For many years, World Renew (along with many other global NGOs) has sponsored the creation of Village Savings and Loans Associations (VSLAs). This is a form of sponsored (or NGO-facilitated) informal community Savings Group (SG) that has proven particularly valuable in building community, enabling resilience from economic shocks, and encouraging micro-enterprise development among other many other benefits. However, VSLAs have limits and there may come a point for successful groups when they would like to overcome those limitations.
This report discusses the potential benefits and challenges that come from expanding savings and loans capabilities beyond a particular VSLA. In particular, it addresses linkage with formal financial services providers (FSPs) such as banks. There is limited formal research on the effectiveness of SG linkages to FSPs, and far more needs to be done. However, a review of outcomes of linkages suggests that in many cases a real need is being effectively met and communities are benefiting. At the same time, there are many challenges and pitfalls and not all linkages are successful.
The conclusion of this research is that, when conditions are right, great value can be derived from connecting informal Savings Groups to formal financial services. However, in order to create a sustainable long-term linkage, a number of guidelines must be followed by the SG, the sponsoring NGO, and the Financial Service Provider. These guidelines will differ by geography, type of SG, type of FSP, etc. with the result that there is no one-size-fits-all approach.