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Saturday, June 4, 2016

Microfinance- Reach Out

On Tuesday, our group visited an organization called Reach Out to learn about microfinance and to sit in on community microfinance groups. Reach Out was originally started to combat HIV/AIDS and provide support to patients, but in 2009 they started a microfinance operation to help the extremely poor save money. Microfinance is almost like a small bank, but for people who cannot provide collateral for a loan. These small groups, called VSLAs, are comprised of 15-30 people. The general purpose of these VSLAs is to help poor people, especially women, save money and be able to access small loans efficiently. It's important that the members within the group know each other, because the incentive to pay back the loan is social pressure. In essence, you don't want to be embarrassed in front of a group of your peers by not paying back the loan. I said before that the small group is like a bank; everybody contributes savings at weekly meetings, and loans (usually four week loans) are then given out within the group. The interest repaid on the loans is then distributed equally among group members at the end of a 12 month period.

We were fortunate enough to be able to sit in on two weekly meetings for local VSLAs. They showed us how a meeting operates, and all of the bookkeeping work they do. Reach Out has created over 300 of VSLAs similar to the ones we sat in on, and the groups have been extremely successful, with a default rate of only 3.4%!

Food for thought:

Why do you think social pressure is a good enough reinforcement for these systems to work?

What are some issues the developing economy of Uganda could run into if dependence on microfinance were to develop?


  1. My group visited the VSLA groups in kinawataka. In particular we visited a group called freedom city.the women came up with that name because the group gives them the chance to be who they really want to be and do what they desire to do. In this group,there are 30 women who are to contribute 35000 or 28000 plus a welfare fund of 1000. This welfare fund is to help out a member in need for example when one loses a close relative, the welfare fund is used to help out in the burial arrangements. The most inspiring thing about the group is that the women have been able to achieve so much like paying school fees, buying plots of land, run a restaurant and this is a means to sustainable development as the children acquire quality education, the land can be used for agriculture thus provide food and no hunger, the restaurant is a source of income and a basis for charging tax by the government. The government should therfore put more emphasis on the VSLA as it holds great potential for financial discipline and development amongst ugandans.

  2. My group also visited another group called "Yesu Amara" meaning Jesus Is Enough. this name came up because all members met at the church which they attend and all their meetings are held there. there are 30 members with just one male and each member contibutes UGX 20000 callected every friday. they have been in existence for 6 years since 2010. members have been able to educate their children,purchase property, build houses,feed their families and also start up businesses that sustain their daily needs.

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