PANACEA TO BOOSTING RURAL ECONOMY IN AFRICA: VILLAGE SAVINGS AND LOANS ASSOCIATIONS.

Do you know that of the developing world’s 1, 100,000,000 poor people, 800,000,000 of them live in rural areas? Will you debate me if I assert that this vast majority of poor people directly depend on agriculture for employment and income generation? How do you perceive the feasibility of bringing all these people into the economic mainstream? Those, indeed, are the million dollar questions begging for answers. Not just answers but positive answers.

Empirically, more than 60% of African economies depend on agriculture yet the continent suffers the plaque of food insecurity and chronic hunger .Conversely, developed countries like the US have less than 1%(approximately 2 million) of its population engaged in agriculture but are food secured, exported surplus to hungry countries. The point here is not the quantity but quality of the labour force engaged in agriculture in the two contrasting   worlds. There are several limiting factor accounting for declining agricultural productivity in Africa. Notable among these major causes are the very limited access to resources, such as land, education, energy, farm services and credit.Today, I will focus on the pivot of all the causes: Credit.

Credit has become synonymous to banks and micro finance institutions. That could be right. But the question is how useful are these institution to boosting the rural economy?. Of course, banks and micro finance institutions (MFIs) provide valuable services to the poor in Africa.However, they are more successful in economically dynamic areas like the urban and Peri-urban centers where investment opportunities abound, income streams are diverse and regular, cost of reaching clients are low with high borrowing requirements of small scale enterprises.

But what is the case of the farmer that lives in the hinterland? How does the fish monger across the lagoon benefit from these financial services? Perhaps, the vegetable farmer has to continually produce on subsistence scale due to fragmented value chains and inefficient supply chain.

Increasingly, it is becoming evident that MFIs are of great disservice to those in the rural areas. Sometimes, they too cannot be blamed that much. Even large scale MFIs that are licensed to mobilize savings struggle to provide products that suit the small capital requirement and irregular incomes of their poorest of clients; many of whom may borrow from informal sources to support  their repayment obligations to MFIs.What else could the poor farmer expect if not indebtedness. To poor farmers and rural dwellers, MFIs are best configured to serve growth-centered entrepreneurs whose income is diverse and reliable; who work full-time in their business; and who need access to large pools of capital to satisfy their demand for loans. What this means is that, automatically, rural dwellers with less reliable income and seasonal business cannot qualify for credits from these banks and MFIs.

However, there is a way out. This alternative is an organic approach to building a voluntary community-based and self-managed group of 15 to 25 individuals who meet regularly to contribute to their own savings. That is not all. The alternative generates savings which are maintained as a loan fund from which members can borrow in small amounts. It is flexible and compensates for the major weaknesses of MFIs that fail to provide remunerative and flexible saving facilities.MFIs, rather than building traditional informal financial systems, their approach often tends to replace these informal systems. This is a disincentive to rural dwellers. The feasible and practicable alternative to the lapses of MFIs is the Village Savings and Loan Associations (VSLAs).

Village Savings and Loan Associations (VSLAs) provide principal services that help its customers to manage their household cash flow as well as providing useful lump sums for life-cycle events which may or may not include income generation. It also provides a safe place to save, provides access to credit for emergencies and productive investment, and provides a social network at the same time building the social capital of its participants.

What is more, VSLAs unlike MFIs provide people no matter how remote or poor with a means of intermediate small amount of local capital on flexible terms, allowing people to transact frequently at very low costs.

The concept of VSLAs is not novelty in Africa. It had been experimented with in Niger in 1991 by CARE International.Ever since; its positive ripple effects caught the attention of other development organizations like Plan International, Oxfam, Catholic Relief Services and Aga Khan Foundation. In India, for example, there exist over 2 million VSLAs serving 30 million members. This is a positive proliferation and worthy of adoption by any development organization.

But how does one start a VSLA in his/her community? Let me walk you through the process involved.

1.      Allow members to form their own groups.

VSLAs must be built on trust. As such, members should be allowed to select the people they could trust to constitute the group. The group should be between 15 and 30 persons.

2.      Provide Basic Training to Establish the Terms of Operation.

Since most rural dwellers might not pride themselves with literacy, it is important that basic training be provided to bring all members at par. During the training, ensure that the following key issues are discussed, understood and accepted by all;

               A. Define the purpose of the VSLA

B .Elect members to serve as officials

C. Set the terms for savings and loans including interest rates, repayment schedules and penalties for late payments or missed meetings.

D. System of collecting savings and making loans.

E. General meeting procedures.

NB: Your record keeping techniques should be suited for both literates and illiterate people.

3.      Form a Transparent Executive committee.

           Ensure that your VSLA elects a chairperson, secretary, treasurer,and two people who will count    the  money. This forms your executive committee.

           Remind members to select three trusted people from among themselves who you would entrust each with a key to one of the three locks on the cash box where the group’s funds are kept. In this way, you have created an internal control system. Ensure that all transactions, from the collection of member’s savings to the disbursement of loans are carried out at weekly meetings in the presence   of all members. Always and at all times see to it that the transactions are transparent and accountable.

4.      Bingo! Provide financial services now.

Begin by collecting weekly savings from members. The savings are accumulated in the form of shares at a price agreed upon by the group. Once you have made sufficient savings, say four to five weeks of savings accumulation, go on to offer your members with loans. Based on the interest your group had set, let it apply to all loans.Also, at the end of the year; pay all members a return on their savings. This end of year returns is generated from the interest rate and all fees collected throughout the year.

5.      Set up a Social fund; a miniature Insurance.

Since VSLAs are principally to keep members financially buoyant during hard times, ensure that you put a form of insurance in place. This would cushion members against vulnerable times.However, the entire group must determine if the emergency funds are distributed as grants or as interest-free loans with flexible repayment terms.

6.      Conduct an Action Audit.

About 9 to 12 months after the formation of the VSLA, conduct an action audit whereby you pay out all members savings and earnings from interest and fee. You then close the books for year and disbands.Advisedly; your action audit should be scheduled to provide a lump sum to members at critical times in the year when access to money is needed, for instance, to pay school fees or inputs at the start of the agricultural season. This period also allows members to leave the group and new members to join. Do not be surprised when your group decides to reconstitute and resume the saving and loan process. It does happen and it is a sign of progressive entrepreneurs.

7.      Monitor and Evaluate Progress of your VSLA

From the day you VSLA operations begun to the day you carried out your first action audit, keep your eye on the way things are progressing, support the executive committee in ensuring that proper books are kept.

With these seven formidable pillars you an erect a VSLA in your community. You want to know whether VSLAs are independent of MFIs. The answer is NO.Rather, VSLAs play complementary role to MFIs.VSLAs work at the grassroots to build the economic muscles of the people. With this, the people can build an appreciable capital base and credit-worthiness to attract MFIs.VSLAs therefore are the bridge that links the rural poor to the MFIs(if they so desire)comparatively,VSLAs have the advantage of reaching out to the rural poor, has a low operating cost, retains the capital within the group, its transparent, democratic and flexible, serves as conduit for other interventions, creates the opportunity for increased economic activity and above all ensures a low client debt level.

However, VSLAs are not without challenges. Principal among the lot is the limited capital base. Since VSLAs depend on the members limited saving capacity to provide the groups lending capital, loans demanded by members can outpace supply.

There is also the problem of limited product offering. Without a linkage to a formal financial institution, products within the group are limited to simple forms of savings, loans and insurance that may not match well the needs of all members.

Equally challenging is the situation of interrupted savings. The yearly distribution of savings and caps on shares interrupt members’ effort overtime to accumulate large amount of capital (although at the first meeting when the group reconvenes, savings can be reinvested at five times the normal weekly amount.)

The group could also suffer what is called elite capture. It is more common for more powerful group members to exploit the loan fund by taking more than their share of loans and by defaulting .A way to mitigate this has been to place a cap on the number of shares (savings) which can be purchased by any one member and by restricting loan amounts to multiples of shares held.

Also, there is the tendency of exclusion. Since the groups are self-selecting, there is the risk that members of the community will exclude poorer individuals from the group.

Of course, one cannot rule out theft. In VSLAs, cash boxes are maintained by the groups and may pose the risk of theft. In practice, with the exception of the first few weeks when group start to save and the last months when loans are being repaid, the cash box is nearly empty as funds are circulating among the members. To minimize risk, groups can be linked to banks which allow the groups to maintain savings accounts, particularly during the last few months prior to the action audit.

Meanwhile, the prospects of VSLAs far outweigh the challenges. These prospects spawn from some identified innovations which when applied could scale up the financial services to the poor.

Firstly, there should be linkages to financial institutions. It is perceived that overtime, some members may need more diverse financial services and/or larger loan sizes which cannot be met by VSLAs due to the limitations outlined above.Already,some development organizations have piloted linkages with formal financial institutions such as banks,MFIs and Credit Unions in response to the demands for a broader range of services.

Secondly, income generation should be focal to VSLAs.Without a doubt,VSLAs had been tremendously successful in poverty reduction and income smoothing.However,there are opportunities to enhance income generation and asset building.

Thirdly, sustainability and quality of service could also do the trick. When all other innovations become fully operational, sustainability and quality of services of VSLAs would be key. This is validated by the fact that some development organizations are testing models whereby field agents provide monitoring for a fee paid by the group. In another experiment,VSLAs were promoted to form Credit Unions and other larger registered body that can provide support like negotiating fees with banks and assuring quality standard.

Need I say more? The future of VSLAs is promising. If the farmer that sleeps on a straw mat could wake up in the morning and be assured of credit to purchase agro inputs, it would be because he belongs to a VSLA.

To this end, I implore the various development organizations to tap into the VSLA model to boost the rural economy, most especially in Africa.

If you work in a development organization and you want more education on VSLAs;perhaps you need a coordinator in the areas of economic and livelihood development, give me a call and let us synergize our expertise to better the lot of our people.

Be the change you want to see in the world.

NB: You can find my mobile number in my profile. Give me a call. Thanks   

REVERSING THE SCOURGE OF STUNTING: THE ROLE OF THE BUSINESS WORLD

Kofi Annan was only an innocent African child who grew healthily to become the UN Secretary General. John Dramani Mahama was once a child who grew healthily to become the president of Ghana. Georgina Theodora Woode too was then a baby suckling at her mother’s breast but now the chief justice of Ghana. It was not any different for Banford Addo either. She too, grew healthily to become Ghana’s first female speaker of parliament until recently. All of them, like all of us, were once a child.

Childhood remains vitally necessary to adulthood. That is why, I believe, development psychologists made no mistake in when they divided childhood into the stages of toddlerhood, early childhood, middle childhood and adolescence. They perceived that each stage comes with the need for full development less it could impair a person’s attitude formation. They were right. They were very right.

However, I am afraid. I am afraid because 147 million children in Africa might grow up to fulfill their potentials like Kofi, John, Georgina and Banford did. Through no faults of theirs, these children would have their future obliterated in obscurity. Too bad. Rather unfortunate. But I asked what future can we guarantee the children if we fold our arms and watch helplessly? Let us face it .Africa is saddled and encumbered with countless challenges yet I dare say Africa remains the Messiah of the world.That, I would explain to you some other time. Today, there is the urgency of now. That urgency is about the future of our children. Do not tell me your biological children are secured. Listen. In a globalised world, every child is your child. In every child lies the potentiality to a great and influential leader.

We have a common enemy. We have an enemy that we cannot fight when we stand apart. This enemy does not only rob the future generations but also, it extorts the peace of mind of the present generations leaving posterity with unquantifiable deficit. Staring intimidating at us is the monstrous archenemy surnamed stunting.

Stunting is also referred to as stunted growth. Anthony Lake, the executive director of UNICEF, describe it the least understood, least recognized and least acted upon crisis. Stunting is a reduced growth rate in human development. This undesirable feature is a primary manifestation of malnutrition during fetal development brought on by the malnourished mother. When pregnant mothers fail to take enough vitamin A capsules (VAC),Iron and folic acids during the development of the fetus as well as balanced diet with clean drinking water in the first 2 years of the  child’s life ,such a child suffers an irrevocable,irreparable reduced growth rate. But stunting does not only mean being short.It is worse a situation,unlike underweight which can be fixed ,that it cannot be reversed after year two. Stunting results in weaker cells and brain development in children.  This culminates into a form of cognitive impairment. What this means is that children who are permanently stunted stand the highest chances of being mentally retarded. Such children will continually be dull in class (regardless the effort they make) preventing them from getting ahead academically.Arguably, they would earn less later in life. This entrenches the vicious cycle of poverty in an economy with high number of permanently stunted children. Any economy with permanently stunted children will forever grow economically at a progressively stunting rate. Just imagine that. But should an innocent child suffer all these preventable mishaps? Is it not a tragic violation of the child’s right? What then is society doing to reverse

this negative trend that only mount tones and tones of  cumulative burdens on their already wobbling economy ?

 A UN report reveals yet another frightening statistics about this abhorrent prevailing situation of stunting. Of the 165 million children who can be described as permanently stunted globally, 24 countries with the highest levels of stunted children were concentrated in sub-Saharan Africa and South Asia. What is more, more than half of these under age 5 are specifically found in Timor-Liste, Burundi, Niger and Madagascar. It is undesirable to highlight that India has the highest number of stunted children with 61.7 million or 48% of all Indians under age 5.

Just imagine that the early years of Kofi Annan. For a moment, assume Kofi was denied the 6 months exclusive breastfeeding. What if Kofi’s mothers never had access to clean drinking water and he suffered diarrhea progressively?

You can be sure what would have become of the child who eventually became the UN Secretary General. Should we attribute the total growth and healthy development of Kofi Annan to luck? Dont you think it would amount to robbery of his future if we say geopolitics was not in his favor as such he only had to remain stunted? There are countless millions of Kofi Annans’ that rather sadly, might not escape the threshold of stunting. The onus lays on us. To everyone who had escaped stunting; you owe it an inescapable responsibility to lift other children from that seeming quagmire. Let us get them out unto the solid rock of healthy life before they are swallowed in the irreparable situation.

You want to ask what do  I do to contribute to a child’s healthy growth. I tell you what. To every multinational corporation, business conglomerates and concerns, your survival in the days ahead is inextricably linked to the well-being of today’s children. You want to know how? I will tell you at no cost, at least for now.Today, over 147 million children in Africa are permanently stunted .147 million children today means more customers, expanded market, more profit. However, this expanded market could elude all. How? These children might not develop academically hence; their economic power would be on the decline. When people have multitude of problems to solve but have low purchasing power, they tend to live on the survival level. Such people do not have extra income to spend hence their demand for luxuries like cars, estate buildings, quality home theatres, quality ICTs among others will be on the lower side. It therefore means that companies dealing in such luxuries, for instance, will find it difficult to even breakeven.

Need I ask these multinational corporations, conglomerates, telecommunication giants and market leaders to safeguard the future of their business by investing in the life of children, their potential customers?

I want to believe that these establishments would do anything ethically possible to keep their profit afloat. Can I make a suggestion to them? Never lose sight of the sub stratum of your profit: people. It is all about people, the most useful resource .Not just people but healthy living people .Never forget that every customer who patronizes your merchandise was once a child who escaped unhealthy situations like stunting.

So, why not put your hands to the wheels? Together we can turn the wheel from stunting towards healthy child development. I encourage you not to shirk in your corporate social responsibilities .Support the course of children. Donate your money where it would be used for intended purposes. Look out for International development organizations with impeccable pedigree and global presence. An organization that had been consistent and steadfast in achieving its vision of total development of every child. I recommend to you World Vision International.

World Vision International had churned out countless number of children, of which I am one, through its multifaceted programs dedicated to working with children, families and their communities globally granting these individuals en express route to attaining their full potentials by tackling the causes of poverty and injustice.

Over three decades in Ghana, World Vision  has been working with rural communities in all the 10 administrative regions of Ghana to provide portable  water, promote sanitation and hygiene practices ,quality education, particularly at the basic level, enhance food security and respond to disasters. This independent international Christian relief, development and advocacy organization upholds the true value of people treating all persons equally irrespective of their cultural, religious and geographical affiliations.

If the scourges of stunting, food insecurity, poor drinking water, insanitary hygiene practice, poor quality education alongside injustice and poverty are to be made a thing of the past, you cannot look any further than World Vision.

The governments of Africa alone cannot solve the plethora of humanitarian problems neither could they guarantee social protection without the likes of World Vision.

Why not make the dreams of every child become a reality by partnering with World Vision International? Imagine Kofi Annan was permanently stunted. You can make a difference no matter how little. You can be the change you want to see in the world. Support the children, visit www.wvi.org