Malawi is a low-income country in East Africa. It is one of the 10th most impoverished countries in the world in terms of GDP per capita and more than 50% of its population officially lives below the national poverty line. Many Malawians do not have access to formal banking due to a lack of banking infrastructure or a fundamental lack of personal wealth. Savings groups in Malawi have primarily replaced banking and have the potential to eradicate poverty in this country.

What Are Savings Groups?

Savings groups are small community-based groups, between 15 and 25 people, who each place an amount of money into a central holding, allowing them to save money on a small and relatively stable basis. They provide a transparent and democratic form of microfinance, serving as an alternative where formal banking is unavailable. Benefits include:

• Loans become available to more impoverished people who cannot access them from formal institutions.
• Young people can learn how to save, borrow and invest money in a safe environment, rather than going into adult finance without experience.
• Women, generally one of the most vulnerable groups economically, can gain independence through savings groups.
• Essential local infrastructure can be sustainably built and maintained.

Crucially, Plan International emphasizes that savings groups are vital in reaching the first Sustainable Development Goal (SDG). The SDGs are a set of international goals agreed upon by the U.N. and targeted for completion by 2030, with the first goal focused on eradicating global poverty in all its forms.

Impacts of VSLAs in Malawi

Village Savings and Loans Associations (VSLAs) are a version of savings groups in Malawi, organized at the village level rather than within smaller groups. They are widespread throughout the country. Impacts include:

• Savings: Villages working under VSLAs have reported a 34% increase in savings over the last 1.5 to 3 years compared to villages without them.
• Loans & Credit: Households that are part of a VSLA have increased access to credit and loans. In VSLA areas, the borrowing costs of people taking loans have fallen by 20%.
• Businesses: VSLAs have correlated with a rise in the number of businesses and profits in Malawi, but household incomes have not yet changed. Although income rises with profits, the effect can be expected to be staggered. Businesses cannot realistically increase incomes until their profit gains prove to be sustainable rather than a one-off.
• Food Security: Although savings groups in Malawi have not yet had a significant impact on food security, according to Innovations for Poverty Action (IPA), they have helped mitigate the negative effects of droughts. On average, VSLAs have also increased food consumption by one meal per week, showing gradual improvements.
• Women: VSLAs have had a clear positive impact on women. Malawian women in savings groups report being more empowered, with greater ability to make decisions for themselves and their households.

Malawi is also pursuing digital means for its financial future. According to IPA, the main focus currently is on digitizing records and monitoring how it improves access to finance across the country.

How Effective Are Savings Groups in Malawi?

The IPA report shows that saving groups have been incredibly influential in Malawi. They have provided a vehicle through which the Malawian people can bring themselves up financially. Women have significantly benefited, able to become increasingly economically and socially independent. While there is still a long way to go in eradicating poverty in countries like Malawi, saving groups have proven to be a reliable solution in many aspects and will help push the world toward reaching the primary SDG by 2030.

– Oliver Evans

Oliver is based in Devon, UK and focuses on Good News for The Borgen Project.

Photo: Flickr