This study will ascertain how Care International in Malawi (CIM) has adapted the accumulating
savings and credit association (ASCA) model of mobilizing savings to serve the needs
of the poorest people in Malawi. CIM is helping poor people to establish village savings
and loan associations (VS & LAs) which operate on the same principles as ASCAs, but
which are specifically designed for those whose incomes are lower, who live on less
than $1 a day, and who need to be guided and trained on how to run their associations.
The study will also investigate how CIM has devised the VS & LA model, how it has
disseminated it, the successes and setbacks that it is experiencing, and how people
are interpreting it and using or not using it.
About the Researcher(s)
Professor Chinyamata Chipeta, a Malawian national, has a PhD degree in economics obtained from Washington University
in St. Louis, Missouri, USA, in 1976. Until he retired in 1995, he was a professor
of economics at Chancellor College, University of Malawi. Currently, he is the Executive
Director of the Southern African Institute for Economic Research, an independent non-profit
research institution based in Zomba, Malawi. Among other subjects, he has researched
and published articles on commodity and modern fiat money and on informal, micro and
Synopsis of Research Results
Through desk research and field surveys conducted in the areas of Traditional Authority
or Chief Chikowi in Zomba District and Chief Chowe in Mangochi District, this study
has investigated how Care International Malawi (CIM) is promoting village savings
and loan associations (VS & LAs) to serve the needs of the poor, how it has devised
the VS & LA model as an adaptation of the accumulating savings and credit association
(ASCA) model, whether poor people appreciate VS & LAs, and it has ascertained successes
and possible setbacks of VS & LAs in Malawi.
CIM started using the VS & LA model in 1999 as an aspect of a development programme
called Improving Livelihoods through Improved Food Security (I-LIFE). I-LIFE helps
households to change from subsistence to commercial farming, and to improve their
nutritional and health practices. As a component of the I-LIFE programme, the aim
of VS & LAs is to encourage local people to put their savings into a common pool from
which individual members can borrow. Under the I-LIFE programme, CIM promoted VS &
LAs itself through trained field officers and community agents under the direction
of a coordinator. By December 2007, CIM had established 1,453 VS & LAs with a total
membership of 23,340 people in whose financial and social status there was significant
improvement as a result of this intervention. This encouraged CIM to scale up the
establishment of VS & LAs during the second phase which began in 2009 and whose target
is 5,000 VS & LAs with a total membership of 100,000 people. Having decided to increase
the formation of VS & LAs, direct involvement was going to be expensive and cause
management problems. For these reasons, CIM decided to implement the VS & LA programme
through partners, including Emmanuel International. The new programme, which is called
SAVE UP MALAWI, is directed by a CIM country coordinator and actual implementation
is done by partners who employ field officers and identify village agents who get
a token fee from the VS & LAs for their services.
CIM chose the VS & LA model because it is accessible to the poor, it is flexible in
its operations, it s easy to manage and because it empowers the poor. As a savings-led
alternative to credit-centered microfinance institutions, the VS & LA model can prove
successful and sustainable in poor, rural areas with unsatisfactory infrastructure
and low population density resulting in small loans and high transaction costs. In
order to encourage savings among people who have a high rate of time preference, CIM
adapted the ASCA practice of operating in short cycles to enable members to get back
their contributions and receive dividends at short intervals to spend, and start a
new cycle by reconstituting the capital fund immediately afterwards. The capital fund
is built up over time through subsequent purchases of shares by members. Other factors
that facilitate accumulation of savings are the right of members to borrow, the high
frequency of borrowing, the service charge on loans, and the short loan repayment
period which implies that funds are not tied up in loans for a long period of time.
VS & LAs differ from ASCAs in that they are more formal than the latter. In order
to improve management and security of resources, they use cash boxes in which they
keep cash, cash books and members’ passbooks. Each cash box has three padlocks and
three keys. Share purchases and loan transactions take place at open air meetings
to ensure transparency and accountability. Members meet more frequently, once a week,
than members of ASCAs. Similarly, their executive committees meet more frequently
than those of ASCAs. The capital fund is complemented by a social fund which is used
for helping needy members and for meeting petty expenses.
Members of VS & LAs may not exactly fit the description of people who are living below
the national poverty line, partly because the people responsible for establishing
them do not have objective criteria for identifying the poor and partly because separating
the poor from the non-poor would anger those who are left out and undermine their
acceptability in the local communities. But their socio-economic characteristics of
low levels of education and dependence on small-scale agriculture and petty business
activities suggest that they are relatively poor. These people appreciate the establishment
of VS & LAs in their areas, as reflected in the local names by which they are known
and the songs which they sing at meetings of VS & LAs. The number of communities that
rejected the idea of forming VS & LAs is very few.
In the area of Chief Chikowi, VS & LAs have not been in operation for a long time.
Therefore, it is difficult to ascertain if they have significantly improved the livelihoods
of their members. What we have found out is that through the expenditure of loan money
and dividends from VS & LAs on foodstuffs, farm inputs, school fees, and productive
assets, and on investment in business enterprises, members’ participation in VS &
LAs has potential for improving their livelihoods. Data from the area of Chief Chowe
indicates that over a longer period of time, participation in VS & LAs can increase
the wealth of members significantly.
The SAVE UP MALAWI programme has helped to increase structural social capital and
cognitive social capital in the form of interdependence, survival of the community,
group assurance, cooperation and harmony, trust, shared duties and responsibilities,
and generosity towards needy members. The programme has also increased skills for
managing businesses and finance.
How to satisfy rapidly increasing demand for VS & LAs and technically supporting their
establishment is a major challenge for Care International Malawi. Other challenges
include a rather inflexible required minimum number of members of VS & LAs which can
prevent their formation; an inflexible required maximum number of members which limits
their scope and resources; and the difficulty of targeting and covering the deserving
poor in the SAVE UP MALAWI programme.
In the absence of banks and non-bank financial institutions in the rural areas where
VS & LAs have been established, they keep cash from purchases of shares and loan repayments
themselves in houses of treasurers. Houses are not secure places for keeping cash.
There is always the risk of losing the money through theft. Besides, they carry cash
balances on which no interest is earned before lending starts or when borrowing is
not adequate to exhaust the funds. In addition, they do not have access to resources
of other financial institutions through which they can ease their own liquidity problems.
Creating deposit and credit links between VS & LAs and banks and non-bank financial
institutions, as suggested by CIM may thus be an appropriate way of addressing these