Savings, lending and default in community-based microfinance groups: Evidence from rural Malawi

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Research question

This project will examine the properties of individualised savings and loans data from Village Savings and Loans associations (VSLs) in rural Malawi.  The VSL model was first developed by CARE International in Niger in 1991, as a form of community-based microfinance that can be harnessed by the very poor in rural areas. VSLs are designed to provide a secure way for members to save, the possibility of earning interest on savings, and a source of loans in villages where formal credit might be non-existent or very expensive (the communities targeted are typically underserved even by microfinance institutions). VSLs have experienced rapidly-growing popularity in recent years, and are now present in at least 61 countries with an estimated participation of over 6 million individuals worldwide ( 

This research will contribute to a deeper understanding of the specific workings of such groups.  Our results will allow: (i) a more detailed appreciation of how VSL groups operate, and how the benefits of such groups are likely to vary across different participants; and (ii) comparative insights into the operation of VSLs as compared to other types of microfinance institutions.


The standard model for VSLs is that individuals self-select into groups of 15-25 members and are then provided by the organising NGO with a cash box with three separate locks. Three different members of the group are then elected to act as key-holders, thereby reducing the probability that any funds placed into the box will be subject to theft.  The group receives basic training in financial literacy and account-keeping, and then holds weekly meetings at which the group members can purchase up to five ‘shares’ of a fixed, small value.  At monthly loan meetings members can also request to take a loan, to be repaid in monthly instalments at a fixed monthly rate of interest.  At the end of the cycle (often a year), the savings inside the box plus interest earned from loan repayments are shared out to members, in proportion to the number of shares they have purchased over the cycle.

We will return to VSLs involved in an experiment that ran from 2009 to 2011, initially funded and evaluated by the Rockwool Foundation. We will collect accounts data from VSL participants, then group members will answer a short questionnaire capturing demographic information for each individual group member as well as measures of network ties between group members and sources of any income shocks.



Rachel Cassidy (CSAE), MArcel Fafchamps (CSAE), Simon Quinn (CSAE)