Nepal is one of the least developed countries in the Asia Pacific region and one of the poorest countries in South Asia with a low per capita Gross National Income. Most people are subsistence farmers, just managing to grow enough to feed their families and sell a small surplus to by a few things as clothes, salt and tea. According to recent report published by Government of Nepal, about 25% of Nepal’s population lives below the poverty line. This is a significant reduction from 42 percent in 1996; however the target is to reduce the rate to 21 percent in 2015. More than 90 percent of the poor live in the rural areas and a majority of them live in inaccessible hills and mountainous areas. Most of them have no access to the formal financial system and are left to the private money lenders who often charge an interest rate between 36 and 100 percent per year. During the 1970s, most of the low-income countries of Asia-Pacific and Latin American countries incorporated the concept of micro-finance within their mainstreaming financial system. Since that time, some pioneering micro-finance institutions developed and applied a new set of methodologies in micro-lending businesses for poverty alleviation. Both formal and informal micro-finance institutions (MFIs) in Nepal are providing financial services to generate income through creating job opportunities. Government mandated model, Grameen model, cooperative model, NGO/INGO/donor model, and Apex model are some of the existing micr-ofinance model in Nepal.
Everyone has need for financial services no matter how poor, though the scale and breadth of needs varies by economic levels. Village Savings and Loan model (VSL) is a self-selected group of people, (usually unregistered) who pool their money into a fund from which members can borrow; the money is paid back with interest, causing the fund to grow. The regular savings contributions to the groups are deposited with an end date of in mind for distribution of all part of the total funds (including interest earnings) to the individual members, usually on the basis of a formula that links payout to the amount saved. This lump sum distribution provides a large amount of money that each member can then apply to his/her own needs. The model has slightly readjusted and improved with VSL model for working with savings and loans groups, as a local context of Nepal.
Village Savings and Loan model fulfills the small local pools of capital to satisfy households' cash-management needs. It provides immediately sustainable and profitable savings, insurance; live in places where banks and Micro Finance Institutions do not have a presence. The model was originally developed by CARE-International and applied in 16 countries in Africa, 2 in Latin America and 2 in Asia, with now worldwide. The basic principle of the Village Savings and Loan (VSL) model is that members of a self-selected group voluntarily form a group and save money, through purchasing shares. The savings are invested in a loan fund from which members can borrow, repaying with a service charge added. Village Savings and Loan Association is a form of savings and credit group, a generic term that describes this type of small-scale community-managed financial institution. The primary purpose of a VSL Association/Group is to provide simple savings and loan facilities, in a community that does not have access to formal financial services. Loans can also provide a form of self insurance to members, supplemented by a social fund which provides small but important grants to members in distress. Associations are autonomous and self-managing. This is fundamental because a VSL’s goal is institutional and financial independence. Promoting institutions should never seek to manage a VSL Association/Group’s affairs on behalf of its members.
CARE International in Nepal is promoting Village Saving and Loan (VSL) Association/Group through its ongoing project with the financial support of FAHU Foundation and DANIDA through CARE Denmark targeting to Bajhang, Bajura, Syangja and Doti districts. These programs are especially focused on livelihoods improvement of Poor, Vulnerable and Socially Excluded (PVSEs) groups in deprived communities through Village Savings and Loan model. VSL model has been proved as a sustainable poverty reduction model particularly in rural areas of Nepal. This model is also being replicated by other few development agencies and implementing in rural areas of Nepal accordingly.
Bibliography
i. Allen, H. (2007). Village Savings and Loan Association-Program Guide for Field Operations Manual Version 3.1. Africa: VSL Associates Limited.
ii. Aryal, D. et.al. (2007). An assessment of six CARE related savings and credit groups in Nepal. Denmark: CARE Nepal, CARE Denmark and FAHU Foundation
iii. Bishwakarma, M. B. (2009). VSL Program Implementation Guideline. Kathmandu, Nepal: CARE Nepal.
iv. CARE Nepal. (2010). Annual Performance Report of VSL Program. Kathmandu, Nepal: VSL Program.
v. Dhakal, N.H. (2009). Strategy to Work with Village Savings and Loan Groups in Nepal. Kathmandu, Nepal: CARE Nepal.
vi. NPC. (2002).The Tenth Plan/Poverty Reduction Strategy Paper Government of Nepal Singhadarbar Kathmandu, Nepal
Thanks for post MBBK. I went through the blog carefully and really liked the way you linked poverty rate and saving problem. This was definitely a problem identified long ago as vicious cycle of poverty. However, I could not find something new with VSL model. Government has been promoting cooperatives as one of the solutions for poverty reduction for years, and there are many INGO/NGOs working at local level who have been providing saving and credit group services. But, clearly, that has not worked to the level we want them to work. The main reason behind is the scale. With around 100 rs. per month saving among 20-30 people can not lead to the investment required to break the vicious cycle. Moreover, there are also incidences where such savings are utilized to construct temple or community centers. We need to think seriously on local level saving and investment from other angle.
ReplyDeleteThank you MBBK for updating this new saving model focusing rural population where formal financial institutions are absent. Beside savings, other positive effects of such models are awareness, empowerment and capacity building of rural people.
ReplyDeleteVSL model seems to be effective for a country like Nepal. Definitely it helps reduce rural poverty and empower people. Thank you posting a blog on such a new topic.
ReplyDeleteThank you MBBK for launching this new model which seems very effecting with saving rate linking with poverty.this model will really help to improve the quality of Nepalese citizen.
ReplyDeletesaving habit is also link to capital formation,which link to various life standard improving activities.