Grassroots Finance: VSLAs Becoming the Heart for Rural Ugandans

By: Betty Mujungu

In villages across Uganda, Village Savings and Loan Associations (VSLAs) have become vital lifelines for local communities. These grassroots initiatives, often managed by and for the people themselves, provide the financial backbone many communities need.

According to the 2024 National Population Housing Census report, 28.9% of Ugandans aged 16 and above save their money in VSLAs, placing them third after Mobile Money (46.3%) and keeping cash at home or in secret hiding places (39.6%). Traditional banks and Micro Finance Deposit Institutions follow with just 15.6% and 9.9%, respectively.

VSLAs, which fall under informal financial services, are typically formed by village members who pool money regularly, daily, weekly, bi-monthly, or monthly. These pooled funds are saved and then lent out to members to support business ventures and enhance household incomes. The ability of VSLAs to provide affordable loans and flexible savings options has not only supported business creation but also strengthened unity and trust within these communities.

In places like Ntoroko, in the Rwenzori sub-region, where no financial institutions have operated independently for 15 years, VSLAs have become the financial backbone for many households. One such group is in Kanara Sub-county, where Mr. John Mugisa serves as the chairperson. His VSLA, which has been running for five years with 30 members, of which 20 are women, pools Shs 1.5 million each month from members’ Shs 50,000shillings contributions. The group lends this money at a low interest rate of just 5%, supporting various needs, from farming to business ventures, all without requiring collateral, relying solely on trust.

“Unlike banks, we don’t require collateral, we rely on trust because many women and youth in the villages do not own property, there fore  do not have collateral ,” Mugisa explained. He noted that many members have improved their incomes through the VSLA, allowing them to invest in land, agriculture, and even pay school fees. At the end of each year, the group shares the accumulated savings and interest among the members, offering instant withdrawals something that formal banks or SACCOs don’t typically provide.

In Uganda, the most active regions for VSLAs include Madi, with 50.6% participation, Acholi at 49.8%, and Lango at 44%. Other regions like Tooro, Rwenzori, and Bunyoro also show strong involvement, with rates of 32.5%, 28.5%, and 28.4% respectively.

Mr. James Byamukama, a farmer in Bunyangabu District, attested to the transformative impact of his clan’s VSLA, which pools Shs 3 million monthly, enabling him to expand his farm and improve crop yields without the burden of high-interest loans.

In Fort Portal City, Ms. Gladesi Kahunde, the chairperson of the Mukono Mura Mukama Murungi Group, describes the growth of their VSLA since it began in 2019, Now with 102 members, each saving at least Shs 2,000 weekly, the association has empowered many women financially. The group provides loans at low interest rates, without collateral, fostering economic independence, especially among women and youth.

“Through our association, we’ve prospered without the limitations of banks,” Ms. Kahunde affirmed. She also mentioned their upcoming celebration, where members would be rewarded for their financial successes and effective use of funds.

Ms. Goreti Kabahweza Akiiki, treasurer of the Kitarasa Tweyimukye Women Group, echoed similar sentiments. Her VSLA has helped members improve their living standards by enabling them to acquire essential household items and reduce financial dependence on their husbands.

“Our weekly savings have transformed lives,” said Ms. Akiiki. “Without VSLAs, many of us would still be trapped in poverty since we do not have collateral to acquire bank loans.”