Ensuring Sustainability By Linking Groups to Finance
Village Economic and Social Associations (VESAs) were at the core of all GRAD interventions. Overall, the project supported establishment of 2,861 VESAs with more than 62,000 members and used them to initiate internal savings and loan activities and to deliver diverse training and support to project target households in an efficient manner. Project staff and members alike saw the benefits of maintaining functional VESAs beyond the life of the project. As one way to ensure this, the project linked VESAs with microfinance institutions to maintain safe access to credit and saving services. The Lewet Ayehu (i.e. “I’ve seen change”) VESA, located in the Libo Kemkem Woreda of the Amhara region, shows the success of this approach.
Established in 2013, Lewet Ayehu started with 30 male and female members. At the beginning, members would save five birr per month. This increased to 20 birr (slightly less than 1 USD) by the end of GRAD and members could access internal loans up to 800 birr (30 USD) to invest in small-scale livelihoods activities. However, loan sizes were never large enough for business investments of any significance. To remedy this, the project helped link the VESA with the Qala Yohannes Credit & Saving Association to increase significantly increase loan size. Alelegn Tarek, VESA chairman, said “Currently, our VESA deposited almost 90% of its 27,000 birr ($ 1,000) capital in the credit and saving association. This helped us to access bigger loans so that members can engage in livestock fattening, honey, poultry, and other income generating activities. It also enhances our VESA members’ confidence that their money is deposited in a safe institution with better structures.”
In the nearly two years since GRAD stopped working with the VESA, each member has been able to access a loan from Qala Yohannes, at an average of 3,000 birr (111 USD). Menen Aleme, a 42-year-old mother of six and member of the VESA, accessed a total of 7,000 birr ($ 259) in loans. She has fully repaid both loans thanks to her success at ox fattening. “I like the loans from Qala, since the interest rate is 12% (compared to 18% for most MFIs). The location is close to home and the process takes no more than two days. The loans are not big enough to buy a good ox, but I usually add from my savings so I can buy one.”
Before establishing their VESA, most poor community members did not have access to credit and saving services. They had to go to pawnbrokers to get some loan in cash or in kind. Belay Akalu, a father of eight children and another member of the VESA said, “I remember a year when our farm was hit by drought and my family did not harvest anything. We went to a well to do household to borrow one quintal of maize but our agreement was to pay them back with one quintal of linseed in next harvest season-which was unfair deal as price of a quintal of linseed is three times of the maize. But we did not have any other option. Now I’m actively participating in honey, and ox fattening value chains thanks to regular access to credit and savings, and skill training”
Currently, Lewet Ayehu has 26 member households and continues to function per the by-laws agreed to five years ago. Member continue to access small VESA loans and larger ones from Qala. Of the current members, 23 have graduated from government’s productive safety net program (PSNP). This far exceeds typical graduation rates for GRAD and for the PSNP as a whole. The other three households are landless with a single parent, factors which impede progress and delay graduation. But each has accessed 2,000 birr loans from Qala. They hope to graduate in the near future as the loan helps their income to grow.