VSLAs: The Unsung Heroes of Financial Inclusion

VSLAs are considered informal channels of financial services and yet according to 2018 FinScope survey findings most adults save with and borrow from VSLAs. Four out of every 10 adults save with and five out of every 10 adults borrow from VSLAs.

Ugandans are five times less likely to borrow from Savings and Credit Cooperatives Organizations (SACCOs) (3%), commercial banks (3%) and Micro-Finance Institutions (MFIs) (2%) compared to VSLAs. Despite the dominance of VSLAs bulk of the efforts towards increasing the financial inclusion frontier in Uganda have focused on formal financial institutions like commercial banks, microfinance and mobile money operators. The National Financial Inclusion Strategy (NFIS) also targets increasing formal financial inclusion. Interventions focusing on VSLAs have also focused on formalizing the VSLAs by linking them to formal financial institutions but without much success. VSLAs have unique social-economic dynamics that need to be analyzed further and appreciated if they are to be effective drivers of financial inclusion in Uganda.

Salient Features of VSLAs

Findings from a study commissioned by FSD Uganda on the linkage of VSLAs to banking show that 8 out of every 10 VSLA members earn their living from seasonal farming activities (i.e. selling crops, livestock or by-products) and hence had irregular incomes, yet the loan products from formal financial institutions require regular payments.  The other salient feature of these VSLAs, as shown by the findings is VSLAs are dominated by women. The study found that 7 out of every 10 members of the VSLAs were women. These women must carefully balance family and business roles which can affect their productivity and eligibility to access formal financial services which require regularity in savings and interest payments. The most significant reasons for members joining groups were savings and borrowing. Members also derive a great social value from belonging to the VSLAs.

Why VSLA formal linkage initiatives have not been so-successful

A study conducted by Financial Sector Deepening Uganda (FSDU) on linkage banking revealed mixed results. Attempts to formalize VSLAs met with limited success because such attempts did not pay close attention to formation and nurturing of groups, developing suitable products for the groups, failure in mobile telephone connectivity and termination of support before group maturity.

VSLAs should be nurtured for not less than one year to enhance cohesion amongst the members. During the nurturing period, the VSLAs should be trained in financial literacy, bank literacy and money management skills amongst other areas. Attempts to link VSLAs to banks facilitated development of savings and lending products. However, these products were prototypes of savings and lending products for the formal sector and they did not take into consideration a deeper alignment of these products to the livelihood patterns of the beneficiaries.

Inappropriate tailoring of products explains why VSLA linked bank accounts were dormant. Without a detailed consideration of a need to specially target the informally served, Financial Services Providers (FSPs) are bound to fail in developing appropriate products for the VSLA members who are predominantly formally excluded. Distance to the FSPs is a significant barrier to improving access to finan­cial services for the excluded communities who dominate the membership of these VSLAs.


Signing out we must say that VSLAs have huge inherent potentials to enhance financial inclusion. A rethink of interventions and business use cases and models to enhance roles of VSLAs in facilitating financial inclusion is necessary. Linking VSLAs to formal financial institutions may not deliver the desired goals as had been anticipated.

The recent establishment of the Uganda Microfinance Regulatory Authority (UMRA) which will be providing regulatory oversight to VSLAs provides an opportunity, to chat a different path for the formalization of VSLAs. There is an opportunity to develop the VSLAs into a unique market segment within the financial services industry to cater for the needs of the underserved population segments.

Related Articles