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Village Savings and Loan Associations - Experience from Zanzibar Image

Promoting Inclusive Markets and Financial Systems

Village Savings and Loan Associations - Experience from Zanzibar

Village Savings and Loan Associations - Experience from Zanzibar


In the last few years, there has been renewed interest in searching for financial models that can be used to deliver sustainable financial services to the rural poor in Africa. This quest has been motivated by the failure of formal or centralized microfinance institutions (MFIs) to reach remote and rural areas. These organizations (mainstream MFIs and banks), faced with the challenge of a dilapidated infrastructure, low population density, small transaction sizes and risk-prone returns in agriculturally concentrated economies, often find it too costly to deliver services into these rural areas. The idea of a frontier of provision determined by poverty incidence and population density has been suggested, beyond which centralized providers find it difficult to reach but user-owned and managed systems – or decentralized models – such as cooperatives and groups, have inherent advantages in serving (Johnson et al., 2006). Such decentralized models also have the advantage of retaining resources within the rural economy and not producing transfers to pay the costs of running distant head offices.

One approach of this kind is the Village Savings and Loan Associations (VSLAs) modelled on CARE’s project in Niger
(commonly referred to as the Mata Masu Dubara or the MMD model). CARE has replicated this model in several other countries including Angola, Burundi, Côte d’Ivoire, Eritrea, Haiti, India, Kenya, Lesotho, Malawi, Mozambique, Rwanda, Tanzania-Zanzibar, Uganda, Zambia and Zimbabwe. Other international NGOs, including Save the Children, Plan International, World Vision, OXFAM, Freedom from Hunger and Catholic Relief Services (CRS), are also promoting VSLAs, particularly in Africa (Grant and Allen, 2002; Allen, 2006).

While the model is increasingly being replicated, few detailed studies of its performance have yet been undertaken. The Decentralised Financial Services Project in Kenya set out to further research the model in order to fill this gap. This article reports the findings of a study of the approach in Zanzibar. The next section explains the basic approach, the choice of Zanzibar for the study and briefly outlines the methodology employed. The following sections report the findings: first, outreach and performance; second, the profile of VSLA users; third, the usefulness of the model to users; and finally, the role of the apex organization (JOCDO).

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