We buy building materials, groceries and many things. Many

groups save to buy groceries at the end of the year. But who makes money at the end of the

day?”

The above perceptions corroborate with Sykes et al. (2016) and Mader (2016). According to Sykes et

al. (2016), financial inclusion simply coerce the underserved populations to use financial instruments

provided by regulated financial institutions at unaffordable premiums for the poor. In the process, the

poor lose their money. Mader (2016) argues that through government policies banks make huge profits

from the poor. According to Mader and Sherratt (2020), formal financial institutions manipulate public

policy to shape future markets that favours scrupulous capital accumulation agenda and structural

causes of inequality. As direct response to exploitation, community-based financial institutionsemploy

alternative platforms outside the mainstream financial services regime to provide for their families.

Financial inclusion means financial services and specifically cash when participants need them.

Broadly, participants perceive the goal of community-based financial institutionsas building cash

buffers that help participants to moderate their cash. Participants prefer notto approach financial

services from formal institutions but to rely on their groups to provide financial services.

Schwittay (2011) sees financial inclusion as adistraction tool that the powerful uses to avoidexecuting

radical structural changes (Schwittay, 2011). Instead, financial inclusion tends to facilitate a “feel good

effect” for the excluded populations so that they can feel included (Taylor, 2012) and at the same time

made to believe that they are responsible for their exclusions by the system. Based on this it is concluded

that financial inclusion imperatives do not concern the participants because;

•A savings group is only established to meet the immediate needs of the participation and mainly

resolving scarcity of cash in villages.Community-based financial institutionsare established to

meet a number objectives including helping participants to meeting the consumption needs, to

buy household expensive items, to construct and renovate houses, to finance micro-business

enterprises and so forth.

•Essentially thegroups help participants with cash-flow management. Participants confirmed

that financial planning that hinges around delayed gratification has been key to their success in

term of meeting their financialobjectives.

•According to the participants, reciprocity is one of the key bonds in thegroups. Reciprocity is

discussed in detail later in this chapter.

Generally, financial inclusion is described asavailability and access to financial services such as

deposits, credit, payments, and money transfers, leasing or insurance to both individuals and enterprises

(Sykes et al., 2016). However, this description of financial inclusion presents a particular dilemma for

the excluded populations and in particular community-based financial institutions. Financial inclusion

conundrum is that financial education programmes and curricula are predominantly written from the

perspectives that embrace economics, capital markets and business administration (Ayhan, 2017), and

do not reflect anthropological, sociological and political disciplines. In other words, poor consumers

are essentially excluded by the very same the mainstream financial institutions that promote financial

inclusion. Instead, regulated financial institutions are blamed for focusing on profit making rather than

building mutually benefiting platforms with the poor. According to Mader and Sherratt (2020)financial

inclusion is problematic because it has proved to create investment opportunities for formal financial

service providers to accumulate capital by exploiting the poor.

Village perceptions that influence the practice in community-based financial institutions

A community-based financial institution is one of the instruments that financially vulnerable

populations employ to improve access to much needed cash in their villages. The purpose of this section

is to discuss users’perspectives that influence learning and practice in the groups.These village

perceptions appear to drive groups to build cash reserves and participants to moderate their cash in ways

that support consumption smoothing and accumulation of assets. These village perceptions are

presented under the following sub-headings:

•VillageAfricanintellectualism

•Collective identity

•Circuits of savings groups’ hegemony

•Adherence to simple routines

VillageAfrican intellectualism

Community-based financial institutionsrepresent villageAfrican intellectualism that represents a

quality of thought and practice of Africans (Hill, 1995) in resolving development challenges African

communities face.

Picture showing a record keeper coached by the money box keeper during a savings meeting

“Savings groups define us, our expectations and what we do. A savings group is our way of

life. It makes things to happen in our families.”

“What brings us all here is willingness to collaborate, and nothing else.”

According to the participants,community-based financial institutionsare established for one purpose

only, that is, to work together in improving access to financial servicesfor the membership base.

Participants maintain that improved access to cash empower them to meet their diverse living expenses

and other financial needs. However, it was noted that participants do not have identical incomes hence

the idea of saving varying amounts and granting different loan amounts remains a fundamental

principle.

Despite the diversecharacter of participants, but which is dominated by women, community-based

financial institutionshave proved to be inclusive and accommodating. In this instance, it was found that

the largest membership of thegroups in the research sites was constituted by state welfare grant

recipients in the form of old ageandchild supportgrants.

The significance of localised African intellectualism is that participants do not promote the replacement

of Eurocentricfinancial system, but argue for inclusion of African point of view in the generation of

global knowledge (Hlela, 2016) and specifically financial knowledge and practice. Participants were

critical about the exploitative behaviourof Eurocentricfinancial instruments mainly because;

•the interest of banks is perceived as making money from theirgroups;

•groups have no voice in shaping the products and services that regulated financial institutions

provide to them; and

•policy makers are perceived to retain the status quo which serves to marginalize community-

based financial institutionsto spectators of the capital they mobilize

The views of the participants above corroborate with Bophela and Khumalo (2019) in arguing that the

groups will ever be marginalised despite injecting billions of dollars into the economy. However,

participants noted that exclusion by regulated financial and economic sectors is not their primary

concern. Despite these ongoing debates aboutfinancial inclusion, there remains some broad agreement

about the main concern and goal of thegroups that set the boundaries of reciprocity. According to the

participants, their primary concern is strengthening reciprocating mechanisms in thegroups.

Figure 5showing infusion of individual goals in a community-based financial institution

Another defining feature of community-based financial institutionsis responding to the needs of their

founders. Such response is pursued through careful selected organisational models and framing

solutions financial challenges participants face. Finally, community-based financial institutionsdiffuse

organisational models and solutions via positive externalities and market oriented action so that groups

Build loan fund and a

cash reserve

Build and operate a

well-functioning group

Collaborate with

positive externalities,

e.g. NGOs

Collective goal

Cash moderation

•Consumption

smoothing

•Asset accumulation

Multiple individual goals

Participants’ Goal

are able to deliver on individual member goals. I therefore argue that community-based financial

institutionsare perceived by participants to represent a model of social transformation and

empowerment. As a social enterprise project, thesegroups areprovidingsolutions where government

has failed to deliver services.

Collective identity

Clearly, community-based financial institutionsare built on historic and cultural practices such as ilima,

ukusisa and ukwenanawhich strengthen social bonds, promote unity and collaboration amongst the

participants. Ilima, ukusisa and ukwenanaare Zulu traditions resonate with community-based financial

institutionspractice.

“Everything is a collective act. Rules are binding. By joining our group, all members agree to sing

from the same hymn book, and there are no exceptions whether one is a new or an old member,

young or old, a man or a women.”

The main operational goal of community-based financial institutionsis to ensure maximum

participation of the entire membership with regards to decisions taken and strategies adopted.

Community-based financial institutionsare established, owned and operated by their members. These

groups are built on principles of trust, transparency and equitable accessto financial resources and

maximum compliance to rules of the groups. This is very significantbecause member-operated financial

institutions are empowering in the sense that they givemembers more control over their own financial

resources and ultimately better their livelihoods. However, what is quite unique is that rules that govern

the operation of many groups in this village are mostly not documented but memorised. Meeting

schedules and procedures are memorised including business records of the groups. Specifically,

participants memorise the closing balances of every savings meeting with regards to money received,

money disbursed as loans and money remaining in the money box.

Collective identity allows groups to express a coherentunity of purpose in the face of marginalisation

and moral complexity. The fundamental significance of collective identity is that it serves as a social

compact that gives meaning to many forms of exchangeof property and help, and these are reciprocated

beyond the main business of a group. This observation is a confirmation that thegroups are able to

mobilise financial and non-financial resources to catalyse social change that meets the needs of the

participants. This confirms with Moyo (1999) who maintainsthat African cultural practices aim to

strengthen communal living and promote liberation of vulnerable form perpetual poverty.

Circuits of groups’ hegemony

Participants identified emerging circuits of groups’ hegemony manifesting themselves as success

indicators. For instance, the goal of a savings group is to take deposits, build a loan fund, issue small

loans, grow savings and give lump sum payouts at the end of a savings cycle was the main success

indicator of a well-function group. However, the most unique success indicators were found to be; (i)

understanding, willingness and commitment of participants to give each other a chance to receive larger

loans; (ii) access to emergency loans; and (iii) supporting vendors that are members of thegroups. These

success indicators are discussed in the section below that deals with the outcome of learning and practice

happening in thegroups.

“Members make their contributions and take out loans at the same time. Usually there is no

money left in the money box. Anyway, there is no money kept in the money box during the year.

We only start to seeing cash in the box towards the end of the year and by then there is no need

to take our money to the bank when we are about to distribute our fund.”

It was found participants are mostly concerned with planning ahead, keeping track of their finances

(Nanzir and Leibbrandt, 2018) as well as delaying gratification. Participants would make larger and

consistent deposits and corresponding loans that they use to buy household assets and/or investing in a

micro-enterprise. Participantsalso confirmed that their financial planning and budgeting have a direct

bearing on the cash-flow projections and management of a group. Cash-flow management specifically

relate to the four activities during a savings meeting which are;

•Making deposits (savings). Participants emphasized that each members of a group must be able

to plan to make deposits for the entire duration of a savings cycle.

•Repayment of loans by borrowers. Loanterms include settling debtin four months or less.

Participants emphasized the significance of knowing exactly when one would need a loan and

where additional income would come from to service a loan while making regular deposits.

•Issuing of new loans. New loans are not issued to indebted participants.

•Calculation of closing balances. Closing balances are announced towards the end of a savings

meeting. The significance ofannouncing balances helps to encourage borrowers to service their

debts so that the group is able to issue new loans in the next meeting. In other words, closing

balances helps participants to predict the amount of cash thatmay be available for issuing of

future loans. Lastly, booking loans gives a clear signal to the borrowers that there will be new

borrowers in the next meeting.

Besides participants receiving a number of financial skills that specifically respond to their needs, group

practice reinforces reciprocating values such as;

•Aligning individual goals to a collective goal of a group. Participants use their groups as a

platform forfinancial planning and executing individual household financial projects. In

this instance, participants develop financial behavioursthat balance both organisational and

individual goals.

•Using a group as reciprocating agents. Social bonds help participants self-select themselves

to establish and to operate community-based financial institutions. This may explain

reasons for participants to help one another beyond the business of their groups.

•Bearing transactional costs for operating a community-based financial institution. These

groups are largely operated on voluntary and pro-bono basis where services to operate the

groups are executed collectively by participants.

It was also found copying other participants with regards to what they do with drawings from groups

was central to managing theirincome resources. In otherwords, participants carry with them pictures

of success of others to theirgroupmeetings. At the centre of these pictures of success are tangible

transformative items such as productive assets. Accumulation of both household and productive assets

was the most common push for transformative financial behaviours.

The significance of community-based financial institutionsis that they are laying strong foundations

financial hegemony that aids to mobilize andcirculate financial resources in villages where people live.

In other words, groups are becoming the foundations of new circuits of learning and practice that is

responding to the needs of the participants. These groups are uniting and are in harmony with social

practices that are observed by participants beyond the business of their savings groups.

Adherence to simplest routines

Participants confirmed that success of their groups is direct manifestation of adherence to routine of

operations. The perception of adherence to rules and procedures by participants is heavily influenced

by years of respecting authority of community institutions, of which savings groups are regarded as

community institutions.

“When the programme was introduced in this village sometime in 2009, it was first discussed

with the local headmen who introduced it to the iNkosi and his council. Everybody knows

something about savings groups in this village.”

The operations of groups are linear and they are contained in four mandatory meetings. These meetings

are group establishment, regular savingsmeeting, pre-fund dissolution meeting and final dissolution

meeting. Dissolution meetings are also known as share-out meetings. These meeting are described in

the table below.

Savings Group

Formation

Regular Business Meetings

Pre-fund Dissolution

Meeting

Fund Dissolution

Meeting

This meeting

establishes a

group by setting

up common goal

and rules that

govern its

operation

The main concern of these

meetings is to build and

manage a group fund. The

flow of each meeting is:

•deposit taking,

•repayment of loans,

•issuing of new loans, and

•calculations of closing

balances

This meeting is

concerned with

preparing for the fund

dissolution meeting by

reconciling the books

as follows:

•Calculation of

total savings of

each individual

member

•Calculation of

savings

outstanding loan

amount of all

borrowers to settle

•Calculation of net

worth of a group

The purpose of this

meeting is to

distribute the fund of

the group

proportionally to the

savings of individual

members. All the

activities of a pre-

fund dissolution

meeting are repeated

in order to give

borrowers with

outstanding loans to

settle them. After

this, the group fund

is distributed

accordingly.

Table 6 presenting the most common routine of VSLAs

Generally, it is common for some borrowers to default on their loans when loans arereceived from

external financial institutions.However, it was confirmed that participants repay their loans diligently

for two reasons. Firstly, loan funds are established by regular saving amounts from the membership.

This is their savings. Secondly, loans are issued to members proportionally to their savings. In other

words, participants’ savings are used to fund loans. Loans are not granted to non-members of thegroup.

This practice guarantees repayment ofloans. A borrower would use her or his contributions to off-set

outstanding loan amount if not settled before or at the fund dissolution meeting.

It is clear that groups use the power of collective savings in building cash reservoirs that is used

distributed proportionally to participants based on theirdeposits and their ability to settle debts. It is

therefore conclude that learning and practicein groups is not concerned about what regulated financial

institutions and state-driven financial inclusion agenda, but are concerned with operating a well-

functioning financial institution that delivers on its foundational goal.

African cultural values are central tothegroups as well as supremacy of collective identity which

permeates every aspect of human life (Idang, 2015), including the supremacy of distinct African

practices (Aziza, 2001) that participants embrace to secure their livelihoods.

Key drivers of legitimacy for participating in a savings group

The purpose of this section is to identify and describe key drivers participants believe sustain their

continued participation in VSLAs. In this section, an inductively-created typology of four

developmental outcomes of a well-functioning savings group is discussed. These are (a) legitimacy of

a VSLA, (b) legitimate coercion, (c) provision of services, and (d) learning by doing.

Legitimacy of a VSLA: A VSLAs groups is a key instrument that governs a participatory process. The

creationof participatory process in a group implies consideration of the ways the objectives and

outcomes are reached, as well as approaches and methods that are employed.

Governance andoperations is a primary concern of groups. Groups adopt behaviours that promote

transparency and give confidence to participants that they are able to achieve their goals. According to

the participants, a well-functioning group recognise the possibility of a group swayed to favour interest

of the few (Dallimore, 2013). Participants also recognised a possibility of a group being defrauded by

few elites in the group. Development and application of rules helps to prevent and/or mitigate instances

where few members dominate processes in agroup.

VSLAsdraw experiences from other community-based financial institutions, and mainly burial

societies and grocery buying groups. The significance of these experiences is that participants use them

to continuously improve self-supervision, peer-monitoring and to strengthen legitimacy of their group.

Experienced participants are usually elected to serve in the management committee while the rest of the

members serve to monitor the application of rules and procedures. This approach to governance and

operations makes a group a self-managing entity.

Based in the perceptions of the participants it is therefore argued that legitimacy in groups as financial

institutions should be conceived as a set of normative incentives that are able to encourage, and if not,

compel participants to uphold their group to providing incentives fortrust and delivery of services. The

result is a legitimacy framework that allows participants to appreciate and better understand governance

and operations of their group.

Legitimate coercion: The most contentious matter for many VSLAs is their establishment, self-

selection and amendment of rules to deal with delinquency. A well-functioning group is judged by its

ability to resolve disputes, deal with delinquency and enforce the rules. Specifically, self-selection is

challenging because participants have to be vigilant to reject membership to applicants with perceived

unpalatable reputations.

Participants asserted that groups are socialconstructs and subjective institutions thatare sustained by

imposition of specific behavioursand codes of conduct for the benefit of the majority. Participants also

conceded that rules alone do not encourage and/or compel obedience, but obedience is achieved when

shared beliefs drives conformity to established rules of the game.

“Break the rules and you will lose our money. We all know that delinquency has collapsed

some groups in this village.”

VSLAselect management committees to facilitate and enforce collectively biding decisions.

Enforcement is achieved by consistent reminders that delinquency risks collapsing groups, something

that participants do not want to see happening. Such reminders are no less legitimate forms of coercion

to establish and retain moral duty of the membership. Moral duty to obey the rules is a collective

expression of consent to the authority of the management committee which in turn guarantees

attainment of the collective goal of a group. I argue that collective expression to the authority of the

management committee is also an expression of shared understanding by the participants concerning

what is required and not required to achieve the collective goal of their group.

Provision of services: The main purpose of groups is to provide financial services to their members.

Understanding, willingness and commitment of participants to give eachother a chance to access these

financial services remain paramount to the success of a savings group. This practice translated into a

unique way of managing a group’s cash-flow collectively and it is informed by a social practice which

promotes togetherness and concern for one another.It is common for participants to resolve to make

larger savings and larger loan repayment in order to ensure that participants that book larger loans do

get them. It iscommon that larger loans are used for hosting traditional ceremonies, renovation of

houses, purchase of productive assets and operating income generating activities.

Learning by doing: Lastly, a VSLAis judged by its ability to manage procedures of all four meetings

which are establishment meeting, regular monthly savings meetings, pre-fund dissolution meeting and

fund dissolution meeting. At the centre of the operation of a group is maintenance of the integrity of

financial records. Generally, the following were observed from the books during the observation

meetings of a VSLA.

Figure 6showing procedure of a savings meeting

Continued capacity development and learning in VSLAs is one of the key pillars of success. Learning

in a group is embedded on the operation methodology which includes developing a qualifying criterion

of members, developing a common goal, establishment of rules and procedures for governing and

operating a group, minimum saving amount as well as the duration of a savings cycle. Legitimate

coercion is atthe centre of governance and operations of groups. It was also found that financial

capability and financial knowledge (Nanzir and Leibbrandt, 2018) are most critical domains in

contextualising learning and practice in VSLAs.

Concluding remarks

This section has demonstrated the ability of participants to analyse and evaluate their past and the

present financial challenges,and use community-based financial institutionsand in particular the

VSLAsas theirplatforms to predict the future by establishing systems to achieve collective goals. It

has shown that relationship management and teamwork are at the centre of a well-functioning group.

When combined, relationship management and teamworkempower groups to build cash reserves and

empower participants to moderate their cash in the context of marginalising realities.The key

components of learning and practice happening in VSLAsmainly include the use of legitimate coercion

and construction of shared financial knowledge that is used resolve scarcityof cash in the village. This

VSLA

meeting

Confirm balances

Pay contributions

Repay loans

Issue new loans

Confirm balances

Other matters

Book future loans

Confirm net worth

section has shown how participants persuade, inspire and guide them towards the achievement of a

shared goal, shared responsibilities and shared rewards.Essentially this section lays the basis for

collaborative competency.

2.7.3.Discussion of theme 2: cultural competency

This section respondsto the question: To what extent do practices in community-based financial

institutionscontribute to betterlivelihoods? Continued financial exclusion clearly points to remnants of

marginalisation ofAfrican descent and manifest itselfas structural inequalities and persistence of

economic inequalities.

Impact of marginalising structures

The purposeof this section isto provide the basis for discussing cultural competency by briefly

introducing the impact of marginalising structures. The significance of marginalising structures is their

ability to reproduce inequalities and to sustain the status quo. Marginalisation stemsfrom powerful

public structures build on colonial ideology which continue to privilege the few and especially people

of Western origin. Structural oppression permeates throughout private and public institutions creating

a symphony of inequalities that complicate all efforts of the poor to claw their way out of poverty.

A specific reference is made to under-development of rural communities. Under-development in these

villages makes it difficult to attract all forms of services. Consequently under-development leads to

greater likelihood of experiencing culturally and racially biased community services and in particular

financial services. Yet, policy makers, governments and development practitioners have explicitly and

implicitly attributed unpalatable socio-economic outcomes in vulnerable settlements to business

community retaining matrixes of oppressive systems. In other words, intersecting oppressive systems

and poverty penalty impact most people living in marginalized settlements.

Structures of domination have infiltrated societal norms with a specific hegemony that justifies co-

existence of privileged and dominated groups. For the purpose of this study, knowledge about

institutions of dominations is inextricable linked with power and savings groups is not a movement void

of power. In fact, savings groups have intelligence to acknowledge historical injustices, cultural

competency and power to presentnecessary foundation on which to amass their power to improve

financial education outcomes.

Perceptions aboutcommunity-based financial institutions

The purpose of this section is to present perceptions that participants hold about how they are perceived

by outside institutions. Participants identified non-governmental organisations, shops and banks as the

main formal institutions thatcommunity-based financial institutionsinteract with for different reasons.

In this study, these organisations are referred to as positive externalities because they support groups to

achieve their goals.

“Sonke siyazidlala izitokofela.” Women from all social classes, whether social grant

dependents, vendors or high salary earners participate in different types of stokvels.”

“... but again, these shops benefit a lot from our efforts. They patiently wait for us to bring

thousands and thousands to them, year in and year out!”

The above simple confirms that community-based financial institutionsare no longer a reserve for

financially excluded individuals. Generally, community-based financial institutions are perceived as

self-help platforms that are rooted in communitiesto provide alternative and/or additional financial

services to their members and villagers. Historically thesegroups were established and operated mainly

by low income earners, and largely by women for the purpose of providing alternative financial services.

However, participants confirmed that the existence of multi-purpose thegroups that are operated by

formally employed people. The majority of participants belong to burial societies, end-year grocery

groups and multi-purpose savings groups. In the main, multi-purpose savings groups that are operated

by participants in this study are focused on household consumption, farming inputs, microenterprise

development and home improvements. Reciprocating was found to be a major driver in defining the

role of savings groups and learning that happens in savings groups. Participants confirmed that their

social networks are enhanced by savings groups and therefore extend beyond saving groups. Obviously,

groups are established to help participants to transact with business and in particular wholesalers and

retailers found in nearby towns.

With regards to home improvements groups, participants buy household assets such as catering

equipment (gas stoves, large pots, plates, cutlery, tables, etc.), appliances such as stoves and

refrigerators, furniture, linen, blankets and many other dignity enhancement products. They also

renovate and/or upgrade their homes, for example, adding on one extra room. Participants view their

savings groups as providing financial resources for wholesalers and retailers to grow their businesses.

For government, savings groups can be refined to provide solutions to state failures in local economic

development and provision of social services.

“This is the second organisation that is helping us to run our groups. However, Mahlathini is

doing more than the first one. We do broilers, we produce eggs, we do tunnels, we protect our

springs and some operate farmer centres. At the centre of improving our farming skills, we

mobilise savings.”

Participants also listed and discussed a number of non-governmental organisations that used to work in

their villages and that are currently supporting them. Collaborative platforms that are facilitated by

supporting NGOs help VSLAsto learn from one another. NGOs have been found to play an intrinsic

role of facilitating community dialogues and development programmes. In addition, NGOs act as

mouthpiece of underserved populations. The combined significance of these NGO-led community

interventions is that they retain the moral conscience in communities and build bridges between

community and state institutions. In other words, the relationship between NGOs and communities they

serve deliver multiple channels of collaboration compacts especially in terms of NGO-led project being

places of community learning. Through such projects, the voices of marginalised citizens become

louder to the ears of the dominant social groups, in some instances are politically empowered to

negotiate more favourably for their community institutions.

However, involvement of NGOs has notbeen without weaknesses. It was discovered that participants

shy away from attending events that fall outside their socio-economic interests. It was also discovered

that the pursuit of particular goals tends to overshadow goals that do not present immediate sources of

sustenance. In other words, the sense of commitment only develops when participants can see

immediate results that resolve their challenges. Without the necessary information and guidance on how

to participate in economic development agenda and proper capacity building, it becomes nearly

impossible for excluded populations to become financially relevant. Participants reported that NGOs

that support savings groups refrain to pressure dominant institutions of power into fulfilling their side

of the deal that impact directly to social change.

Community-basedfinancial institutions in their own right

Basically, the dominant hegemony perceives community-based financial institutionsas:

Instruments used to reach poorer and more vulnerable populations where formal financial

institutions could not reach. According to Floro and Seguino (2002), poor and unemployed

households often employ savings groups to mitigate the impact of unexpected income shocks

and emergencies.

The study confirms that the largest constituencies of savings groups are women as previously recorded

in the introductory sections of this paper. There is at least one overarching perceptions pertaining to the

dominant role played by women in groups: women are champions and the largest majority in groups

because they use cash that they draw from their groups to run their households.

These findings are consistence with the observations of Ngcobo (2019), and that groups are usedby

participants to meet life-cycle events (Rutherford, 2000) and mainly household expenses which

ordinarily individual women wouldn’t afford. This observation corroborates with Triegaardt(2005) that

savings groups are communal financial institutions that provide for a wide range of household needs,

from focused savings, consumption smoothing and planning for burials. Further tothis, Matuku and

Kaseke (2014) see savings groups as providers of mutual aid arrangements; as enhancers of social fabric

and strengtheners of social security protection endeavours.

In as much as participants admire that drawings and lump sums from VSLAshelp them to afford

household consumption expenses, there is a view is that thesegroups are marginalised and victims of

the capital market.

“At the start of the year, we come together to save. We take small loans during the year to buy

what we need. In this village alone, hundreds of thousands are spent in town to food, building

materials, appliances, pots, and seeds and fertiliser. Our purpose is to live.”

Clearly, participants are not frustrated not by the fact that the majority of members of thegroups use

their drawings and lump sums for household consumption expenses, but are concerned that market

players that exclude them benefits immensely from their efforts. This perception appears to perpetuate

the idea that groups are conformists to the dominant narrative. However, this view fails to understand

that the groups are not established to conform or to take part in theregulated financial system. VSLAs

are designed for use, which is to provide financialservices to financially excluded population so that

they are empowered to better their livelihoods.

“We need to live. We need to feed our families. We need to build our homes and provide for

our children. We agree, money is scarce, but savings groups have provided us with a web of

alternatives to makelife better for our families.”

The above quotation defies aEurocentric view about savings groups. Eurocentric view suggests that

the biggest dilemma facing savings groups is the huge amounts of savings do not benefit them beyond

short-term household consumption. This dilemma aligns with the view of Bateman (2010), Duvendack

et al., (2011) and Mader(2015) that some international investors have commercialised poverty and

generated huge interest from savings groups either by pushing them into consumption or at worse,

trapping them into debt.

However, participating in financial services vehiclesthat by design exclude the poor and the vulnerable

populations were no of a concern for participants. Instead, the study found evidence in the form of

multitude of groups that help them to survive challenges that they face. Instead, participants are so used

in managing their cash-flows without the support of the state and capital markets. Capital markets and

formal financial institutions is not their concern. Epstein (2005) argues that capital markets shifted the

role of financial management from the state to individuals, and this has been the case with savings

groups for more than a century in South Africa.

In this instance, the study confirmed the existence of different types of community-based financial

institutions operating in the research sites. It was also found that participants take part to more than one

group as a strategy of managing their cash-flows and building reciprocating social networks amongst

them. In this instance, reciprocity is described as social insurance that promises the “premium payer”

similar support from the recipients of the “premium”.

“Women that shy away from participation in savings groups struggle to make ends meet. You

see them suffering when there is a death in their families.”

“As for me, I can simply say, they lose out from not being part of us. Phela izandla ziyagezana.

We help one another here.”

Izandla ziyagezanasimple means one hand washes the other. The external environment and external

perceptions influence groups to responds to challenges they face in many ways. The external

perceptions about groups have influenced participants to establish and operate focused multi-purpose

savings groups that cover a wide range of financial needs. These needs include cash for emergencies,

burials, food, home improvements and enterprise development.

Perceptions influencingparticipation in community-based financial institutions

The purpose of this section is to demonstrate how external perceptions influence community-based

financial institutionshow they see themselves. This section starts by presenting reasons for participating

in community-based financial institutions. It then proceeds to present savings groups as agents of

different types of knowledge that is generated and circulated in savings groups and the village.

Specifically, the section demonstrates how participants share and expand their knowledge base by

constantlyupgrading their capabilities to meet their collective financial goals.

Major reasons for participating in community-based financial institutions: The largest majority of

participants are recruited into these groupingsby observing and talking to their relatives, friends and

church members. As Matuku and Kaseke (2014) have observed, participants believe that social

networks, living in close proximityto one another and mutual support they receive motivated them to

join thegroups. Aligned to the observation of the power of social networks is the continuous

strengthening of social bonds. Matuku and Kaseke (2014) observed that social networks in the form of

friendships transform groups into community learning platforms where participants are free to

revealing, discussing and learning from experiences of others and finding solutions for problems that

they face. It is in this ways that participants in groups are empowered psychologically, socially and

financially to face whatever challenge life throws to them. Therefore social networks and social bonds

are the main drivers and shapers of thegroups.

The second motivator for villagers to participate in community-based financial institutions is support

participants receive in times of social and economic crises such as death and scarcity of cash. This is in

accordance to the observation of Mashigo and Schoeman (2010)that the groups cater empower their

members to budget and save for both predictable and unpredictable expensive events. A number of

studies confirm that savings groups help members to meet their basic needs alongside saving for

expensive projects such as building or renovating houses and buying expensive household assets

(Matuku & Kaseke, 2014). Further to this, Matuku and Kaseke (2014) found that savings groups educate

and promote teamwork and allow participants to practice trust, honesty and integrity by providing them

sense of belonging and centrality of collective responsibility in all activities of community-based

financial institutions.

How external perception influence how savings group see themselves

The diagram belowserves two purposes. Firstly, it demonstrates the versatility of savings groups.

Secondly, to demonstrates that savings groupsare not only established for investment purposes but for

maximising circulation of cash that help villages meet life-cycle and income generating priorities.

Figure 7showing perceptions participants have about their savings groups

IsiZulu saying of umuntu ngumuntu ngabantu translated as I am because you are; and another similar

saying: izandla ziyagezanatranslated as one hand washes the other simple reflect the

interconnectedness and interdependence of people and their cultural practices. Umuntu ngumuntu

ngabantuand izandla ziyagezanaare practices found in community-based financial institutions. VSLAs

in particulartprovide a space for participants to learn good social practices and to unlearn bad

participants. Similar reciprocating practices are observed by Hlela (2017) as well. Isiphekois where

Participants’

perceptions

about savings

groups

Cash to cope with stresses

and shocks, and life-cycle

demands

Improved food

security

Community

water resource

management

Cash to start and

operate income

generating

activities

Co-operative

buying of

groceries

Improved cash-

flow

management

Co-operative

buying of

business inputs

Pay-off

loan sharks

Improved debt

management

villagers make a contribution, be itfood, liquor or livestock towards a household that has hosted a

ceremony (Hlela, 2017). According to Hlela (2017) isiphekocan extend to including helping a hosting

household with fetching water and firewood. It was also found that buying from vendors that are

members of VSLAsis borne from the cultural practices of Umuntu ngumuntu ngabantuand izandla

ziyagezana.

In this instance, participants operate VSLAsbecause of common understanding that they need each

other to solve challenges that they face and to navigate life in general. For instance, taking turns in

taking microloans, sharing lessons and giving advice are all forms help enjoyed by participants being

members of savings groups. Similarly, doing anything contrary to the common good is discouraged as

bad practice. For instance, failure to settle micro-debt robs others opportunity in taking out loans they

need to meet the demands of life-cycle events of their households.

In this community a VSLAsaredefined as the ‘womanhood coaches’ because women, young and old

get to share their experiences and ways to navigate life asproxy head of their households. Accumulation

of household assets, for example, means better social status, the ability to live better and the ability to

reciprocate help to others. It was found that access to women defining household assets such as pots,

dishes, linen, blankets, water drums, planting implements and many other items ismostly learnt from

VSLAs.

Concluding remarks

Establishing consensus regarding the ingredients oflearning and practicehappening inVSLAshas not

been an easy task. The main difficulty is that activities happening in VSLAsare contextualised and are

subjected to interpretive analysis and measurement by their operators and external organisations that

discount the role of cultural competencies. However, the bottom line isthat cultural competency

dominates VSLAs’ practice andmakes it possible for participants to choreograph financial knowledge

and validate perceptions they have created. As a collective entrepreneurship enterprise, cultural

competency provides organisational momentum for participants to prototype and test ideas that promise

to improve their operations. VSLAsexhibit a sense of accountability and sustained effort in achieving

the collective goal of the group.

Support provided by non-governmental organisations and specifically MDFremains crucial for creating

a space of “learning by doing” whereby participants find solutions to development problems. Besides

improving knowledge and skills in working with non-governmental organisations, participants

continuously develop principles, methods and useful tips to steer participatory processes in savings

groups. This knowledge and skill is shared by villagers in their respective VSLAs.

2.7.4.Discussion of theme 3: collaborative learning competency

Given the hostilities imposed by underdevelopment and marginalization, thistheme explores the ability

of VSLAsto design and implement peer learning interventions regarding financial services.Drawing

from emancipatory competency discussed above, collaborative competency promotes disruptive

interventions that aligns and re-aligns VSLAsto transact with regulated businesses. The significance of

this competency is that it promotes peer learning that is manifested by diversification of income streams,

building of cash reserves, cash moderation and co-operative buying. The purpose of this section is

therefore to dissect peer learning competencies that describe VSLAsas reservoirs of contextual and

socially generated knowledge.

VSLAsmeetings as social learning spaces

In the case of VSLAs, social learning is a story written and narrated by participants (membership) and

their immediate households. Social learning is experienced and lived wisdom that is distributed through

a web of social networks in communities. In VSLAs meetings, the participants bring their insights for

moderation and forbuilding collective intelligence. In other words, participants configure a savings

group to be; (a) a transaction vehicle that builds and sustains a pool of cash; (b) a most responsive credit

provider; and (c) a barometer of success regarding building and strengthening livelihoods. As a

barometer of success, VSLAs, make it possible for participants to transact withtheir local market as a

result of improved access to cash. The significance of such configuration is that it uses collective moral

manipulation to buffer VSLAs from disruptions that may be presented by individual financial pressures.

I therefore argue that VSLAs represent a growing field of hybrid action for wider recalibrations of the

role of financial education curricular that is generated from practice. This is because VSLAs provide a

social infrastructure for peer learning regarding provision of financial services to marginalised

households. Three areas of learning that happens in VSLAsare discussed under the following sub-

headings:

•Managing external influence

•Shared legitimacy

Managing external influence

This section describes how VSLAsmanage influence coming from the banks and shops that they may

transact with.

“If we were to take our monies to the bank, we wouldn’t be able to provide ourselves with loans

when we need them. We will starve to death waiting for a bank to give us our money back when

we most need it.”

As a result of unpalatable experiences withthe banks, many VSLAsopt to resist some products and

services offered by formal financial institutions, and specifically, banks because of two reasons. First,

participants fear ever-changing bank fees and other transactional expenses. Participants specifically

singled out transport fares and risk of carrying large sums of cash by public transport to the banks.

Secondly, participants perceive bank products and services as designed to benefit the banks rather than

meeting the needs of VSLAs. The imposition of English as a business language has been singled out as

a strategy used by the banks to bar meaningful participation of savings groups in banking products.

Participants maintained that many VSLAscontinue to deflect influence of promoters of products and

services that would require their groups to transact with a bank. The main reason participants resist

bank servicesis experience of not getting their money when they most need it. They maintain that

transacting with a bank risk deepening scarcity of cash and derailing savings groups from reaching their

goals.

“The significance of buying groceries in bulk in December is that it relieves us pressures to

have cash to feed our families while we face financial pressures associated with schools a the

beginning of the year.”

“It is not our goal to buy food for the entire year but to have dry food stuff that would at least

last for the first three to four months of the year. That is our goal, and nothing more.”

The above statements confirm that cash moderation is the main goal of VSLAs. Bulk buying of food

items at the end of each year helps participants to moderate their cash. Interestingly, it was also

discovered that all VSLAsthat have participated in this research have either stopped or refused to

deposit their money with wholesalers and national chain retailers for two main reasons. First, they

acknowledge that loss of opportunity to building a loan fund which would have provided them with

credit. Second, participants acknowledge that they immediately lose authority over their money and

freedom of choice once the money is in the hands of retailers. Participants have learnt that they cannot

change a retailer even if prices are inflated, and worse, if service deteriorates.There is consensus that

participants should maintain VSLAsas sovereign organisations in their own right. Sovereignty of

VSLAsessentially important because it gives total freedom to participants to implement decisions that

make VSLAswork for them.In other words, participants continuously shift collective experiential

learning into experience which is continuously moderated by their everyday realities and is replicated

within and outside the business of VSLAs.

Shared legitimacy

The relationshipbetween VSLAs, their founders and operators is built and sustained by continuous

generation and dissemination of knowledge. VSLAsare deeply embedded in the institutional setting of

their communities and neighbourhoods. The purpose of this section is to demonstrate howknowledge

is generated is shared to build and strengthen legitimacy in VSLAs.

“I was not part of the establishment of my group. I think I joined them in their third year. I have

learnt a lot since then.”

“Many of us participate in two or more groups. Wedo the same thing in all groups.”

The above quotations confirm that knowledge is acquired from savings groups through other

participants. This act transforms a VSLAinto a learning platform. Participants learn from each other,

adapt and share experiencewith a sole purpose of enhancing capacities of their savings groups to cope

with change.

Given resource and constraints VSLAare required to find ways of keeping a fair balance between

exploration and experiential learning in dealing with the complexity of financial education and

provision of financial services. Social bonds and social networks are readily available resources for

generation and consumption of financial education which specifically respond to the financial needs

VSLAsand their participants.

Knowledge transferability between and amongst participants of a VSLAis one the pillars of the

organisational capacity to deliver the goals and objectives of VSLAs. Organisational capacity is

dependent of social capital that exists amongst participants and how they strengthen the legitimacy of

the group. It is the legitimacy of VSLAsthat facilitates the exchange useful knowledge amongst the

participants. The main channels of building legitimacy are meetings, joint activities as well as networks

of social relationships and interpersonal ties that already exist.

Shared legitimacy through sharing of knowledge is required in different situations in terms of operating

VSLAsand is connected to the success of savings groups. Savings groups need to transform experiential

knowledge and general knowledge about managing money into collective legitimacy. Experiential

knowledge of governance, rules, norms and valuesestablish strong foundations fororganisational

framework. This is basic knowledge savings groups require to operate and to perform its core activities

well. Basic knowledge is embodied in organisational routines and relates to efficiency of VSLAs. This

combination of knowledge builds and sustains shared legitimacy. The significance of networks of social

relationships and joint activities in VSLAscan be summarised as follows;

•VSLAsgain and sustain legitimacy. The purpose of existence is shared by all participants.

•Sharing of knowledge and the discussion of innovative ways for solving problems is enhanced.

Experienced participants are able to share their experience openly.

Exploratory learning

VSLAsgain and deepen their knowledge base from the membership and other groups that their

members had been to. Asa community learning place, VSLAsconsolidate knowledge and experience

by experimenting with it before it institutionalised by a number VSLAsin the village.

Institutionalisation of knowledge and practice over time tends to deepen learning and absorptive

capacity on the part of the participants.

In the case of VSLAsand many other organisations, peer learning facilitated and reinforced by

organisational routines and practice. Peer learning takes two forms which are experiential or

exploitative and experimental or explorative learning. Historical experience is the biggest component

of experiential learning while explorative learning is dependent on innovation and trying of new things

in solving problems. However, explorative learning tends to attract a lot of resistance from nostalgic

tendencies when it comes to adopting new practices. Learning in savings groups is explorative because;

•VSLAsare dependent of peer learning in the form of scaffolding and intra-organisational

knowledge transfer.

•There is constant inclination of members of VSLAsto explore better ways of managing their

group fund.

•The changing environment presents explorative learning as the only option to the VSLAs.

Establishment and operationof VSLAsinvolve a number of delicacies. For instance, at the centre of

the formation of VSLAs is a self-selection process. Basically, self-selection is a partner choosing

exercise and is dependent on common bonds and reputation of intent partners in the community.

Participants confirmed their capacity to do the following activities:

•Build their financial institutions which help them to meet the demands of life-cycle events.

Establishing and operating a VSLA demonstrate a number of skills and competencies such as

an art of persuasion and negotiation as wellas crafting common development goals and

managing savings meetings.

•Participants were observed managing their monthly savings meetings which proved their

capacity to observe rules, manage group fund,keep transparent records books and deliverto

the goals of their groups.

•VSLAswere found skilled in terms of cash-flow management and in particular with regards

to deposit taking, granting of loans, calculating interest and taking loan repayment. Cumulative

loans in groups demonstrate the level of trust and commitment of participants. It was noted

that most of the loans are settled at least two months before the group fund dissolution meeting.

This also shows high levels of budgeting, delayed gratification on behalf of the participants as

well as transparent and trusted records of savings groups.

•VSLAs were observed discussing social development priorities and income enhancement

strategies. For instance, participants were able to organise their community to find ways of

resolving water scarcity in the village. Other participants confirmed using micro-loans and

lump sum payout for farming and selling consumer products in the village.

VSLAs have provided a platform for the participants to educate themselves about money and money

management thereof. VSLAs have provided them with a formula that galvanise participation and

commitment of participants – and in the process de-weaponising ill connotations about money. Money

as a root of all evils, debt and greed are common connotations associated withit. However, participation

in groups have empowered participants to appreciate money as an instrument of accumulating

household assets, strengthening social bonds and participation in local trading activities. They see debt

that VSLAs provide as a bridge to better livelihoods.

Participants also applauded their role in disseminating financial education to their neighbours, relatives

and friends that are not members of VSLAs. Participants believe that they are responsible for educating

themselves through VSLAs so that they are able to pass lessons for members of their households to

make better financial decisions. It was very clear during the engagement with VSLAs that participants

perceive their groups as platforms for discussing broader community challenges.

It was observed that thelargest majority of participants in VSLAsare social security grant beneficiaries

who use theirgroups to supplement their meagre incomes (Matuku and Kaseke, 2014). It was found

that the main priority of participants that are dependent on state welfare grants general knowledge and

skills for managing moneythat is tailored to meet both the goal of a VSLAs and individual participants.

Experiential knowledge and general knowledge about managing money are inter-dependent, and when

combined they generate value for VSLAs by facilitating healthy and well-functioning organisations. It

is for this reason that experiential knowledge is routinely used by participants to complement general

knowledge about managing money. When combined,both experiential knowledge and general

knowledge increase opportunities for VSLAs to achieve collective and individual financial goals. As

VSLAs develop, they accumulate experiential knowledge by changing or upgrading routines,

governance and administrative structure that had been developed earlier.

Managing social risk

This section wants to demonstrate how participants have learnt to manage risk associated with operating

their VSLAs.

The hegemonic view of financial inclusion is that every citizen has access to financial products, and

citizens have adequate competence to select most appropriate financial products they require to manage

risk. However, VSLAshave long time taken social risks from the state by helping participants to self-

regulate their financial and economic affairs (Lemke, 2001).

“We sometimes struggle to settle our debts in good time for dissolution of group fund, but we

always find ways to resolve this. As for me, participation in two or three groups is most

beneficial in managing my monthly contributions, settling debts and maximising financial

returns.”

“I have found that being a member in two savings groups helps a lot in terms of managing your

cash. Idon’t take out loans from both groups in the same month. Sometime I use part of my

loan to make substantial contributions to another group.”

“It is not bad thing to borrow from your group to buy items that you wouldn’t have been able

to buy them on cash basis.”

The above expressions of the participants demonstrate the following:

•Participation in more than one VSLA is a cash-flow management strategy. However, it requires

serious discipline for a participant to draw maximum benefits from doing. It is a risk

participants are used to take. In the same vein, larger savings groups have a powerful ability to

pool financial resources and leverage their larger size to reduce the risk ofinability to issue

larger loans when they are needs. Larger VSLAs benefit from economies of scale when

compared to smaller savings groups. However, larger loans have exposed VSLAs to risk and

specifically when members fault in managing their cash-flow resulting in delays in settling their

loans in record time.

•Some participants provide detailed strategies to make cash-flow management decisions

including avoiding deceptions and instant gratification resulting from anxiety to acquire

household assets. Having peers watching over financial decisions in savings groups, it becomes

habitual to separate needs and wants and to budget accordingly for expensive purchases. It was

found that some participants use an “envelop system” for budgeting purposes and for ensuring

discipline. For instance, they would put amounts of money in different envelops or cloth bags.

For example, budgeted amount for groceries would be put into a different envelop or bag to

money for appliance, house renovation or any other budgeted item.

•Participants confirmed that they had to reconfigure their spending patterns, “draw” mind map

budgets and allocate money for savings and repayment of loans as well as other financial

contributions to other groups such as burial societies. In the event of a death of neighbour, and

irrespective whether she or he was a member of any group, participants contribute towards food

expenses of a bereaved family. Participants do budget for such eventualities. This practice is

resembles ukwenana. The same practice is done for traditional ceremonies where participants

buy blankets and/or groceries for a hosting family.

The above demonstrate how VSLAsmanage risk. What is clear is that the business of a VSLAdoes not

when a meeting is adjourned. Participants continue engaging one another outside the meetings of their

groups. For example, there are many instances where participants act as reference points forproducts

they plan to buy with regards to quality, usability, price and other specifications that meet their

expectations as prospective buyers. In other words, informal evaluation about the products is a common

risk management practice amongst the participants. This practice helps participants to avoid falling prey

of scrupulous sellers who sell them inferior products. When it comes to bulk buying of groceries and/or

farming inputs, participants develop shopping list beforehand and walk to different shops to compare

specifications, quality, variety and prices as well negotiating discounts. Between 3 and 4 participants

will hire a local van or truck and divide the delivery costs amongst themselves.

Reciprocity anchors learning

This section demonstrates that reciprocity promotes financial education in VSLAs. Ordinarily,

operating a VSLA attracts transactional costs,and in this instance, time invested by participants.

However, social ties and social networks have proved to be themain assets for learning and reciprocity

in a group. Networks and social bonds amongst participants provide endless reconfiguration

possibilities for savings groups to explore new knowledge and capacity to adapt to changing

circumstances using their meagre resources. In this instance, reciprocity is expressed by four main

practices, namely;

•willingness and commitment of participants to invest their time in operating their savings group

free of charge;

•participants sharing their experience;

•participantsacting as proxies when other participants are unable to present themselves to

meetings; and lastly

•participants helping one another outside the core business of savings groups; for example,

buying of groceries and blankets for bereaved families or families hosting traditional

ceremonies. These four experiences are regarded as leading indicators of a well-functioning

savings group.

In the case of financial education happening in VSLAs, participants engage in a process of prioritising

needs before wants; investigating product specifications, quality, usability and price; and breaking down

the price so that affordable portions of money are put aside for few months before a product is bought.

It was found that there are few vendors or sellers of household items including fresh produce after

savings group meetings. In other words, participants are trading between and among themselves.

In the case of VSLAs, social learning typically involves a series of choreographing of learning during

savings meetingsand behind the scenes where experts share their experiences with amateurs. The most

commonly mentioned way in which people work together is bulk buying of groceries and agricultural

inputs such as seed, seedlings and fertilizer as well as collaborating infinancing transporting what they

buy back their respective villages. VSLAsare social learning communities because they help

participants to;

•engage about the subject of money in safe environments of their choice;

•process and filter out useful and useless information about their core business. They present

multiple opportunities for participants with comprehension of financial education that is

useful;

•remain consistent with the practice and allow participants to choreographtheir knowledge

about practiceeducation and VSLAs; and

•unknowingly create “tribes of trust” that are not sanctioned by parent VSLAs. There could be

more than three tribes of trust in one savings groups. There are neighbours, friends and

relatives that walk together to savings meetingsor collaborate in household chores. The

significance of these tribes of trust is their subtle ability to challenge redundant systems, ritual

practices and stories that no longer add value to savings groups. It is in this way that the culture

of social learning is created and nurtured.

Essentially, VSLAscreate learning spaces where participants bring along their experiences to the

learning spaces and run through unending loops of experience and sense making. Collectively,

participants in savings groups guide one another through a series of reflections and sense making.

Reflections and sense making bring in new vocabulary and common language but that is only

meaningful to the participants in the activity, and is usedto explain relevanceand functionality of an

organisations, and in this case, savings groups. The significance of unending reflections is that they

allow story tellers or sharers of individualised experience to filter and to integrate pockets of new

knowledge into existing frames of reference. This phenomenon of integrating pockets of new

knowledge is supported by Weick and Westley (1996) with regards to the adoption of a more thorough-

going process perspective of updating and re-punctuating of continuous experience. Further to this, in

Colvilleet al., (2016), sense making requires paying attention on the part of the sense-maker and to the

content that guides the unfolding of experience in order to accomplish sense making. This view that is

shared by Colville et al., (2016) collaborate with Weick (1995), Chen, Irving and Syre (2013) and

Odden and Russ (2018). According to Weick (1995), sense making is about a continuous construction

of a relation between two moments, which are past moments of socialization and current moments of

experience (Weick, 1995). According to Chen, Irving and Syre (2013), sense making includes making

connections to lived experience and coordination of multiple representations in finding the most

reasonable solution to a specific problem (Chen, Irving & Syre, 2013). Lastly,Odden and Russ (2018)

summarise sense making as an iterative process of building usable explanations and coherent ideas out

of a mix of everyday experiences (Odden & Russ, 2018). However, reflections and construction of new

knowledge alsoraise serious challenges in terms of collaborative arrangements with other savings

groups in other localities, and worse with external institutions such as banks, insurance providers and

wholesalers. Relationships at this level are characterised by high levels of distrust.

In VSLAs, participants not only explore activities happening in their groups, but also how and why the

mechanisms behind the phenomena of their groups work for the benefit of the collective. In this

instance, participants observe the physical phenomena employing a combination of visible and invisible

actions that are organised relative to one another and how these activities influence their savings groups

as organisations to adapt to changes that are imposed by participants from time to time. The significance

of this is that group-level sense making is built on individual frames of sense making and is facilitated

by continuous collaboration and communication (Odden & Russ, 2018). Cited in Odden and Russ

(2018), Schwarz et al., (2009) concludes that sense making is about specialised representations that

embody aspects of predicting and explaining the phenomena and consequently constructing meaning

making frameworks.

Clearly, reciprocity and non-formal learning are connected and are enhanced by skills development

initiatives provided by non-governmental organisations. The significance of non-formal learning is its

ability to blend organically to what savings groups do and plan to do.However, it was noted that savings

groups do not use everything that they learn from providers of non-formal learning, and in this case,

non-governmental organisations that support them. It was found that savings groups only consume what

they value from financial education curriculum through subtle subversion of the expectations of

hegemonic financial education. By consuming some aspects of formalities, savings groups have been

able to achieve greater consistency in terms of governance and operations.

Concluding remarks

This section has shown inter-learning that happens amongst participants as a result of using VSLAsas

a platform for resolving scarcity of cash in their villages. This section has also shown that VSLAs

improve diversification of incomes through consumption and business loans.

Participants see themselves as owners of VSLAswho operate primarilyforconsumption smoothing

and accumulation of household assets. They thus consider themselves as running a sovereign financial

institution. About50%of the participants could confirm their intention to use build-upof drawings

from theirgroups to start and/or improve their enterprises. The remaining participants are still focused

on household asset accumulation and consumption smoothing. Ownership of household productive

assets is associated with net-worth, power and status of a particular household because over time some

assets are used to generate income. Finally, this section has demonstrated the significance of inter-

learning with regards to using of drawings in the form of short-term loans and lump sum cash payout

at the end of each savings cycle. This is most significant because VSLAsfacilitate positive inter-

learning and financial behaviours and foster consistent accumulation of assets that participants employ

to survive marginalisation.

2.8.Key lessons

The common denominator is that community-based informal financial institutionsoperate in the same

geographic area and are usually established by people who trust and know each other very well people.

Membership, rules of participation, beneficiation, operation, contributions, etc. are governed by a

constitution. Common bondswere mainly geographical. The study confirmed that traditional groups

are usually established by people of the same gender and of a similar social status. However, few men

are found in VSLAs.

Participation

Three motivators for participating in community-based financial institutions were listed as follows:

•Participants wanted to engage in a collaborative scheme that establishes a usable and alternative

vehicle for people to meet their individual financial goals

•To use peer pressure to motivate individual members to save regularly

•To build alternative member-operated institutions that provide key financial services which are

short-term micro-loans, micro-funeral insurance and lump sum payouts at the end of a savings cycle

Based on the above three motivating factors, participation means that a group of people that are known

to each other must share a common goal and remain committed in doing what they do best on regular

basis. What is also central to participation is the primary focus on building and maintaining social

relations on matters that concern the creators of a community-based financial institution. Participation

is the bedrock of collective responsibility, co-learning and practice (Lave & Wenger, 1991).

Primary purpose of the VSLAs

The purpose of this section is to show that VSLAsare not established to resolve financial challenges

beyond communities they operate. The key components that define learning in groups is access to, and

careful application of shared financial knowledge regarding operation of a VSLAfor the purposes of

improving cash-flow management and resolving scarcity of cash. It has been argued that the pro-poor

microfinance programming improves social capital and leads to economic empowerment. However, the

reality on the ground somehow deviates from this pattern, especially in relation to economic

empowerment as defined by hegemonic economic narratives. To suggest that VSLAscan have an

economic impact as a result of financially empowered citizenry is a noble adventure, but VSLAsdo not

transform into collective action beyond their founding goals and most importantly, their localities.

“We are happy to be supported by non-governmental organisations and not by somebody else.”

Participants were only motivated to attend meetings and workshops that happen in their neighbourhoods

making it difficult to deliberate on macro-economic issues even at a level of a community. Participants

argued that their VSLAshave nothing to do with economic development agenda that is championed by

state institutions since such programmes do not factor the priorities of the groups. Participants believed

that risk of disharmony would be very high if VSLAswere to entertain economic development projects

championed by the state. This finding collaborates with Taylor (2012) that financial educationthat is

driven by international development agencies appears to be concerned with consumption smoothing

and stabilisation of poverty. However, participants argued that remaining in their communities protects

the sovereignty of VSLAsagainst possible capture by foreign elites which includes state-driven and

donor-driven development agendas.

Support by NGOs

The absence of support systems in the face of failing development endeavours of the state, participants

had abandoned activities that promote collective action beyond programmes supported by NGOs. This

is a direct result that participants do not have the luxury of time to participate in any other venture that

does not have external development champions that are sponsored by NGOs. The immediate

consequence is that savings remain unable to gather the required momentum for alternative people-

centred ideologies. NGOs operate in communities for specific purpose and prefer not to engage in

ideological dialogues that seek to challenge and change the status quo. As an alternative, NGOs focus

on sustainable livelihoods development priorities for the purpose of mitigating effects of poverty.

VSLAs strive and prosper where they are mainstreamed to a community development programme such

as CbCCA that is implemented by MDF.

General practice of VSLAs

The general practice of VSLAs can be summarised as follows. (a) VSLAs take deposits and use them

to build loan fund that is used to provide short-term loans to borrowers. (b) Loans are issued at 10%

interest per month on outstanding balances. Loans are settled in three to four months. (c) VSLAs

dissolve and distribute their loan fund that has grown at the end of a savings cycle which is usually

twelve months. Some VSLAs partly dissolve their group fund just before the planting season for the

purpose of buying farming inputs.

Key findings describe VSLAs as; (a) empowering financial institutions; (b) as platforms of learning or

places of learning; (c) promoters of financial discipline; and (d) reciprocity of support. VSLAs empower

participants with cash-flow management skills. Participants use VSLAs to keep track of their finances

by helping participants to keep a right balance between their income sources and expenses. This allows

participants to make ends meet because they are empowered to used some drawings for consumption

smoothing during the savings cycle and reserve lump sum cash pay-outs for larger expenses at the end

of each savings cycle.

Collaborative learning was found central to empowerment. Collaborative learning promotes financial

discipline and delayed gratification. Participants make regular deposits to the VSLA, take out short-

term loans and repay them timeously. Basically, outcomes of financial discipline are mostly learnt from

most disciplined participants. They cash-out usefully large drawings at the end of a saving cycle. They

participate in a collective scheme, such as bulk buying of consumer goods and productive assets usually

at the end of each savings cycle.

Clearly, the success of a VSLA as an agent of learning, practice and change is not only measured by its

performance, but it is also measured by what participants do with money with regards to improving

their quality of life. Regular savings meetings and participation in supervisionsessions that are

facilitated by NGOs support members of VSLAsto make informed financialdecisions.

Unpalatable experiences

“Some savings groups have collapsed as a result ofbad behaviours of few members. Some members

believe that they are too knowledgeable to be guided by newcomers in groups.”

“The most disturbing experience is postponement of dissolution meeting because few members are

unable to settle their loans.”

The above summarise some ugly experiences ofthe participants. Reputations of community-based

financial institutions have been compromised by the unethical behaviour of some members and elites

within them. Participants raised experiences regardingmisrepresentation,collusion and defrauding of

unsuspecting members. Some groups have failed and members would join or establish new groups

every time members have been defrauded.

Relationships between members and their groups are contractual, formally establishing roles and

responsibilities in relation to the task to be accomplished and the principles of beneficiation for each

party as per collective agreement. However, these are tainted and strained by diversion of some

members from the expected behaviours.

The dynamics ofutilising VSLAsas agents of learning, practice and change aligns well with integration

and alignment of group activities of cultural practicesand reciprocity. The significance of this is that

the relationship between participants their groups as their agent makes two crucial assumptions

concerning their relationships.

Firstly, there is an assumption of uniformity and specifically that there will be no conflicting goals

between the members and the savings group as their agent. Conflicts may be triggered by differences

in desires and interests – resulting from powers given to the management committee to manage the

affairs of the agent.

Secondly, the management committee may not always want to do the work they are assigned to do by

some members, or they may not wish to do as the majority of members require. This is because the

management committees have the privilege of better information, abilities and skills than the rest of the

membership. In this instance, participants argued that savings groups collapse when other members

relegate their responsibilities to observe whether management committees are truly fulfilling their

responsibilities in relation to the task they are assigned to execute.

This assumption is valid in the context ofthe foundations of VSLAsand the relationship between

management committees and the membership. First, the interests of the membership and management

committees should remain aligned. Although there may be congruence of preferences among

management committees regarding collective mission of their groups, most management committee

members may be very concerned about the conflicting instructions and expectations they receive from

the membership. It follows that the nature of the agent’s operation may not always align directly with

individual goals of members.

Moral hazard

Participants noted a possibility of opportunistic behaviours and moral hazard in VSLAs. A moral hazard

is purposeful, unethical behaviour and intentional frustration of a group by the few.Unethical

behaviours that have been observed include clear disregard of rules and reckless lending. According to

the participants, reckless lending in particular has compromised the ability of some groups

accomplishing their goals. However, external agencies like NGOs have helped VSLAsto establish

systems for monitoring, preventing and reporting such ill practice.

2.9.Microfinance options available for smallholder farmers

This study revealed few ways rural people manage their income resources. It revealed how they stretch

and manipulate group-based savings to meet consumption priorities, buy household assets, attend to

traditional ceremonies and operate multiple income generating activities including farming. Based on

the findings of this study, the purpose of this section is to present microfinance options for smallholder

farmers and implications for the future.

Microfinance Service

Traditional Stokvels

Microfinance NGOs

Revolving credit

provided by Non-

financial institutions

VSLAs

Advantages

This is the most

understood and used

group savings vehicle. It

offers a number of

options based on ASCA

and ROCSA models.

Interest earned benefits

the members.

There is appetite and

experience to use

transaction bank

accounts.

These groups have

extensive build buying

experience.

Social capital and social

bonds tend to harmonise

the operation of these

groups. Social capital

also discourages loan

delinquency.

Resource mobilisation

is the sole

responsibility of the

NGO.

Operating systems

mimic formal banks.

Loan term can be

extended to 12

months.

Collateral is not

required for a loan,

however, a must

guarantee loans

granted to individual

members.

Resource

mobilisation is the

sole responsibility of

the NGO.

Proof of access to

production land, size

of the land, proven

production capacity

and commodity

demand are used as

criteria for loan

approval.

Collateral is not

required for an

applicant to qualify

for a loan.

Social capital and

social bonds tend to

harmonise the

operation of these

groups. Social capital

also discourages loan

delinquency.

Collateral is not a

requirement for

getting loans.

Members have total

control of their group

fund. There are

operating procedures

and rules that are in

place.

This model can be

adapted to make it

possible for members

to extend loan terms

and savings cycles

beyond a year.

The VSLA model

provides multiple

options for bulking of

loans and the use of

some bank products.

Microfinance Service

Traditional Stokvels

Microfinance NGOs

Revolving credit

provided by Non-

financial institutions

VSLAs

Risks

Fixed mentality such as

annual cycles,

consumption focus and

some practices that

disadvantage silent

voices tend to weaken

this model.

There have been reports

of fraudulent activities

by leaders of some

groups.

Establishment and

operations are the

highest cost drivers –

which may translate to

expensive microloans.

There may be

resistance to

communities with long

history of traditional

stokvels and VSLAs.

A microfinance NGO

may run at a loss.

Provision of loans

and recoveries appear

to be very expensive

as they are included

in the salaries of field

staff.

Absence of capacity

in the NGO impact

the management of

the revolving credit

fund negatively.

These NGOs may

operate outside the

provision of the

National Credit

Regulator (NRC)

which may make it

harder to deal with

delinquent borrowers.

Group funds are kept

in the village. This

exposes VLSA to

elements of

criminality; however,

this can be

circumvented by

depositing excess

money into the bank

account.

VSLA Limitations

Besides the fixed annual

cycles, poor members

tend to avoid taking out

loans, and in few cases

when they do, they only

very small loans

consumption loans.

Solidarity loan

guarantee may be

rejected by the VLSA.

Externally provided

loan may be

incompatible with the

VSLA.

Opportunities for

integration are yet to

be explored.

There could be

misalignment between

planting seasons and

availability of

sufficient loans for

farmers.

12 months savings

cycles and shorter

loan terms limit

VSLAs to grow their

group funds and to

provide larger loans.

Table 7 summarising microfinance options for smallholder farmers

The following options below are based on VSLA methodology.

•Production focused VSLA:The first option draws from traditional stokvels where members

decide on the amount of money each member should contribute each month. There are no loans

offered. Thismoney is deposited in the bank after each monthly meeting. It may benefit farmers to

ring-fence these savings for a specific commodity. Group fund dissolution can be aligned to a

planting season.

•Integration:Promote integrated savings methodology. Thismeans creating incentives for

members of different groups to migrate some traditional stokvel products to VSLAs. Specifically,

this means developing incentives that will attract monthly contributions from few stokvels such as

those that are established for bulk groceries, furniture, appliances, house construction, and so forth

– to be integrated as products of VSLAs. In this way, there will be more money that will be available

to build substantial group funds.

•Bulk Loan Fund (BLF):VSLAs can be improved to accommodate financial needs of farmers and

other village-based microenterprises. The immediate focus should include helping VSLAs to grow

group funds to meet loan demand exceeding R10000. This can be achieved in four ways. Firstly,

to promote annual bulking of loan funds over a period longer than a year. This means promoting

BLF groups and helping VSLAs to integrate this approach. The saving cycle should be stretched

from 12 months up to 60 months (5 years) minimum. Secondly, to provide multiple opportunities

for members make bulk contributions each year. Thirdly, to move away from charging monthly

interest to levying annual interest rate of no more than 20% per annum. Lastly to extend loan term

up to 12 months.

Implications for MDF and similar NGOsthat promote and facilitate VSLA methodology are listed as

follows;

•Further adaptive planning dialogues are recommended with a sample of VSLA community. The

purpose of these dialogues will include testing and improving the three proposed options discussed

above. The results of these planning dialogues will be an implementation manual for facilitators.

•Investigation and adoption of simple web-based record keeping tools as an option for groups with

interest for using them. However, the greatest benefit is that this tool can be manipulated to support

monitoring, evaluation and learning (MEL) objectives.

•Motivate the interest of bank to develop responsive products for group-based savings.

•MDF may consider taking interest on profit sharing model – but for the purpose ofencouraging

production on the part of farmers. MDF will be responsible for market facilitation. Farmer days are

getting traction.

3.Governance and Operation of VSLAs

The purpose of this section is to present governance and operation of VSLAs. VSLAs are governed by

their constitutions.

3.1.Users of VSLAs

In many cases groups are established by people with a common bond of association/trust such as friends,

families and neighbors in a clearly defined community/geographical area. VSLAsare self-managed

groups of people who meet regularly to save their money in a safe space, access small loans, and obtain

emergency insurance. Experience shows that maximum group size should not exceed 30 members for

smooth management. South African experience shows that VSLAs are established by homogenous

group of people who know and trust each who agree to work together to achieve a common purpose.

However, VSLAs are supported or facilitated by external development agencies and mainly the NGOs.

Therefore, the main users of VSLAs include members of self-help groups (SHGs) andsocial enterprises

such as water committees, farmer learning groups, smallholder farmer associations and marketing

groups as well aslivestock owners and informal traders.

3.2.Institutional, governance and management structure

Management committees areelected at the establishment phase and every time a group starts a new

savings cycle. The main function of the management committee is to ensure all procedures are followed.

This includes ensuring full participation of members, transparency and accurate record keeping.

However, enforcement of rules is the responsibility of all members of the group. Generally, the

constitution of a VSLA makes the following pronouncements:

•Goal and objectives, i.e. main reasons for establishing a VSLA

•The duration of a savings cycle

•Who is eligible to become a member of the VSLA

•Size of the group

•Rules of participation

•Procedures for electing a Management Committee

•Roles and functions of office bearers

•Share price and maximum shares a member can buy in a meeting

•Meeting procedures starting with share purchase (savings), loan issuing, loan repayment and share-

out meeting procedure

•Loan qualification criteria and loan terms; andmainly, maximum loan amount,interest rate and

repayment period

•Social Fundrules and qualification criteria

•Social Fund amount

•List of fines for violating the constitution

•Other operating policies

•Procedures for amending the constitution

Members of a VSLA elect a management committeeto help with governance and operations of a VSLA.

The management committee is constituted by the chairperson, records keeper, money box and 2 money

counters. The roles of office bearers are presented as follows:

•The chairperson leads the VSLA and to ensure that there is harmony and collaboration amongst the

members of the Group. S/he must chair all meetings. S/he ensures that the meeting agenda and all

procedural processes are followed in all meetings. S/he also ensures that the constitution and the

rules of the VSLAare followed and respected by all members.

•The records keeper is responsible to keep accurate records of the VSLA’s activities namely,

membership register, transaction booksand closing balances for every meeting. S/he keeps accurate

accounts of all VSLA’s finances and presents copies of all bank transactions- where the VSLA has

a bank account.

•The money box keeper ensures that the money box is properly locked at the close of the meeting

before s/he takes it for safe keeping. S/he keeps the money box safe at her/his house and brings the

money box to the VSLA meeting. Most importantly, s/he never tries to open the money box outside

the VSLA meeting.

•Money counters count money during meetings and announceall totals at each stage of the meeting.

Firstly, they count money when the money box is first opened at the start of the meeting.Secondly,

they accept and count sharesbought by each individual memberand check if the money notes are

not counterfeit or ink-tainted.Thirdly, they count total value of shares of purchased when all

members have bought their shares.Fourthly, they accept and count loan repayment received from

the individual borrower as well as countingofloans granted to borrowers. Finally, they count and

confirm fines and closing balances at the end of the meeting.

3.3.Beneficiation protocols

Participants confirmed the contents of beneficiation framework. Members of the VSLAs are encouraged

to attend and participate in all activities of the VSLA from establishment through to Group Fund

dissolution meeting. The following framework was confirmed:

•Participation in the induction workshop that facilitates the establishment of a VSLA.

•Participation in all savings meeting. Participants who arrive late in the meeting are fined.

•A participant buys a minimum of a share in a meeting to qualify for loans. However, the borrower

is allowed a loan that is two times the value of her/his share. Loans are only granted to borrowers

who present themselves in the meeting. Loans are repaid between three and four months. A monthly

interest of 10% is levied on loans.

3.4.VSLA operations

Members of a VSLA sit in semi-circle so that every member can participate and see all transactions

activities carried out by the management committee. All members shall be given numbers – and shall

sit in the “number” order as well. The chairperson shall be member number 1followed by the records

keeper as number 2, the money box keeper as number 3, the first money counter as number 4, the second

money counter as number 5, the first key holder as number 6, the second key holder as number 7, third

key holder as number 8, and the numbering of other members shall follow from number 9up to the last

member, e.g. member number 19if the VSLA has 19 members. In some instances, the money box

keeper shall double as a shadow record keeper as well.

Each has a passbook.This is anindividual member’s transactional book which records the number of

shares bought in every meeting, loans taken out and repaid and the share-out amount at the end of a

savings cycle.

Group Fund is kept in a 3-way lock steel money box. Three elected memberskeep the keys of a box

money box. The money box keeper does not keep the keys. However, the box needs is opened by four

membersonly at the start of the meeting.

Members of the group can choose to contribute to a Social Fund, in order to help members in distress.

A Social Fund is a small emergency grant that is given to members who encounter serious tragedies

such as life-threatening accident, serious illness, death of a family member and serious damage to a

house due to fire, storm, or floods. Memberspay equal amounts each time they meet and usually less

than a share price in order to build a Social Fund. A Social Fund is not repaid by the recipient.

The agenda of a savings meeting shall follow this structure:

•Opening a meeting

•Confirmation of quorum

•Taking of apologies and acknowledgment of proxies

•Payment of a Social Fund

•Buying of shares (savings)

•Repayment of loans by borrowers

•Confirmation of total money available for borrowing

•Issuing of new loans

•Confirmation of closing balances

•Closure of the meeting (setting the date, time and venue of the next meeting)

Members shall notbe forced to take out loans. However, members are strongly encouraged to take

loans. Loans are approved by the entire group and transactions are conducted in front of members.

Loans are issued to registered members only and are limited to two times the value of shares of a

borrower. No new loans are granted to borrowers who have outstanding loans.

At the end of the savings cycle the group prepares and holds a share-out meeting. No shares are bought

at a share-out meeting. The Group Fund is dissolved in the following manner:

•Firstly, all members should have settled all their debts. In the event there is a member that still owes

the Group Fund, s/he must sell her/his shares to the Group Fund in order to settle the debt.

•Secondly, the total Group Fund is counted. This includes savings, interest earned and fines.

•Thirdly, individual member’s shares are counted and confirmed. This is the sum of all shares

members have purchased over the savings cycle. Individual members’ shares are added together to

get total group/ VSLA shares.

•Fourthly, the total Group Fund is dived by the total number of group/VSLA shares in order to get

the new value of a share.

•Lastly, each member’s number of shares is multiplied by the new value of a share to get the total

due to a member. Share-out funds are distributed to the members

The training curriculum has a minimum of threemodules which are; VSLA establishment and

formalization, development of rules of participation and the constitutionandVSLA operations and

group fund management. Social Fund developmentmodule is only provided to VSLAs that have chosen

to operate Social Fund.

The most obvious motivator forpeople to engage in VSLAsis that VSLAs improve access to flexible

financial services in villages through deposits, micro-loans and Group Fund share-out lump sums which

members use for: consumption smoothing, production of nutritious food, investment in farming;

establishment of micro-enterprises and other income generating activities.

3.5.Monitoring and evaluation

A database of allVSLAs is kept in the office and updated on monthly basis as part of information

management system. Field personnelvisit the VLSAs toobserve and provide supervision during their

monthly meetings. Monthly reports are generatedfrom thesesupervision andfinancial records that

VSLAsgenerate. Monthly supervision meetings provide field staff with opportunities to assess the

performance ofthe VSLAs, identify learning and skills gaps of the members. Monthly supervisions also

provide field staff with opportunity to re-train VSLAs and/or provide additional training which

contributes towards overall goals of MDF.

3.6.Limitations of the study

Any research has its own limitations. The study had the following limitations.

•Data was collected during the busiest season of VSLAs when they conduct their share-out meetings.

It was also a planting season for farmers. Some of the implications were that group discussions

were to be postponed to the New Year.

•The study would have surveyed more than 50 participants and across all regions to make in-depth

comparisons.

•The research team struggled to secure adequate sample (control) on stokvel members who do not

participate in the MDF programme.

3.7.Conclusions and future considerations

Based on the findings of the study, and the following conclusions and recommendations are made.

VSLA programme design and execution should be done in an integrated manner. This means that NGOs

should avoid introduction and promoting a VSLA programme as a standalone, but as a component of a

bigger community development programme – and in the case of MDF, the CbCCA.

Building on what people know and want to do is a crucial feature of the VSLA programme. This means

thatthe VSLA programme shouldbuild on the existing strengths of people involvedin order to provide

opportunities for participants to develop strategies to deal withtheir deficiencies at later stages.

VSLA programming should be integrated to, and linked with other institutions that are aligned to

microfinance. This could be other NGOs, governmentinstitutions and formal financial institutions. This

will provide VSLAs to engage with these organisations, and these organisations to consider developing

financial products that are relevant for VSLA members – and in particular, smallholder farmers.

4.Good Practice and Success Factors

4.1.Adaptation

•Recognise, appreciate and integrate local knowledge and peoples’ experiences

The study found that the adaptation and mainstreaming of VSLA methodology was the most significant

activity in the MDF programme. Communities tend to embrace VSLA methodology because it builds

on what people already know and want to do.

VSLA methodology provides a description of the basic principles of the VSLA systemalongside with

thetraditional stokvels and other social enterprises in communities. The description oftypical financial

services and productsthat areembedded in VSLAs such as savings, loans and share-out lump sums at

the end of a savings cycle aligns with the financial goals of rural households. Adherenceto rules and

close supervision and coaching tend to promote learning, deepen practice and strengthen confidence on

the part of the members of the VSLAs. This is because over time members of the VSLAs unlearn bad

practices found unsupervised community-based informal financial institutions.

•Embrace phased approach

There are at least three phases inVSLA development. These are establishment, supervision and maturity

phases. These phases equip members of the VSLAs to manage their own savings, build Group Fund,

manage loan portfolios and commitsome of the drawing from their VSLAs to production activities.

During these phases, mentorsare able toidentify skills gaps and what members want to learn.

•Promote VSLAs as platforms of learning

VSLAs provide multiple opportunities of co-learning, co-generation of knowledge and deepening of

good practice between members of VSLAs and external support organisations. Learning extends

beyond governance and operations of VSLA. Members of VSLAs tend to participate in all development

activities offered by support organisations, be it food and nutrition security, access to water, income

generation, conservation restoration, and so forth.

•Scaleup training

Group learning and solidarity amongst members of VSLAs present opportunities for the NGOs to scale

not only VSLA programme but other activities.This is because members of VSLAs demonstrate

increased ownership and sense of responsibilitywhile they operate their groups. This is also because

VSLA methodology enables less literate members to understand the process and make meaningful

contributions towards the functioning of their groups.

•Promote and support self-replication

VSLAs provide evidence of self-directed learning. VSLAs tend to self-replicate after each savings

cycle. More people either join existing VSLAs or group themselves to establish their own. There have

been many instances where members of the matured and experienced VSLA help with supervision of

new groups.It is very critical for NGOs to keep track of self-replicating groups in order to provide

training and mentorship to them.

4.2.Taking smallholder farmer-operated VSLAs to the next level

Options for helping smallholder farmers that have embraced the VSLA methodologyshould be explore

in order to allow them to bulk and grow their loan funds. This is influenced by the experiences that

farmers are struggling to save enough money for production inputs. For example, a farmer requires

about R10000 for produce a hectare of maize. Most loans are lower than R10000 and borrowers are

required to settle their loans in three to four months. The following should be considered going forward.

•Famers should be encouraged to inject lump sums as soon as they dissolve Group Funds from the

existing VSLAs. In other words, a VSLA can set a target of the amount of lump sum each member

should inject immediately after a share-out meeting.

•Loan terms can be extended to 12 months and at lower interest rate. This means that borrowers will

be charged annual interest instead of the usual monthly interest of 10%.

•Savings cycles longer than a year should be encouraged. A cycle between 3 and 5 years is

recommended. This will make it possible for members to defer share-outs/fund dissolutions.

•VSLAs should be encouraged to open and operate banks accounts.This is the safest ways for

transactinglarge sums of money.All members of a VSLA should also have individual bank

accounts.

This will make it possible for farmers to access larger loans they need at any given time for production.

However, thisapproach would require extensive engagement with the farmers in their respective groups

in order to explore newer and alternative financial services.

4.3.Implications for external supporters and donors

Major considerations should be made to provide long term funding and non-financial support to NGOs

that mainstream VSLAs into their development programmes. This is because VSLAs require constant

supervision and hand-holding for the members to participate meaningfully in programme activities. In

addition, NGO require resources to co-develop solutions with formal financial institutions, and in

particular, responsive financial products and services, technological solutions, access to markets, broad-

based enterprise development, incentives for conservation restoration, climate change adaption and so

forth.

References

Allen, H.(2020)Village savings and loan associations: A practical guide (Warwickshire: Practical

House Publishing).

Allen, H. &Panetta, D.(2010).Savings Groups: What Are They? (The SEEP Network.1875

Connecticut Avenue, NW, Suite 414, Washington, USA, 2010).

African Response Research (2012). ‘Stokvels - A hidden economy’, African Response Research,

(May 2012), pp. 1–19.

Alkire, S. (2005). “Quantitative Studies of Human Agency.” Social Indicators Research 74 (1): 217–

260.

Akudugu, M. A. (2013).The determinants of financial inclusion in Western Africa: Insights from

Ghana. Research Journal of Finance and Accounting, 4(8), 1-9.

Armendariz, B., & Murdoch, J. (2005).The economics of microfinance. Cambridge: MIT Press.

Arnstein, S.(1969). "A Ladder of Citizen Participation," Journal of the American Institute of

Planners, Retrieved from https://www.planning.org

Aziza, R.C. (2001). “The Relationship between Language use and Survival of Culture: the case

ofUmobo youth”. Nigerian Language Studies. No.4

Banerjee, A., Duflo, E., Glennerster, R., & Kinnan, C. (2009). The miracle of microfinance? Evidence

from a randomized evaluation. Working Paper. Cambridge, MA: Department of Economics,

Massachusetts Institute of Technology (MIT).

Bateman, M. (2010).Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism.

Zed Books.

Becchetti, L., Ciciretti, R., & Paolantonio, A. (2016). The cooperative bank difference before and

after the global financial crisis. Journal of International Money and Finance, 69, 224-246.

Bertram, C., & Christiansen, I. (2010).Understanding research. An Introduction to reading research:

(3rd Ed). Scottsville: University of KwaZulu-Natal.

Braun, V., & Clarke, V. (2006). Using thematic analysis in psychology. Retrieved from Braun,

Virginia and Clarke, Victoria: http://dx.doi.org/10.1191/1478088706gp063oa

Braun, V., & Clarke, V. (2013). Successful qualitative research: A practical guide for beginners.

London: Sage. Available at: http://doi.orgl10.1191/147808088700 60p 063oa

Bond, P. (2006). Microcredit evangelism, health and social policy. International Journal of Health

Services, 37(2), 229-249.

Bophela, M. & Khumalo, N. (2019). The Role of Stokvels in South Africa: A case of Economic

Transformation of a Municipality, Problems and Perspectives in Management, Volume 17, LCC

Consulting and Publishing Company

Calvin, B. & Coetzee, G. (2010). A review of the South African Microfinance sector, Volume II –

Background Papers: Section IV – Special Products, FinMark Trust, University of Pretoria

Caplovitz, D. 1967. The poor pay more:consumer practices of low-income families (1st Free Press

pbk. ed. ed.). Free Press. New York

Chen, M. A. (2012) ‘The Informal Economy: Definitions, Theories and Policies’, WIEGO Working

Paper, 1, p. 26.

Cohen, L., Manian, L., & Morrison, K. (2000). Research methods in education. London: Routledge

Falmer

Cohen, L. Manion, L. & Morrison, K. (2011). Research methods in education.(7thEd.). London:

Routledge

CARE. (2019). CARE global annual report. Merrifield VA: CARE

CBDA. (2015). Annual Report 2014/2015. Pretoria: Cooperative Banks Development Agency.

Chilisa, B., & Preece, J. (2005). African perspective on adult learning. Research methods in adult

education. Cape Town: Pearson.

Collins, D, Morduch, J, Rutherford, S. & Ruthven, O. (2009). Portfolios of the Poor: How the

World’s Poor Live on $2 a Day. UCT Press: Cape Town.

Cohen, L., Manion, L., & Morrison.K. (2011). Research methods in education.London: Routledge.

Cooke, B. and Kothari, U. (eds.) (2001) Participation: The new tyranny?. London: Zed Books.

Copestake, J., Cabello, M., Godwin-Groen, R., Gravesteijn, R., Humberstone, J., Johnson, S., Nino-

Zarazuzva, M., &Titus, M. (2015). Towards a plural history of microfinance. Claverton Down:

Centre for Development Studies, University of Bath

Delany, A. & Storchi, S. (2012). SaveAct Savings and Credit Groups and Small Enterprise

Development. Understanding Strategies and Opportunities to Promote Livelihoods Strategies and

Small Enterprise Development, including in Agriculture, through Savings Groups in a Rural Setting.

FinMark Trust: Johannesburg.

Dichter, T. & Harper, M. (2007). What’s Wrong with Microfinance? Bourton on Dunsmore:

Immediate Technology.

Dlamini, N. (2016). An Exploration of Group Learning in SaveAct Education Programme: A Case

Study. University of KwaZulu-Natal, Pietermaritzburg.

Dube, A., & Dube, A. (2016). The suitability of group lending model in South Sudan's small and

medium enterprise sector. African Review of Economics and Finance. 8(2), 137-170

Donnelly, S. (2008).Underinvestment In Savings-Led Microfinance. A Costly Market Failure.

Harvard Kennedy School, Cambridge.

Duvendack M, Palmer-Jones R, Copestake J, Hooper L, Loke Y, Rao N, (2011). What is the evidence

of the impact of microfinance on the well-being of poor people?London: EPPI-Centre, Social Science

Research Unit, Institute of Education, University of London.

FAO, (2016). FAOSTAT. Food and Agriculture Organization of the United Nations, Rome, Italy.

FinMark Trust. (2016). Finscope South Africa 2016 Survey.Johannesburg: FinMark Trust.

FinMark Trust (2020). South Africa’s informal savings market thrives despite high financial inclusion

levels. Accessed 19 May 2020 from http://finmark.org.za/savings-groups-stokvels-thrive-in-south-

africa/

Freire, Paulo. Pedagogy of the oppressed, 30th Anniversary Edition, (Continuum Internatio0nal

Publishing Group, New York 1970).

Gash, M. & Odell, K. (2013).The Evidence-Based Story of Savings Groups: A Synthesis of Seven

Randomized Control Trials: SEEP Research, The Bill and Melinda Gates Foundation, The SEEP

Network, Virginia

Gleason, B. (2013). #Occupy Wall Street: Exploring Informal Learning About a Social Movement on

Twitter. American Behavioral Scientist, 57(7), 966–982. https://doi.org/10.1177/0002764213479372

Gboku, M. & Lekoko, R. (2007). Developing Programmes for Adult Learners in Africa. Hamburg:

UNESCO

Hean, A., & Lakwo, A. (2010). Rethinking the impact of microfinance in Africa. Business change or

social emancipation. The European Journal of Development Research. 22(4), 529-545.

Hlela, Z. (2014). Learning from Teaching in Communities: The Role of Higher Education in Africa,

Mediterranean Journal of Social Sciences, Vol 5 no 8, MCSER Publishing, Rome

Hlela, Z. (2016). Learning through the action of research: reflections on an Afrocentric research

design. Community Development Journal, 50 (2), 196-212.

Högman, A. (2009). Microsavings Effects on Consumption Smoothing.A Case Study of South Africa.

Sweden:Uppsala University

Hulme, David. (2009). The Story of the Grameen Bank: From Subsidized Microcredit to Market

Based Microfinance.Routledge. New York

Karnani, A. (2007). Microfinance misses its mark. Stanford Social Innovation review, 1(1), 34-41.

Khumalo, S. (2011). Key factors for commercial banks providing microfinance. A multiple case

perspective. Capetown: Stellenbosch University.

Indabawa, S., & Mpofu, S. (2006). African perspectives on adult learning. The social context of adult

learning in Africa. Cape Town: UNESCO Institute of Education.

Lekoko, R. & Modise, O. (2011). An insight into an African perspective on lifelong learning: towards

promoting functional compensatory programmes. International Journal of Lifelong Education, 30(1),

23- 35.

Idang, G.E. (2015). African culture and values. SA ePublication Journal Collection, 16 (2), 97-111

IIED. (2020). IIED Annual Report 2016/17. IIED, London. www.iied.org

Irving, M. (2005).Informal savings groups in South Africa: investing in social capital.Working

Paper Number 112. Centre for Social Science Research, University of Cape Town.

Lave, J., & Wenger, C. (1991). Situated learning legitimate peripheral participation. Cambridge:

University Cambridge Press.

Leedy, P. D., & Ormrod, J. E. (2010). Practical research. Planning and design. (9th edition). New

York: Pearson.

Ledgerwood, J. (2013). The new microfinance handbook. A financial market systems perspective.

Washington D C: World Bank.

Ledgerwood, J., & Nelson, K. (2014). Community based financial services. Washington DC: 311

World Bank.

Mader, Philip. (2015). The Political Economy of Microfinance: Financialising Poverty.

London: Palgrave.

Maguire, M., & Delahunt, B. (2017). Doing thematic analysis: A practical step by step guide for

learning and teaching scholars. AISHE, (3).Autumn 2017, 3351-3365.

Moliea, H. (2007).Stokvels as Alternative Microfinance Institutions: Conversations with Women from

Venda. Master’s thesis, University of Pretoria, Pretoria

Mashingo, P. and Schoeman, C. (2012) ‘Stokvels as an instrument and channel to extend credit to

poor households in South Africa’, Journal of Economics, 5, pp. 49–61.

Matuku, S., & Kaseke, E. (2014). The role of stokvels in improvingpeople’s lives: The case in orange

farm, Johannesburg, South Africa. Social Work, 50(4), 504-515. Retrieved from

http://www.scielo.org.za

Ncube, F. (2020). Experience of NGO capacity building on microfinance: Zimbabwean life history.

Ph.DThesis, University of KwaZulu-Natal, Pietermaritzburg

Ryne, E. (2014). Women in financial and entrepreneurial development. Education and Policy.

Washing D.C: World Bank.

Riessman, C. (2008). Narrative methods for human sciences. Boston: Boston College.

Shipton, P. (1990). "How Gambians save - and what their strategies imply for international aid."

Policy, Research and External Affairs Working Papers: Agricultural Policies WPS 395.

South Africa. (2016). Cooperatives Bank Development Agency Annual Report. Pretoria

Wenger, E. (1998).Communities of Practice: Learning, Meaning, and Identity.Cambridge, MA:

Harvard University Press.

Wenger, E. (2000).Communities of Practice. New York, Cambridge University Press.

Wrenn, E. (2007). Perceptions of the impact of microfinance on livelihood security. Kildare: Troicare.

Annexure 1: Data Collection Instrument: Questionnaire

The mainpurpose of interviews will be to capture specifically the history, needs, problems, frustrations,

fears, desires, opportunities, hopes and dreams of the participants. It will further be used to probe

resources that participants use to make a living, and to understand the financial life of the participants.

Respondents must be smallholder farmers participating in the VSLAs.

Date of Interview:

Questionnaire Number:

Instructions to the interviewer

•Greet the respondent in IsiZulu and ask for permission to interview her/him. Interview must be

conducted in IsiZulu but responses recorded in English will be about an hour or so.

•Explain that the information that the respondent will provide will be treated with the highest

degree of confidentiality.

•All questions must be answered.

SECTION 1: Respondent’s profile

1.Name of the village/area: __________________________________________________

2.Name of the closest town you use: ___________________________________________

3.Gender: ______________ Marital Status: _______________________ Age: _________

4.Are you a household head? _________ If not, who is? ___________________________

5.If you are married, do you live with your spouse? _______________ If not, where does your

spouse/partner live? _____________________________ Is s/he working? ______

6.Highest educational certificate: _____________________________________________

7.Number of people living with you: ___________________ (household size)

8.Number of people dependent on you: _________________

9.Are you employed? ____________ If yes, by who? _____________________________

10.What are YOUR main sources of income that are most useful in your household? _____

________________________________________________________________________

______________________________________________________________________________

SECTION 2: Confirmation of participation in a user-operated financial institution, e.g. a

VSLA/savings group or a stokvel

11.Type of a user-operated financial institution (tick appropriate): MDF VSLA/Savings Group _____

Other Savings Group ____ Grocery Stokvel _______ Burial Society _____ Other (specify)

______________________________________________________________________________

12.Who is eligible to participate in your group? __________________________________________

______________________________________________________________________________

13.How many members are there in your group? _______________

14.When was the group established? (year) ___________________

15.When did you join the group? (year) ______________________

16.How much do members contribute per month? Min: ____________ Max: __________

17.Who is eligible to take a loan? _____________________________________________

18.What is the largest loan a borrower is eligible to take? __________________________

19.What is the interest rate per month? _____________

20.How many months a borrower is given to service and settle the loan? ______________

SECTION 3: Confirmation of assets

21.Based on question above 10, what is YOUR average income per month? ____________

22.Where does YOUR money go each month? What do you use your money for?

Description of Expenses

Amount

Saving Groups

Amount

Food, grocery

MDF VSLA

Transport/travel

Grocery Stokvel

Electricity

Other Savings Groups

Airtime, data

Other

Total

23.Based on question 22 above, how much do you spend per month? __________________

24.Based on question 22 above, how much do you save using MDF VSLA, grocery stokvel and other

Savings Groups per month? _______________________

25.How many times did you take a loan this year? (2022) ________________________

26.What was your biggest loan you took out from your group this year? (2022) _________

27.What did you use your loans for? __________________________________________________

_____________________________________________________________________________

28.How much was your share-out amountthis year? (2022) _____________________

29.What did you use your share-outfor? _______________________________________________

______________________________________________________________________________

30.What items did you buy using money from your group in the last 3 years? ___________________

______________________________________________________________________________

_____ _______________________________________________________________________

31.What assets (e.g. farming equipment and other income generating assets) do you have that you

believe are improving the quality of life in your household? _____________________________

______________________________________________________________________________

_____________________________________________________________________________

32.Is your income generating activity (IGA) still operational? ________________________

33.Have you used money from your group to operate an income generating activity? _____ If yes,

what was your income generating activity? ___________________________________________

______________________________________________________________________________

______ ________________________________________________________________________

SECTION 4: Problems, hopes, aspirations and dreams

34.What are most pressing problems that you believe your group may solve for your household?

______________________________________________________________________________

______ ________________________________________________________________________

35.What do you wish you’re group should do better and why? _______________________________

______________________________________________________________________________

36.Where do you want to see your group in the next 5 years? ________________________________

______________________________________________________________________________

37.What are your top 5 financial skills that you have learnt participating in your group?

______________________________________________________________________________

___________ ___________________________________________________________________

38.What are top 5 non-financial skills that you have learnt participating in your group?

______________________________________________________________________________

_________ _____________________________________________________________________

39.What “working together" skills that you have learnt from participating in your group?

______________________________________________________________________________

________ _____________________________________________________________________

38.What else have you learnt by participating in your group? _______________________________

______________________________________________________________________________

39.If you were asked to improve the functioning of your group, what would you suggest? What would

you improve and why? ___________________________________________

_____________________________________________________________________________

______________________________________________________________________________

____ ________________________________________________________________________

40.How can you improve learning and transfer of knowledge in your group? ________

______________________________________________________________________________

________ ____________________________________________________________________

41.What can your group do in order to fundincome generating activitiesincluding farming operations?

_____________________________________________________________

______________________________________________________________________________

___ ________________________________________________________________________

42.What benefits do you think you can draw from your group if your fellow members improve learning

and transfer of knowledge? _______________________________

______________________________________________________________________________

_________ ____________________________________________________________________

43.Is there anything you would want to ask from me? _____________________________

____________________________________________________________________________

Thank you

Annexure 2: Data Collection: Focus Group Discussion Schedule

Respondents will be purposively selected to participate in the Focus Group Discussion (FGD)

interviews. Respondents will be members of Village Savings and Loans Associations (VSLAs) and

stokvels from communities where Mahlathini Development Foundation implements its programmes.

FGD interviews will be conducted in mother tongue of the respondents.

Purpose of the FGD Interview

The main purpose of the FGD interview will be to:

•Indentify and discuss types of financial services and products that are availableand used in their

communities.

•Understand, and specifically the structure, characteristics and purpose of alternative financial

services institutions and products that they use (or likely) to finance their production activities and

microenterprises.

•Discuss configuration of participation in their alternative financial institutions.

•Encourage participants to propose the contents of a handbook ofmicrofinance option for farming

communities.

Data Recording

Researchers will use flip charts, electronic voice recorder, camera and note book to record the

discussions and observations. They will ask permission to use a voice recorder and camera before the

start of each session.

Flow of activities for conducting FGD interviews

1.Opening:A volunteer from the participants will open the workshop and immediately hand over

the session to the researchers.

2.Introduction of the researchers:The researchers will greet the participants and introduce

themselves. It will be at this point that the purpose of the workshop will be presented. The content

below will be shared during the introduction.

We are extremely gratefulfor your time and effort accepting my presence here today. Asyou are

aware, we are employed by Mahlathini Development Foundation. Promoting and supporting

VSLAs is one of the services provided by Mahlathini.

We have been lucky to receive small research funding from Water Research Commission (WRC) to

develop and handbook of microfinance options that are available to smallholder communities like

yours. Therefore, the purpose of this focus group discussion interview is to stimulate memories and

ascertain experiences to elicit data to answer the research questions, in order to understand the

your experiences in using different financial products; those that are provided by formal institutions

and community-based financial institutions like yours.

We believe that your input will enhance the value of our study. We commit to share the findings of

this study with you before it is published. Kindly take heed that all your responses will be treated

with strict confidentiality. Your identity and your names will not be divulged under any

circumstances.

Once more, thank you very much for participating in this interview.

3.The purpose of the study and the process:The lead researchers will then explain the process to

the participants. Participants will be given an opportunity to ask for clarifications before

proceeding to the next activity, that is the actual FGD interview.

4.Introduction of respondents:Researchers will then request the participants to introduce

themselves in a certain way: name, marital status and length of participation in informal financial

institutions and specifically the VSLAs. Attendance registers with consent are circulated for signing

by the respondents. A sample of an attendance registers with consent is presented separately from

this FGD interview schedule.

5.Conduct FGD interviews:The FGD interview questions in the next page will guide the

discussions.

6.Next steps and clarifications:Researchers will allow participants to ask questions before closing

the FGD interview. The researchers will close the FGD interview once all questions from the

respondents have been sufficiently attended to.

7.Closure:Researchers will thank the respondents for the participation in the FGD interview.

FGD Interview Questions

Introduction (General)

1.How does money come in this community? In other words, which institutions help residents of this

community to access their money? Who provides financial services in this community? Are there

financial services provided by government, NGOs and other privateproviders other than the banks?

Provide a list and provide a short description of a service.

2.What types of financial services(and products)do residents of this community use?Can you

categorise and describe financial services provided in this community?

3.What type of financial services thatare not used by the majority of residents of this community?

What are reasons for not using these financial services?

4.How do members of this community choose financial services and products that they use? How do

they access these financial services? Do people go the nearest town? Do providers come to the

community? Do providers operate in the community?

5.What do people use these financial services for? In other words, after receiving money, where does

it go to? Clearly state what each financial product is for.

6.Which financial services arelargely used bymicroenterprises and smallholder farmers in this

community?

7.Amongst the financial services you have listed above, which services are most efficient and

responsive to the residents of this community? In your view, why are these services deemed

efficient and responsive?

Going into depths (VSLAs)

8.How did you start your VSLA? What pushed/motivated you to start a group?

9.What is the maingoal for your group? In otherwords, why do save? What do you use loans and

share-outs for?

10.What are most pressing problems that you believe your group is helping you to resolve for your

farming enterprise? List problems resolved.

11.What should prospective membersdoin order to participate in your group activities? How do

members decide on members of the group?

12.How does your group ensure that the most vulnerable members are not left behind? In other words,

what does your group do in order to ensure that vulnerable members are not only limited to savings

and not using all financial services provided by the group?

13.What sets your group apart from other groups in this community? In other words, how is your

group unique from other groups not supported by Mahlathini?

14.What specific activities that ensure meaningful participation of members in the group activities?

15.How does your group deal with delinquency? That is, borrowers not paying-off their loans in time?

How do you group deal with the risk of bad debts?

16.If you were asked to improve the functioning of your group, what would you suggest? What would

you improve and why?

17.Based on your experience, what are main success factors of a group? In other words, what defines

a well functioning group?

Comfort break

18.In 2022, how many times did you take a loan and how big was the loan? What did you use your

loan(s) for?

19.How much was your most recent share-out amount this year? What did you use your share-out for?

20.Does your group give loans to farming and business enterprise activities? How many members in

your group operate farming enterprises (and related enterprises)?

21.Related to farming and enterprises, what did you spend money on in the last 2 to 5 years?

22.Over the last 2 to 5 years, what other enterprise/income generating activities (IGAs) have you done

– as a result of you participating in the VLSA programme?

23.What do you wish you’re group should do better and why?

24.Do you think your group should interact/link with formal financial service providers? What are the

reasons for this? What do you think the relationship should be?

25.If you were to speak directly to formal financial service providers (banks, FDIs, etc.), what services

and support will you request from them?

26.Based on your experience, what should a group account look like? What should it offer? How

should it conduct its business going forward? In other words, how would you design a group that

is truly responsive to your farming and enterprise development activities?

27.Do you plan to use formal bank services inthe near future? Which bank or financial service provider

will you recommend for your group? Why?

28.VSLAs are knownfor struggling to providebigger loans to microenterprises. Based on your

experience, what ways can be explored to increase the loan fund (group fund) so that farming

enterprises can access bigger loans when they require them?

29.Drawing from your experience, what financial educationcontent should be included inthe VSLA

programme in future? What are the reasons for this inclusion?

30.What should be included in the handbook of microfinanceoptions that will be produced from the

results of this study?

Closing the gaps

31.Take questions from the respondents and provide clarifications.

32.Summarise, thank the participants and close the FDG interview.

Closure

Annexure 3: Contents of a VSLA Constitution and Rules

In this document, Savings Groups shall mean Village Savings and Loans Associations (VSLAs)

that are supported by Mahlathini Development Foundation (MDF)

The Savings Groups Rule Book for MDF Facilitators

Introduction

This guide contains ninety (90) rules that MDF facilitators must share during training and supervision

sessions/meeting of the groups. These rules should be reflected in the constitution of a VSLA.

Goal of a group

1.The goal of a Savings Group is not to “trade” money or run a “loan shark” scheme. Generally the

goal of many Savings Groups is to provide financial services that they use to enhance their

livelihood strategies. In this instance, MDF promotes Savings Groups amongst rural farming

communities in order to help smallholder farmers to build collective funds that they can use to:

a.buy farming inputs, e.g. seeds and seedlings, chicks, feeds, etc,

b.buy or hire farming equipment, e.g. egg layer cages, micro grain millers, planters, sprayers, etc,

c.buy farming infrastructure, e.g. fence, water tanks, water pumps, grain storage facilities, etc,

d.operate a successful business enterprise/income generating activity in the villages

2.Value chain actors who are not directly involved in primary and/or secondary production are also

allowed to participate in Savings Groups and CRA programme. These value chain actors will vary

from village to village.

3.In order to help smallholder farmers to achieve their development goals, Savings Groups shall take

deposits, issue short-term loans, charge interest on loans, collect loans with interest and distribute

savings to members. However and in this instance, interest shall be capped at tenpercent (10%) per

month and allloans shallbe settled in full within three(3) months.A borrowercan be given an

additional month to settle the debt.

Governance of a group

4.A Savings Group shallbe governed and operated by its constitution. A constitution shall be

discussed during induction training workshop – and shall be duly signed by the Management

Committee once adopted/resolved by the entire membership of a Savings Group. The rules (terms

and conditions) contained in this guide shall also apply.

5.The minimum saving cycle of a Savings Group shall be one (1) year or twelve (12) months. Savings

Groups are allowed to extend savings cycles up toeighteen (18) months if members so with. We

recommend that groups stay together at least for five (5) years together.

6.The size of a SavingsGroup shall be betweennine (9) and nineteen (19) members. The minimum

participation age in a SavingsGroup shall be twenty one (21) years. All members of a Savings

Group are assumed to know each other very well and shall reside in the same community or

neighbourhood.

7.A Savings Group shall elect a Management Committee. This Committee shall have a Chairperson

Secretary (Record Keeper) and a Treasurer (Money Box Keeper). There shall be no deputies of

Chairman, Secretary and Treasurer.

8.In addition to a Management Committee, a Savings Group shall appoint two (2) Money Counters

and three (3) money box Key Holders. The role of a Management Committee, money counters and

Key Holders shall be detailed in the constitution of a Savings Group.

9.All members shall begiven numbers – and shall sit in the “number” orderas well. The Chairman

shall be member number 1followed by the Record Keeper as number 2, Money Box Keeper as

number 3, first Money Counter as number 4, second Money Counter as number 5, first Key Holder

as number 6, second Key Holder as number 7, third Key Holder as number 8, and the numbering

of other members shall follow from number 9up to the last member, e.g. member number 19if the

Group has 19 members. The Money Box Keepershall double as a shadow Record Keeper as well.

10.A constitution shall be reviewed and/or amended before the commencement of a new savings cycle.

This session shall be facilitated by the MDF facilitator. An amended constitution must be signed by

the Management Committee.

11.The Management Committee shall be responsible for guiding a Savings Group to execute its

constitution so that the goal of a Savings Group is achieved.

Group operations

12.A Savings Group shall meet once a month to conduct its business. Allmembers of a Savings Group

shall be present at the meeting. In an event that some members are unable to make it to the meeting,

the quorum of the meeting shall not fall below 75% of the membership (attendance).

13.Members of a Savings Group shall sit in a circle or semi-circle so that every member can see and

follow on what the Management Committee and especially the Record Keeper and Money Counters

do. COVID-19 and social distancing protocols shall be observed all the times. All members must

participate in the counting of money and confirmation of closing balances. It shall remain the duty

of each member to read and confirm that correct transactions are recorded in her/her individual

transaction book.

14.A Savings Group shall prioritise the business of providing financial services; however other non-

financial matters shall be dealt with when savings have been concluded. The agenda of a savings

meeting shall follow the structure – and this structure shall never be altered:

a.Opening with prayer

b.Confirmationof quorum (and acknowledgement of proxies)

c.Matters to be discussed under social protection item

d.Confirmation of balances (forgetful members are fined)

e.Buying of shares (savings) – and confirmation of total savings

f.Repayment of loans by borrowers – and confirmation of total loan repayments

g.Issues of new loans to un-indebted members

h.Closing balances – and confirmation of total money remaining in the Money Box

i.Booking of loans to be issued in the next meeting

j.Social protection discussion (matters)

k.Closure of the meeting (setting the date, time and venue of the next meeting)

15.Savings Groups act safety nets(social protection) for members and their households. It is for this

reason that other matters that are of social protection in nature shall be presented by members for

discussion in Savings Group meetings.

16.There shall be dual recording of transactions.All transactions are recorded by a Record Keeper.

Member’ transactions are recorded in an individual’s transaction book, while Group’s transactions

are recorded in the master record book of a Savings Group. Transactions are:shares, loans and

closing balances.

17.All records and money arekept in a 3-way lock steel money box. The Money Box Keeper only

safeguards the money box without keys. Keys are held by 3 KeyHolders. Key Holders and Money

Box Keeper shall not reside very close to one other. This money box is only opened at a monthly

meeting of a Savings Group.

18.Monthly savings records shall be made available to MDF at the close of each savings meeting. In

the event the MDF facilitator is not in attendance to the meeting, the Record Keeper and/or the

Chairman shalltake a picture of the records of the meeting and forward them to MDF facilitator

using the WhatsApp.

Membership to a group

19.Only people that are known to one another should establish and operate a Savings Group. Besides

knowing, trusting and respecting each other very well, members of a Savings Group should live in

the same village/neighbourhood and ideally participate in MDF’s CRA programme. However,

individuals that do not participate in MDF’s CRA programme are allowed to participate in the

Savings Group programme as well.

20.Self-selection of members of Savings Groups is promoted. Self-selection simple means that people

that know each other will decide on their own as to who qualifies for membership in a Group.

However, prospective members of a Savings Group are encouraged to refrain to establish Groups

with people who have dented reputation in a community.

21.Each member shall be given a transaction book that would last for one (1) saving cycle.

22.A member shall be allowed to register and introduce one (1) proxy to a Savings Group in a saving

cycle or a year. A proxy shall not participate in the discussion of a Savings Group nor take loans

on behalf of the absent member. Participation of a proxy shall only be limited to the purchasing of

shares and repayment of loans.

23.Members shall commit to keep their proxies informed with regards to the number of share they

have bought and loans they have taken out.

24.Inan event where a member decides to withdraw (or is forced to withdraw) from a Savings Group,

her/his shares shall be payable at least three (3) months after receipt of a letter of withdrawal

(resignation). These shares shall bear zero interest.

25.In the case of death of a member, a Savings Group may pay the entire investment amount less

outstanding loan amount but only if there is enough cash in the money box after issuing new loans.

Depending on the proxy, a Savings Group may pay the deceased contribution with interestat a

share-out meeting. And in the event where the deceased has an outstanding loan, a Savings Group

may negotiate with a proxy to; (i) repay the balance of a loan, and/or (ii) continue with participation

in a Group. Sadly, this is the riska Savings Group takes when issuing out loans hence the rules

regulating the issuing of loans.

The following is not allowed

26.Participation in multiple Savings Groups shall not be allowed. This is done to prevent members to

using loans from another Savings Group to buy shares or repay loans of another Savings Group.

27.Setting a sideline “loan shark” operation by a Savings Group shall not be allowed. Members shall

also be encouraged to desist from this practice.

28.A member shall not be allowed to hold more thanone (1) account in a Savings Group. In other

words, a member will only be allowed to have one (1) transactional book.

29.Registration of under-age children shall not be allowed. All members of a Savings Group shall

present themselves physically in all eventsof the Savings Group.

30.A Savings Group shall never exceed nineteen (19) members or fall below nine (9) members.

31.Acceptance of new members after a share-out meeting and at a start of a new saving cycle is not

allowed.

32.A proxy shall never be allowed to take a loan of an absent member.

33.Interest on loans shall never accrue to a borrower but to a Savings Group.

34.No borrower shall be granted a new loan when there is an outstanding loan.

35.No loans shall be issued two (2) months before a share-out meeting (fund dissolution).

36.No borrower shall be chargedinterest after servicing the debt and paying interest for four (4)

months.

37.Money box shall never be opened outside a savings meeting.

38.No proxy shall be allowed to participate in the meeting preceding a share-out and at a share-out

meeting.

Trainingof the groups

39.All members of a Savings Group shall attend a Savings Group induction training workshop

facilitated by a MDF facilitator.

40.During the induction training workshop, a Savings Group must:

a.Decide and agree on a value of a share and maximum a number of shares that can be bought in

a meeting.

b.Develop a list of members of no less than nine (9) and more than nineteen (19) members must

be generated and signed by all members.

c.Elect a Management Committee (as per items 6 to 8 above).

41.After the induction training workshop, Savings Groups shall use this framework of a constitution

to draft their constitutions that would be hand-written and that would be adopted at least in the third

savings meeting.

42.MDF facilitator and partner organisation that may bedrawnin from time to time to facilitate

learning events and to supervise Savings Groups during their monthly saving meetings. A

scaffolding training techniques shall be used to coach and skill members of Savings Groups to

execute their development goal by providing short and focused training sessions in group

governance, financial and entrepreneurship education.

43.MDF facilitator shall further conduct training of chairmen and secretaries in order to improve the

efficiency and performance of Savings Groups.

44.MDF facilitator shall conduct health diagnosis of a Savings Groups at least four (4) times a year for

the purposes of improving the efficiency of the Savings Group – and to ensure that all transactions

are recorded with accuracy.

45.MDF facilitator shall re-train a Savings Group on share-out procedures and calculations at least two

(2) months before the share-out meeting.

46.MDF facilitator shallbepresent at share-out meetings to help Savings Groups to calculate and to

allocate shares to members.

Savings meeting procedure

47.All COVID-19 protocols shall be observed in all meetings of a Savings Group. COVID-19

protocols for savings meetings are attached as annexure 1of this guide.

48.After prayer,the Chairman shall open the meeting. S/he shall ask the closing balances as per the

last meeting. Forgetful members shall be fined on the spot!

49.Members shall buy shares. The total contribution of sharesshall be counted and announced to the

meeting.

50.Next will be the repayment of loans by borrowers. The total contribution of loansshall be counted

and announced to the meeting.

51.Next will be issuing of new loans. The total value of loansissued shall be counted and announced

to the meeting.

52.The total balance remaining in the money box shall be counted and announced by the Chairman as

closing balance of a meeting.

53.Money box which contains money and transaction records is closed and locked properly and shall

only be opened in the next meeting

54.Social protection matters are discussed next.

55.Finally, the date, time and venue of thenext meeting is announced just before the meeting adjourns.

56.In summary, all members must buy shares (save). Borrowers must also service their debt.

Transgressors mustalso pay fines. Borrowersmust be aware that they must service their debts while

buyingshares as well. Therefore budgeting (and planning) is very crucial and shall not be ignored.

Buying of shares(saving)

57.This is a share-based savings and loans operation. Members purchase shares as a way of saving or

depositing money.

58.A share value shallrange from R100 to R500. Members shall be allowed to purchase between one

(1) and ten (10) shares in a saving meeting. A share chart is attached as annexure 2of this guide.

59.There shall be one (1) savings meeting in a month.

60.Shares for past and future meetings cannot be bought.

61.No shares shall be bought during a share-out meeting.

62.Members shall be allowed to buy shares in eleven (11) meetings where a share-out is planned to

take place by month/meeting twelve (12th) or twelve (12) times if share-out meeting is planned to

happen in thirteenth (13th) month/meeting.

Taking and repaying loans

63.Members shall not be forced to take out loans.

64.Loans are only issued to registered members only. Loans shall be limited to two (2) times the value

of shares of a borrower between the second (2nd) and the fifth (5th) months. For instance, if a

borrower has R1000 in shares, s/he shall be entitled to a loan of R2000. Loan issuing tables 1 & 2

are provided as annexure 3a and 3bof this guide.

65.Loans shall be limited to the value of total shares memberholds from the sixth (6th) month of saving.

This is done to prevent over-indebtedness that frustrates Savings Groups when members struggle

to settle their debts in good time for a share-out meeting.

66.Maximum/large loans shallbe capped at R5000 and shallnot be granted later then the fifth (5th)

month of saving. It is recommended that bigger loans are guaranteed by one or two members other

than the borrower. It is hoped that this will put pressure on the borrower to service and settle the

loan in record time.

67.No new loans shall be granted to members (borrowers) who have outstanding loans.

68.Loans are repayable over three(3) months. A fourth (4th) month can be granted to a struggling

borrower to settle her/his debt.

69.In the event where the borrower is unable to settle her/his debt within four (4) months, a Savings

Group shall further allow the borrower to settle her/his debt within two (2) months where the total

debt is greater than the value of shares. Where the value of shares is greater than the debt, Savings

Groups shall use borrower’s shares to settle the debt but only at the share-out meeting.

70.In the event that the borrower fails to settle her/his debt, Savings Groups shall be allowed to use

other forms of debt collection and ideally before a share-out meeting.

71.Interest on loans shall be ten percent (10%) per month. Interest shall be paid over four (4) months

only and after this period, and if a loan is not settled, interest shall no longer be charged.

72.Interest accrues to the Savings Group and not to a borrower. In other words, interest generated

through issuing of loans belongs to a Savings Group and not to a borrower.

73.Interest is charged only on outstanding amounts (balances) only.

74.No loan shallbe granted to an absent member, even ifan absent member has sent a proxy to the

meeting.

75.All loans are settled at least a month or two before a dissolution/share-out meeting.

76.No loans are issued from the 10thmonth if thegroup plans to share-out by the twelve (12th) or

thirteenth (13th) month.

Share-out/dissolution meeting procedures

77.Members shall decide to share-out or dissolve part of or the entire group fund at least after twelve

(12) months. Thirteen (13) months is highly recommended. There shall be no shares bought at a

share-out or dissolution meeting.

78.The Group Fund shall be dissolved in the following manner:

a.First:All members should have settled all their debts. In the event there is a member that still

owes a Savings Group, s/he must sell back shares to settle the debt.

b.Second:Count all the Savings Group shares.

c.Third:Count the total Group Fund.

d.Fourth:Divide the total Group Fund by the total number of shares to get the new value of a

Share.

e.Fifth:Multiply each member’s number of shares with the new value of a share.

79.Dissolution of Group Fund (share-out) shall at least coincide with preparations for a planting

season. Savings Groups are discouraged to hold share-out meetings and/or dissolve their loan funds

during any festive season and in particular during Easter and during December/January holidays.

This is done to mitigate the risk of spending money on purely consumption items.

80.Granting of new loans at the first savings meeting that happen just after a share-out meeting is not

allowed.

Co-operative buying

81.Co-operative buying of farming inputs shall be promoted in Savings Groups. By definition, co-

operative buying (or bulk buying) is the purchase of much largerquantities than the usual, for a

reduced price per unit than the usual. The purpose of bulk buying is to achieve mutual gains for the

buyers. In this, the supplier, be it a manufacturer or wholesaler is willing to accept a slightly lower

sales price for each unit and the buyers agree to buy a much greater quantity of units.

82.For bulk buying to benefit the group ofbuyers, they should take a lead role in the distribution

channel. MDF facilitators will help the Group to develop bulk buying procedures. This shall include

developing a register of buyers, handling of money, and interacting with suppliers. This also means

that the Group of buyers must be;

a.Proactive in securing quotations and negotiating good prices for their group members. MDF

facilitators shall be available to support the process.

b.Willing to pay upfront fees/deposit.

c.Prepared to set up a simple but accurate record keeping. This means that the group will have a

(products) to be purchased.

d.Prepared to conclude a one-page agreement that mandates the bulk buying group

representatives to place (and pay) orders on behalf of the group.

e.Set up the delivery logistics in collaboration with MDF and the suppliers.

f.Appoint/elect a ‘runner’ to ensure that those members who commit themselves into the

programme comply with all the terms of bulk buying.

Fining transgressors

83.No member shall be fined for failing to buy shares and for struggling to repay her/his loan/debt.

84.The Chairman shall impose fines to transgressions such as arriving late to the meeting, talking and

answering the phone during meeting and failure to remember closing balance of previous meeting.

A list of transgressions shall be detailed in the constitution of a Savings Group.

85.Fines shall be limited to a maximum of 3 offences and not exceeding R20.00 in total. It is

recommended to cap a fine at R10.00 per offence. However, R5.00 is highly recommended. Money

raised from the fines is added to the Group Fund.

General matters

86.It is recommended that members pay administration fees into the Savings Group to be able to

purchase operating kit (money box and transaction books). This must happen at the beginning of a

new savings cycle.

87.MDF facilitator shall be available totrain, re-train and coach the Savings Groups to conduct their

business in a transparent and clean manner. MDF shall take no money from Savings Groups other

than money given by individual members for the purposes of Enterprise Development.

88.A Chairman and Secretary shall be required to undergo additional training from time to time. This

shall be arranged in good time with the MDF facilitator.

89.Savings Groups shall undergo Enterprise Development (ED) training from the 4thmonth after their

establishment. Again, this shall be arranged in good time with the MDF facilitator.

90.Savings Groups shall have an option to open and operate bank accounts with a registered bank.

MDF facilitator shall discuss transactional costs and bank charges with Savings Groups before a

decision is made.

END OF RULES

Annexure 4: Example of Group and Individual Savings Books

Individual savings book:share buyingpage

Buy shares between 1 & 10 (Example)

The share value is:

R100.00

Date of meeting

Number of Shares Bought

Total

Amount

Meeting Number (12 months)

08/02/2022

R500

07/03/2022

R200

08/04/2022

R900

Sub-totals

Total shares for the period

Total shares sold

Total shares remaining

New share value

Share-out amount (Total shares X new value of a share)

Individual savings book:loan taking and repayment page

Repay loans, and take new loans (Example)

Commitment by the Borrower:By appending my signature(s) here, I agree that this Savings Group may attach

my personal items and/or sell them to repay any of my outstanding fees and loans.

Guide

Item

Loan

Signature

Take a loan

Loan Amount

R1 000

Interest

R100

Due Next Meeting

R1 100

Repay a loan

Month 1

Paid

R100

Loan Amount

R1 000

Interest

R100

Due Next Meeting

R1 100

Repay a loan

Month 2

Paid

R600

Loan Amount

R500

Interest

R50

Due Next Meeting

R550

Repay a loan

Month 3

Paid

R350

Loan Amount

R200

Interest

R20

Due Next Meeting

R220

Repay a loan (final

month)

Month 4

Paid

R220

Loan Amount

Interest

Due Next Meeting

Group Records: share purchase

Book Number &

Surname

Initials

Records of shares bought in each meeting

Total

Amount

Meeting Number

TOTAL SHARES

BOUGHT PER MEETING

VALUE OF TOTAL

SHARES IN A MEETING

Group Records: closing balances

MONEY IN

MONEY OUT

Number of shares bought today

Number of loans issued

today

Rand Value of shares bought

today

Value of loans issued

today

Value of loans repaid today

Money remaining in the

box

Total income received today

Money deposited in the

bank

NOTES: All of these figures must add up to the

collective figures contained in the individual

member’s transactional books

Total value of outstanding

loans

Annexure 5: Training Outlines for Setting up VSLAs

Module 1: VSLA establishment and formalization

•What we know about stokvels and savings groups: significance, uses, challenges and

opportunities

•Difference between a group and a gathering

•Difference between a traditional stokvel and VSLA

•Desired and undesired behaviors and personalities/habits

•Good qualities of a memberof a VSLA

•Roles of office bearers

•Election of office bearers and establishment of a Management Committee

Module 2: Development of rules of participation and the constitution

•Characteristics of a well-functioning VSLA

•Rules of participation

•The constitution of a VSLA

•Non-negotiable rules

Module 3: VSLA operations and group fund management

•Savings procedure

•Loan issuing procedure

•Loan repayment procedure

•Fund share-out procedure

Annexure 6: Record Keeper Training Outline

§Review: the role of a record keeper

§Key learnings with regards to keeping records of a VSLA

§Challenges facing record keepers and by extension the VSLAs

oForced lending (or forced borrowing) leading to over-indebtedness and delinquency

oToo much money towards sunset

oGranting ofloans to borrowers who do not qualify based on the total value of their shares

oBorrowers do not want to declare what they use their loans for

oDelinquency leading to delayed group fund dissolution meetings

oHolding a first savings meeting immediately after a share-out meeting tend to plant seeds

of delinquency

§Challenges VSLAs have been able to resolve

§Challenges requiring external intervention

§General areas of improvement

§Non-negotiable rules of the VSLAs