This manual is to be used by Field Officers (FOs) who are in charge of creating Village Savings and Loan Federations. Field Officers are paid employees, who create, train and supervise VSLFs until they are able to operate independently.
Village Savings and Loan Federations (VSLFs) were first created about 10 years ago in Tanzania, by CARE and later by Plan International. Called IMAs (Input Marketing Associations) they were community-based organizations that engaged in the commercial supply of farm inputs to members and assisted in the marketing of agricultural produce. These purposes were never satisfactorily fulfilled, but IMAs have proven to be effective as apexes of VSLAs, federated to intermediate capital between 5 - 10 VSLAs, organized into clusters. In this manual we have ‘re-branded’ them as VSLFs (Village Savings and Loan Federations). With 5 - 10 VSLAs a VSLF will have a total membership of as few as 100 and as many as 250 people, which is a scale at which large community-managed institutions seem able to thrive, when focused on a single purpose.
While the VSL model was (and remains) very popular, a limitation of the approach is that the annual share-out de-capitalizes the VSLA, reducing access to loan capital for several months in the next cycle and, at the same time, preventing the possibility of longer-term lending. The VSLFs, operating as apexes of VSLAs work as financial intermediaries, able to mobilize additional capital (from member VSLAs), which can be lent to other VSLAs that are short of loan capital at critical times (usually early) in the annual cycle.
Over the years VSLFs have gone beyond the simple intermediation of capital, to encompass other forms of technical and social support to their members, but built around a basic financial intermediation role in which participating VSLAs contribute to a VSLF-managed loan fund from which they can borrow at lower application fee rates than VSLAs charge internally, to augment VSLA loan funds and meet seasonal upswings in demand for additional capital. This role has proven to be in high demand and generally successful.
This manual is designed to provide organizations a detailed guide to setting up, supervising and graduating independent VSLFs as financial intermediaries over a period not exceeding two years, after which they are expected to operate independently. It does not cover other activities that VSLFs might pursue in addition to financial intermediation between VSLAs, which will always be their core function.