The document summarizes the findings of a study assessing the needs and preferences of PSNP participants and Village Savings and Loan Associations (VSLAs) in Dale and Loka Abaya Woredas, Ethiopia for financial products and services. Key findings include: 1) VSLAs expressed a need for larger loan amounts to expand their businesses and a willingness to save with and take loans from microfinance institutions (MFIs) as groups. 2) Common business opportunities identified include grain, cattle, and petty trading, but current VSLA capital is limited. 3) Seasonal analyses showed household income and expenditures fluctuate, as does availability of casual work, indicating a need for savings and

1. CARE Ethiopia - Sidama Project Office
PSNP PLUS Project
VSLA Vs MFI Linkage and Product
Design Validation Workshop
Teshale Endalamaw
March 25, 2011
Tadesse Enjori Hotel
Hawassa

2. Outline of the presentataion

3. Back ground
• Contributing factors, such as soil depletion, low
agricultural productivity and shortage of arable
land have hindered Ethiopia’s food security for
years;
• The increasing reach and severity of these
factors necessitate innovative approaches, new
partnerships with successful institutions, and
coordinated, multi-sector interventions.
• Dale and Loka Abaya Woredas are one of the
drought affected and food insecure Woredas of
Sidama Zone

4. Cont …
• The Productive Safety Net Program
(PSNP) has provided invaluable
assistance to food insecure households
through providing the basis for the building
of assets;
• CARE Ethiopia – Sidama Project Office in
partnership with Woreda line offices
proposed and planned a two years project

5. Cont …
• to assist poor, rural households taking
part in PSNP move towards graduation
• to empower poor households to make
informed decisions about scarce
resources,
• major and central theme of the project is,
to link the participants to MFIs and
markets
• aims to assist 5000 households, in both
Woredas (Dale and Loka Abaya Woreda)

6. PSNP PLUS Project Goal and
Objectives
• Goal: -
– “Targeted PSNP households’ resilience improved and
livelihood assets enhanced as a means towards
achieving graduation.”
• Objectives: – Objective 1: Targeted PSNP households have
increased their financial assets as a result of access
to financial products and services.
– Objective 2: Targeted PSNP households are
engaged in functioning markets.
– Objective 3: Government and private sector
strategies show greater support for engaging PSNP
participants in market-based activities.

7. Approach to microfinance access
• Track 1 - encompasses access to microfinance
through informal VSLA mechanisms
• Track 2 - encompasses direct access to
microfinance through a system of:
– a) soft/guarantee loans for asset transfers (with
repayments managed by formal MFIs) especially
designed for PSNP participants; and/or,
– b) promotion of links to formal MFIs for the take-up of
food security packages and other credit and savings
based services.

8. Objectives of the study
• To identify the PSNP participants and VSLAs needs and
preferences to financial products and services with
respect to their livelihoods and their aspiration to move
towards graduation from PSNP;
• To examine the feasibility of developing new financial
products and services or customizing currently supplied
products and services by MFIs based upon the
assessment of business opportunities and market
potentials for financial products and services;
• To support partner MFIs in developing new financial
products and services or customizing existing ones
based on client need assessments; and
• To recommend the most appropriate linkage mechanism
and service delivery.

9. PSNP in the project Woredas
• was introduced in 2006 (1999 EC)
• assistance for six consecutive months of
the year
• According to the 2008 PSNP participants
–
– 9,135 in Dale and 19,170 in Loka Abaya
• Based on this benchmark, up to 2008
graduated participants –
– 127 Households (458 individuals) in Dale and
275 Households (929 individuals) Loka Abaya

10. PSNP in general term
• Starting in 2005 it is new form of safety net
program
• targeting poor households in two ways,
– public works (PW) and direct support (DS)
• Objective
– “To assure food consumption and prevent
asset depletion for food insecure households
in chronically food insecure Woredas, while
stimulating markets, improving access to
services and natural resources, and
rehabilitating and enhancing the natural
environment.”

11. The process of graduation

12. Village Saving and Loans Associations
• pioneered by CARE
• reaching approximately more than two million very poor
people in 22 countries
• VSLAs are
–
–
–
–
–
–
–
–
self-managed groups
do not receive any external capital
complementary to MFIs
serve people living in remote places whose income is low and
irregular
provide people with a safe place to save their money, access
small loans, and obtain emergency insurance.
focus on savings, asset building, and the provision of credit,
proportionate to the needs and repayment capacities of the
borrowers.
low-cost, simple to manage and can be seen as a first step for
people to reach a more formal and wider array of financial
services.
dramatically raise the self-respect of individual members and
help to build up social capital within communities.

13. Key elements of VSLA
•
Self-selection:
– comprised of 15 to 30 people, trust is fundamental so members select each other
to form their group.
•
Training:
– The methodology offers record keeping techniques suitable for literate and
illiterate people.
•
Governance:
– Associations are comprised of a General Assembly and a Management
Committee.
•
Financial Services:
– associations meet at regular intervals,
– once sufficient savings have accumulated loans are offered to members with
interest rate for loans
– at the end of the year, members receive a return on their savings,
– VSLAs set up an insurance fund, often called a social fund, as grants or as
interest-free loans with flexible repayment.
•
Audit:
–
•
Some nine to twelve months after the VSLA is formed
Agency facilitation:
– up to the first action audit
– if there are no issues, the group functions independently thereafter.

14. Strength and Constraint
Strength
Rural and poverty outreach:
Low operating costs:
Capital remains within group:
Transparent, democratic and flexible:
Client debt level:
Conduit for other interventions:
Opportunity for increased economic activity:
Constraint
Limited capital:
Limited product offering:
Interrupted savings:
Elite capture:
Exclusion:
Theft:

15. Opportunities for innovation
• Several opportunities for innovation have
been identified which, if addressed, would
spur scale up of financial services to the
poor.
– Linkages to formal financial institutions:
– Income Generation:
– Sustainability and quality:
– Building institutional linkages:

16. Financial Linkages
• any mutually beneficial partnership between a formal
and less formal institution that results in the expansion of
rural financial services (Pagura and Kiristien, March
2006)
• two different categories of financial linkages: Direct
financial linkages and facilitating linkages
• Linkages, according to Kirstein (2006) are expected to
expand financial outreach in one or more of the following
ways:
– Reach new segments of the rural population not traditionally
served
– Improve the quality (terms and conditions) of existing products
and services
– Broaden the variety of products and services available

17. New Product and Service Development and Design
• passes through three major phases: the design,
testing and launch of the product
• includes the introduction of
– new financial services (such as savings or insurance),
– new product features (such as loan terms,
amortization schedules, and interest rates) and
– tangible products (such as smart cards).
• feature of the developed or designed product
ultimately determines success
• MFIs should give careful consideration to
options for refining, repackaging or re-launching
their existing products.

18. Cont …
•
Michal Matul and Dorota Szubert (2005)
also state that products are successful in
a market only if those offering the
product address three critical questions:
1. Which groups to serve?
2. Which needs should be satisfied?
3. How to pack the product?

19. Steps followed for assessment
1.
2.
3.
4.
5.
6.
7.
MicroSave’s PRA tools were used
Interviews and questionnaires was administered
Using cluster sampling for this study we chose 13
Kebeles (5 in Loka and 8 in Dale)
Using a random sampling method 35% VSLAs were
selected for
Key informant interviews and focus group discussions
were held
Different documents in line with MFIs new products
and service development were customized or existing
ones were reviewed; and
The gathered data was analyzed using a qualitative
analysis technique.

20. Participants/Sample of the study
Type of Respondents
Kebele
Assessment type
DALE and Loka
Members of VSLAs
13 Kebeles: Ajewa, Gane, D/Kege,
Danshe Sire, K/Simita, Awada,
D/Mesenkela, Aleta Sodo, Chancho,
S/Sire, S/Kebado, and Tula Gorbe
13 FGDs and PRA
Frontline Staff (CFs and
Loan Officers)
Loka and Dale Branch SMFI and CARE
Ethiopia
Overview discussions at different
times
Management Staff
Head office and Project office
Overview discussions at different
times
Agriculture and rural
Woreda food security
Dept
Loka and Dale Woreda
Overview discussions at different
times
Woreda FEDO
Woreda Administration
Loka and Dale Woreda
Overview discussions at different
times
Loka and Dale Woreda
Overview discussions at different
times

21. PRA Tools employed for the study
1.
Seasonality analysis of household income,
expenditure, savings and credit:
1.
Among the tools this is an ideal tool for obtaining information
on seasonal flows of income and expenditure and the demand
for credit and savings services. This exercise also provides:
•
•
1.
Important insights into some of the risks and pressures faced by
clients and how they use MFIs’ financial services to respond.
Insights into the financial intermediation needs of the community
and what products the MFIs can design in response.
Seasonality analysis of migration, casual
employment and goods/services:
1.
This tool helps to look the availability of cash to the people in
the community - and examines how far they might have to
migrate to find work (when it is available). This has important
implications for their ability to make regular savings and loan
repayments.

22. VSLAs profile participated in the assessment
VSLA Member
PSNP
No.
1
Woreda
Dale
Non PSNP
Total Member
# of
VSLAs
assessed
F
M
T
F
M
T
F
M
21
153
170
323
35
40
75
188
210
T
Saving
Mobilized in
Birr
Amount of
Cumulative
Loan
Number of
Cumulative
Loan
398
19,065.00
32,890.00
375
173
94
a.
Percent
81
19
47
53
b.
Average
15
4
9
10
19
47.90
87.71
107
55
162
7,669.50
17,969.50
200
234
123
2
Loka
9
92
52
144
15
3
18
a.
Percent
89
11
66
34
b.
Average
16
2
12
6
18
47.34
89.85
295
265
560
26,734.50
50,859.50
575
190
103
3
Both Woreda
Total
4
Both Woreda %
83
17
53
47
5
Both Woreda
Average
16
3
10
9
30
245
222
467
50
43
93
19
47.74
88.45

23. Number of committees participated in FGD and PRA
Kebele
Female
Male
Total
1
Ajewa
3
7
10
2
Gane
3
7
10
3
Wara
4
5
9
4
Awada
3
7
10
5
D/Mesenkela
4
9
13
6
Danshe Sire
2
7
9
7
Tula Gorbe
2
7
9
8
Sala Sire
3
6
9
9
Sala Kebado
4
4
8
Total
28
59
87
Percentage
32
68

24. Business common in the area
Dale Woreda
Loka Abaya Woreda
coffee, butter, poultry,
petty and small shop,
sweet potato, cattle,
sugar cane, canteen,
flour, fire wood sale,
banana, onion, potato,
cloth (“salbaje”), garlic,
and kocho trading
grain, chat, banana,
butter, flour, canteen,
petty and small shop,
poultry, agricultural
commodity sale
(peas, corn, teff) and
coffee trading

25. Businesses practiced by VSLA members
Dale Woreda
coffee, butter, poultry,
petty and small shop,
sweet potato, cattle,
sugar cane, canteen,
flour, fire wood sale,
cabbage, tea shop,
animal fattening, banana,
tomato, garlic, and kocho
trading
Loka Abaya Woreda
grain, chat, banana,
butter, flour, rum
canteen, petty, small
shop, poultry,
agricultural commodity
sale (peas, corn, and
teff), coffee sale, flour,
corn, and cabbage
trading

26. Their relationship with MFI
• ‘have you ever been the MFI client?’
– None of them received loan from MFI so far
– However, they have seen some of their
neighbors received loan from SMFI for goat
fattening purpose only

27. Service sufficiency by VSLA for members
• All committees of both Woredas agreed that the
service offered by VSLAs is not enough and this
is because of the limited loan fund contributed
by members
– “Asabu Addis Ababa nabri gini miniyadergale
aqimu Abosto asqarai.”
From Awada Kebele
– “My plan was to be in Addis however I remained
in Abosto due to capacity.”
From Awada Kebele

28. Challenges faced by VSLAs
• In both Woredas, committees said the
major and only bottleneck, in running their
associations well, is financial shortage.
– do not receive adequate amount
– sometimes creates a conflict of interest
among them

29. New product demand
• to increase the loan amount the group offer for
members
• to start a group business and
• to expand and diversify their existing businesses
Business type and amount of loan demanded
No.
Business type
Partnership
Loan demand range
1.
Grain trading
As a group and/or individually
500 – 600 ETB
2.
Cattle trading
As a group and/or individually
500 – 6000 ETB
3.
Petty trading (flour, slat, coffee, Individually
oil, kerosene, sugar, soap…)
500 ETB
4.
Banana, sugar cane, garlic, Individually
tomato
500 ETB

30. Cont …
Addition fund contribution for life style and business
Additional
fund for
VSLA
Addition
al loan
Diversify a
business or start
a new one
Additional
income
New life
style
More
saving

31. Readiness to saved, to take loan
and loan feature
• they are interested in receiving loans from MFIs
to expand their business
– to receive loans as groups
– then disburse among their members according to
their bylaws.
– the groups’ loan should have a fair interest rate with
smooth eligibility criteria’s.
• They also expressed their interest in depositing
their savings in the institution.
• Although participants have articulated their
interests, the decision lies with the general
assembly whom the MFI should approach with
an offer.

32. Seasonality analysis of migration,
causal employment and market
Seasonality of Migration, Availability of casual Emlpoyment and G/S
provided by the poor
3.5
3.0
Parameter average
2.5
Availability casual employment
Migartion
G/S provided by the poor
2.0
1.5
1.0
0.5
0.0
Sept Oct
Nov Dec
Jan Feb Mar
Months
Apr May Jun
Jul
Aug

33. Seasonality analysis of Income,
Expenditure, Saving and Credit
Seasonality analysis of Income, Expenditure, Savings and Credit
8.0
Parameter Average in the month
7.0
6.0
5.0
Income
Expenditure
Savings
Credit
4.0
3.0
2.0
1.0
0.0
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Months
Apr
May
Jun
Jul
Aug

34. Conclusion
– The VSLAs are ready to take loans and save
in MFIs;
– They need to get loans as a group;
– The VSLAs have an experience with
businesses and other IGAs;
– The are well acquainted with the benefits of
saving;
– Financial shortage is the major bottleneck in
running their group activities;
– They have high incomes from September to
January;

35. Cont …
– September to November and March to April are
months of high expenditure ;
– Saving is very high from September to January and it
declines from January but does not cease;
– They need credit for businesses from September to
January;
– Causal employment opportunities are very high from
September to November;
– Migration is high from October to December but not
for a long period of time;
– Markets are available throughout the year, however
this increases from October to May;

36. •
Recommendation
According to MDTCS (2009), graduation and
direct engagement models are the two widely
known basic linkage models.
1. Graduation model:
– the safety net programs themselves develop basic financial
services for their clients in order to help them better
manage their livelihoods.
– MFI’s engagements with the safety net programs are very
limited
– MFIs simply coordinate with the safety net program to
recruit successful graduates as customers.
1. Direct Engagement Model:
– involves a more intense collaboration between MFIs and
the safety net program
– MFIs establish a separate subsidiary or affiliate that works
directly with safety net participants
– Successful graduates gain access to MFI’s regular
programs

37. So …
•
In the case of Dale and Loka, the direct engagement
model is preferable due to the fact that
– in this model MFIs collaborate with instead of coordinating,
– directly involved in the process of linkage and offering services.
– No matter what, the direct engagement model is suited as a
linkage modality since,
1. CARE Ethiopia will provide the partner MFI with guarantee fund to
document risks associated with the linkage and capacitate the
voluntarily established VSLAs by offering trainings on IGA SPM,
BST and Financial education
2. MFIs will open a special account to properly manage and track the
status as well as it contributes 10 percent matching fund and
provide loans to the VSLAs’ on group basis with out asking
collateral and
3. VSLAs will in turn provide loans to their members according to their
bylaws.

38. proposed as a linkage model
CARE
Ethiopia
Guarantee fund
for MFI
MFI lend to VSLA
BST and FL training for
VSLA members
VSLA lend to
Members
Members engage in
IGAs
the linkage arrangement should focus on existing
products and services of MFIs by redesigning the basic
attributes of a product and services according to the
target market the VSLAs.

39. Redesign Existing Savings
Products
• months from September to January are the highest
income earning months
• so, savings mobilized by VSLAs in these months are
very high
• hence the MFIs should pay attention for these months to
mobilize saving
• should ensure the accessibility of savings to clients for
withdrawal during critical time
• should consider the upcoming inflation, other institutions
rates and their own current interest rate
• should consider their clients views on the benefits gained
from saving money in the institute rather than investing
in other IGA

40. Redesign Existing Loan Products
• the communities require loans from
September to January to start businesses
and diversify their existing businesses.
• so, MFIs should redesign their loan
products based on their clients’ needs,
• Therefore, the loan attributes should be
redesigned as follows:

41. Cont …
1. Loan Size: The estimated loan size to run
these businesses is up to 6,000 ETB.
2. Loan Term: should be six months to one year
according the business plan submitted by the
clients; for most businesses six months is
feasible.
3. Installment Period: must coincide with the
cash flow of the VSLAs and it is advisable that
the installment period is twice within the loans
term. Therefore, the first installment period
should be within the third month of the loan
agreement.

42. Cont …
4.
5.
6.
7.
Service Charge and pass book: MFIs will not incur any
cost in attracting VSLAs as customers. Therefore, MFIs
should not include any service charge fees on the
service delivery expense. However, the pass books
printing cost can be passed on to the clients at a fair
price.
Interest Rate: The rate should be reasonable and fair; a
12.5% flat rate to be paid at the end of six months
Insurance: The benefits of insurance have not been
considered for farmers or other participants. MFIs
should work hard to acquaint clients on the benefits of
insurance. Loan insurance premium safeguards both the
client and the MFI from unnecessary dispute arise.
Retaking the loan: No matter how, the loan term for
one VSLA group is proposed to be six months to one
year. If the VSLA proved to be successful, the MFI
should design a mechanism to provide subsequent
larger amount of loan by revolving the fund taking into
consideration availability of loanable fund.

43. Gallaattemmoo.