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.
List of Abbreviations..............................................................................................................................4
Executive Summary...............................................................................................................................5
1.1.Community-based microfinance services...................................................................................6
1.1.1.Burial societies.....................................................................................................................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
1.2.3.ASCAs................................................................................................................................. 14
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
2.3.Data generation methods..........................................................................................................23
2.4.Data analysis............................................................................................................................23
2.5.Results and analysis.................................................................................................................24
2.6.Financial Services in the Villages............................................................................................27
2.7.1.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
4.2.Taking smallholder farmer-operated VSLAs to the next level.................................................69
4.3.Implications for external supporters and donors......................................................................69
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
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”.
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
List of Abbreviations
Accumulating Savings and Credit Associations
Cooperative for Assistance and Relief Everywhere
Community-based Climate Change Adaptation
Co-operatives Banks Development Agency
Climate Resilient Agriculture
Catholic Relief Services
Department of Agriculture, Land Reform and Rural Development
Focus Group Discussion
Human-Centred Design
Informal Economy
International Labour Organisation
Micro-financial Institution
Non-Governmental Organisation
Rotating Savings and Credit Associations
Savings and Credit Group
Savings and Credit Co-operative
Small Enterprise Foundation
Small Micro and Medium Enterprise
Village Savings and Loans Association
Women in Informal Employment: Globalising and Organizing
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.
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,
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
Financial Institutions
South African DFIs, e.g.
iThala Bank, DBSA, Land
Bank, SEFA
Commercial banks
and insurers
Institutions (MFIs)
Financial co-ops
Micro-loan providers
Microfinance NGOs
Money lenders
Shop owners
Burial societies
Stokvels (ROCSAs &
South African banks, e.g.
FNB, Nedbank, etc.
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
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
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
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
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
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
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.
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.
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.
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)
VSLA establishment
Training and VSLA
supervision and
Post supervision
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
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.
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
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.
Principle 1: Total focus on people who are looking for solutions
to their problems
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)
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
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
The focus of this stage
is development of ideas
and potential matches
and prioritisation of
ideas that promise
This stage transforms
ideas into simple
testable solutions (or
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
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.
Marital Status
18 35
26 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
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
Other groups, e.g. stokvels
Funeral parlour policies and burial Societies
16 19
Child Support Grant
Forster Care Grant
Old Age Pension
COVID-19 Grant
Business Enterprise
Type of Financial Service
Life insurance with a formal insurer
Savings accounts with banks
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.
Challenges and Risks
Traditional burial
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.
0.5% 10.9%
Farmer Centre
Other enterprises
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
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
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.
Challenges and Risks
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.
Challenges and Risks
Unregulated money
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
Challenges and Risks
Regulated money
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
Cash withdrawal and deposit
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
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
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.
Evaluation past and present
Prediction of the future
Defining success indicators
Conundrum of financial inclusion
Design for use
Perspectives in financial education
Social intelligence
Critical understanding of
complexity of development
Emancipatory knowledge
Exploration of new possibilities
Building relationships and
Liberatory perceptions about
community-based financial
Reciprocity and social currency
Drivers for participating in
community-based financial
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
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
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
“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
“This thing of these businesses helping us with financial services is planned dishonesty and
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
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:
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
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
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
“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
Regular Business Meetings
Pre-fund Dissolution
Fund Dissolution
This meeting
establishes a
group by setting
up common goal
and rules that
govern its
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
This meeting is
concerned with
preparing for the fund
dissolution meeting by
reconciling the books
as follows:
Calculation of
total savings of
each individual
Calculation of
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
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
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
about savings
Cash to cope with stresses
and shocks, and life-cycle
Improved food
water resource
Cash to start and
operate income
buying of
Improved cash-
buying of
business inputs
loan sharks
Improved debt
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
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
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-
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
“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
“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
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.
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
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
These groups have
extensive build buying
Social capital and social
bonds tend to harmonise
the operation of these
groups. Social capital
also discourages loan
Resource mobilisation
is the sole
responsibility of the
Operating systems
mimic formal banks.
Loan term can be
extended to 12
Collateral is not
required for a loan,
however, a must
guarantee loans
granted to individual
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
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
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
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
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
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
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
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
Opportunities for
integration are yet to
be explored.
There could be
misalignment between
planting seasons and
availability of
sufficient loans for
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
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
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
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
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
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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
Saving Groups
Food, grocery
Grocery Stokvel
Other Savings Groups
Airtime, data
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
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
Discuss configuration of participation in their alternative financial institutions.
Encourage participants to propose the contents of a handbook ofmicrofinance option for farming
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
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
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
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.
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
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
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
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)
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
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
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
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
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
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
register of members that reflects their contribution (month and total) and quantities of inputs
(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.
Annexure 4: Example of Group and Individual Savings Books
Individual savings book:share buyingpage
Buy shares between 1 & 10 (Example)
The share value is:
Date of meeting
Number of Shares Bought
Meeting Number (12 months)
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.
Take a loan
Loan Amount
R1 000
Due Next Meeting
R1 100
Repay a loan
Month 1
Loan Amount
R1 000
Due Next Meeting
R1 100
Repay a loan
Month 2
Loan Amount
Due Next Meeting
Repay a loan
Month 3
Loan Amount
Due Next Meeting
Repay a loan (final
Month 4
Loan Amount
Due Next Meeting
Group Records: share purchase
Book Number &
Records of shares bought in each meeting
Meeting Number
Group Records: closing balances
Number of shares bought today
Number of loans issued
Rand Value of shares bought
Value of loans issued
Value of loans repaid today
Money remaining in the
Total income received today
Money deposited in the
NOTES: All of these figures must add up to the
collective figures contained in the individual
member’s transactional books
Total value of outstanding
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
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