Community saving is a widespread financial practice in developing countries.  It goes by different names, such as Village Savings and Loans Associations (VSLA), community banking, ROSCAS, TONTIN, etc, although the methodologies are all very similar.     

VSLAs are groups of people who get together to organise a common fund from small individual monetary contributions, in order to save, apply for loans and gain access to a special fund created by the group itself for emergencies. In general, this is a model used by people living in remote areas with almost no access to the formal financial system. As a microfinance model, it may be insufficient for the members of the association at a given moment in cases in which financial institutions are key for the processes of financial inclusion or for bringing savings associations into the formal financial system.    

This FOMIN publication is a series of guidelines for financial institutions wishing to roll out processes aimed at bringing Savings and Loans Associations into the formal financial system.

It is a series of lessons learned from the FOMIN projects “Generating revenues and rural finances through community groups” and “Creating a rural ecosystem of inclusive mobile financial services”.  These projects set up 1,242 savings associations with 18,457 people from 587 municipalities in Colombia.

One of the report’s conclusions is that the VSLA method gets a highly positive assessment from the rural communities as it is easy to understand, it meets their needs and empowers them financially and socially, but it is not always enough, so they have to resort to other market stakeholders.

It is useful for financial institutions to know that VSLAs constitute a good financial education platform. In most cases, members acquire a savings and payment capacity discipline or level of savings. This, plus the information available on needs, payment behaviours, NPL ratio, etc., represents an interesting opportunity for financial institutions wishing to develop financial products and distribution channels that are in line with the low-income segment of the population.