What is the role of village savings and loan associations (VSLA) to support family farming?
There are more than one million VSLA members in Uganda, and the majority of these are from rural areas where agriculture is the primary source of income.
VSLAs meet on a weekly basis over the course of a cycle to save and take interest-bearing loans. This can provide access to credit to support members in buying inputs throughout the cycle and also offer a place to save and generate additional savings by loaning to other members.
At the end of a cycle there is a share-out where members get their savings back and their share of the profit made on loans taken. This capital injection can also support family farming efforts by funding the purchase of livestock, agricultural equipment and inputs without the need for credit, and perhaps on a larger scale than a mid-cycle loan would allow.
Furthermore, the group can provide a vehicle for the purchase of large community assets, with some groups investing in machinery that can be used by members and rented out to other members of the community to generate additional income.
What technology tools are used by VSLAs to support family farming?
VSLAs follow a methodology that traditionally teaches record keeping in paper ledgers and storage of cash, collected and not loaned on, in a metal box secured by three padlocks, a separate member holding a key for each. Grameen Foundation is working with Barclays and CARE to find ways to introduce technology to VSLAs that will improve access to financial services.
This work has resulted in the development of a smartphone application called Ledger Link that allows the VSLA to record their meetings in the app and submit the data to the bank for secure storage. This valuable financial data is no longer at risk of being lost in case of theft or destruction of the metal box where the group store their paper ledger.
By sending data to the bank, the VSLA will also build a credit history that can inform future loan applications. This could allow strongly performing groups to access funds at the beginning of a cycle when member contributions are low but demand for loans still exists, often driven by planting seasons. This credit history may also support individuals who want to access credit in the future to support their farming activities.
Grameen Foundation is also working with Airtel to develop a new type of mobile wallet. This will allow groups to store money securely in a group wallet protected by 3 PINs (much like the three padlocks). VSLAs with bank accounts will be able to push and pull money to and from the account, reducing the costs, time and risk associated with carrying it to the bank physically. This product will also be offered to the groups banking with Barclays.
ICTs offer a relatively low-cost way to serve a large number of people
Which ICTs have had an impact in improving the functioning of VSLAs?
There are currently limited ICT successes with VSLAs in Uganda. The focus has been on providing training to set up groups on financial literacy, conflict resolution and linking groups to banks such as Barclays. The Ledger Link smartphone application developed by Grameen Foundation and Barclays, and the Airtel group wallet, are new uses of ICT for VSLAs. Development has been strongly rooted in user research, and an iterative process has ensured that the products are aligned to the need of the groups and their members.
Early pilots and prototyping have yielded positive results, and the smartphone application has been shown to reduce record-keeping errors and even detected fraud. This will support the long-term development of groups and enhance the positive VSLA dynamics by managing the risks. The group wallet should also reduce fraud and the costs and risks associated with both holding cash in a metal box in the community and transferring it physically to the bank.
Can ICTs enable VSLAs to offer other financial services to family farmers such as crop and livestock insurance and cashless financial transactions?
By developing user-focused solutions for VSLAs we hope to make them more accessible and easy to use. This should overcome barriers to adoption of both these ICT developments and help to pave the way for products and services targeted at these groups in the future as they become more familiar with ICTs and trained in how to use them.
Engaging with the private sector to deliver these products should raise awareness of the potential for provision of other financial services to these groups. Furthermore, the existing products are supported by robust commercial models to ensure commercial viability; therefore these can act as a proof of concept in the ability to viably serve this new type of consumer. Opportunities for insurance products and to facilitate cashless transactions for family farmer VSLA members are just some of the services under consideration in the near future.
Are there any constraints for VSLAs to use technology tools, especially new ICT tools for providing financial services to family farmers?
The cost of hardware is a key limitation, both in terms of basic phones for mobile money services and smartphones for the use of more sophisticated products like the data collection application.
It is also necessary to train the users on new technologies and processes. This can be logistically complex and costly as groups are geographically dispersed. The group demographics mean that those targeted often have low levels of education, which can make the delivery of training and information more complex.
How can these constraints be overcome?
Providing ICT developments that require hardware to a group rather than an individual can reduce the cost barrier. Splitting the cost between many members can make an expensive asset affordable – a US$100 smartphone split between 30 people becomes more affordable at US$3.33 per person.
Finding ways to subsidise hardware costs or spread them over time could help to reduce this adoption barrier. Finally, if the hardware can be used to generate other revenue streams for those purchasing it the incentive to commit is strengthened.
With regards to training, Grameen Foundation’s experience has shown that when it is provided, and products have been developed through a robust research-focused approach, users can learn to use a new tool relatively quickly. Adopting a training approach tailored to the needs of the user is important, and ensuring that the value proposition is explained in a way they can relate to and comprehend is also key – for example, explaining that by using the group wallet they can reduce the time and cost of travelling to the bank to make a deposit and increase the time and money they have to invest in farming activities.
How can ICTs improve VSLA services in the future?
At Grameen Foundation we believe there are many opportunities to use ICTs to better serve VSLAs to improve financial inclusion. ICTs offer a relatively low-cost way to serve a large number of people, and the clustering of people into VSLAs further supports this.
Both the data collection tool and group wallet are in the final stages of testing and are due to be launched later in 2014. The success of these products with this consumer group could pave the way for many more ICT developments, targeting VSLAs, and through them, family farmers in the future.