Skip to content

Access to affordable credit services is essential for millions of households in Africa. It becomes even more important for rural households where generating revenue is a challenge.

However, formal financial institutions like banks are distant in rural areas. Moreover, the process of getting loans is tedious and time-consuming. People, in general, lack proper IDs and collateral to access loans from these institutions.

Thus, borrowing from savings groups like village savings and loan associations (VLSAs) and savings and credit cooperatives (SACCOs) becomes feasible for rural households. VSLAs are self-managed groups and do not rely on any external findings. People in rural areas with no or incomplete financial history are moving to these groups to access loans.

Borrowings from VSLAs and SACCOs

According to the Bank of Uganda Financial Capability Survey, 48% of borrowers in Uganda avail of loans from VSLAs, making them the largest source of finance in Uganda. They are most popular in rural areas with low-income groups. The report also shows that VSLAs are followed by SACCOs, making up 22% of the total loan uptake in Uganda. 

The survey also found that 64.4% of loan applicants choose these savings groups due to their ease and speed of loan approvals. They generally take 24 hours to approve a loan application when the finance is available. 

According to the survey, applicants borrow money from the savings group due to three major reasons:

1. 38.2% borrow money for business purposes.

2. 28.9% borrow money for emergencies.

3. 18.7% borrow money to fund their startups.

Mr Joseph Lutwama, Acting Executive Director, Financial Sector Deepening Uganda says, “Village Savings and Loan Associations (VSLAs) are the most preferred sources because they require fewer requirements for loans than formal financial institutions.” He added, “Most of these groups are formed in the interest of the community and not for profit-making.” 

Considering the rise in the borrowings from savings groups, saving in SACCOs is also seeing an upward trend. According to the Economic Survey in Kenya, net savings in SACCOs grew to Sh17.5 billion and deposits to Sh540.5 billion last year. 

Seeing the rising popularity of SACCOs in Kenya, the government is working to offer a favourable environment for these SACCOs to operate. They believe that such efforts have helped many cooperatives to perform well even during the pandemic.

State Department for Co-operatives Principal Secretary Ali Noor Ismail said, “The government created a conducive environment which came about through institutional reforms in the sector.”

Moving ahead

Village savings and loan associations and savings and credit cooperatives will be key to offering credit services in rural areas. They will also help people build their credit history to make them creditworthy in the eyes of banks. 

Furthermore, digital solutions will help these groups work more effectively and reach more people. We, at Wakandi, are working to offer CAMS to SACCOs and other financial groups that can help them offer digital financial services. With CAMS, we not only aim to transform savings and loan services but also create an impact on the lives of millions of people.