Exploring impacts of Village Savings and Loan Association (VSLA) at micro level to understand their potential to contribute to the Tanzanian economy

Savings-led microfinance innovation aims to improve access to financial services in remote areas, especially among women. CARE International has been the leading innovator in the field and has initiated Village Savings and Loan Association (VSLA) programmes across Tanzania. CARE aims to increase members in Tanzania to 8 million by 2025 with the vison to help improve the national economy. CARE thus commissioned SFTZ to carry out a study that investigates the potential of VSLA contributions to local and national economies.

METHODS. The study was implemented in six villages in Mufindi district, Iringa region; four of which were assigned as treatment and two as control. Treatment villages had 9 to 15 NGO-facilitated VSLAs, and control villages had only two comparable VSLAs.

RESULTS. Analysis of the data at the village level did not provide evidence that VSLA initiatives have contributed to large-scale economic growth except for one risk mitigation sub-indicator. A number of issues hindered the village-level comparison: First, microfinance savings groups were also present in control villages. Secondly, the penetration of savings groups within all treatment villages was low (below 30%, except for one village).

However, at the household level, VSLA membership showed significant impacts on a number of micro-level measures of economic growth. VSLA households had higher household savings, drew on VSLA savings to overcome negative impacts of household shocks, attained greater food security and more diverse diets, achieved better agricultural and business outcomes, and enjoyed greater economic status. Although these differences cannot be directly attributed to the VSLA programme without before-and-after comparisons with a meaningful control group, the positive household impacts suggest that a VSLA programme scaled to a high density within each village could have a positive impact
on the local economy.