An Empirical Evaluation of the Link between Women Participation in Village Savings and Loans Association (VSLA) and Poverty Reduction in Ethiopia

Beyene, N.L. and Dinbabo, M.F. (2019) ‘An Empirical Evaluation of the Link between Women Participation in Village Savings and Loans Association (VSLA) and Poverty Reduction in Ethiopia’, Journal of Reviews on Global Economics, 8, pp. 566–580

The study commenced with enunciating how extreme poverty has become a common phenomenon over the past 30 years in Ethiopia as have  the efforts made by government, international organisations, and non-governmental organisations to combat it.  Among those  actions,  the primary one is the introduction of microfinance by Mohammed Yunus . Microfinance service is aimed at providing micro level loans to the poorest part of the community who can’t afford the collateral requirements otherwise. Microfinance is the main facilitator of women’s economic empowerment because it  increases  their income generation, control over that income, and enhances  their knowledge, skills, and business experience.

Even though microfinance targets  the low-income earning community, their successful history indicates that it is most efficacious in urban areas where investment opportunities are wide, the borrowing demands are high, income generation is diverse, and the cost of reaching the clients is very minimal. On the other hand, the initial target community, particularly those in the rural areas and urban slums, and the very poor have limited access to the services. This and other related factors gave birth to Village Savings and Loans. The concept was developed by CARE, an international organisation and implemented by Moira Eknes in CARE’s Matu Masa Dubara (Women on the move) project in Niger during 1991.  The Village Savings and Loans model ( VSL) is a self-managed and self-capitalised microfinance methodology providing savings, insurance, and credit services for the community out of reach of the formal institutions.

In Ethiopia, microfinance services commenced with the enactment of legislation in 1996 and since then, women in urban and rural areas have  access . However, it didn’t  address the intersection of women’s groups due to a lack of awareness and skill regarding the credit repayments and inability to provide collateral.

By employing a mixed approach of qualitative and quantitative research, this study aimed at examining the impact of savings and loans in poverty reduction at the household level. Propensity Score Matching and comparative analysis were  applied to assess the impact of village savings and loans.

The study found that age, prior work  experience, number of households earning income, and number of dependents in the household have a significant impact on women’s participation in Village Savings and Loans. As women age  their participation in the VSL increases  due to the economic pressure and their attempt to look  for alternative means of saving and loan to start income generating activities. prior work experience is negatively correlated with women’s participation in VSL. This is likely to happen when the women have an opportunity to take the loan from formal financial institutions, using collateral from their work. The increase in family numbers is positively connected with women’s participation in VSL.The author recommended that regular, timely and needs based capacity building should  be provided for women participants in the VSL. Secondly, linkage should be  created between the VSL and microfinance institutions to facilitate members’ interest in expanding their small business.