2SCALE promotes Village Savings and Loans Associations (VSLAs) within its partnerships to create opportunities for farmers to easily access finance. VSLAs are self-managed groups that encourage savings and investment, making farmers more credit-worthy to banks.
Women are essential players in the production, processing, and market levels of agricultural value chains. However, most of them abandon the idea of increasing their productivity due to low literacy levels, gender and cultural barriers, and limited access to resources such as land and capital. For such smallholder farmers, it is almost impossible to access support from financial institutions since they often do not qualify for bank loans.
In December 2021, 2SCALE supported the pilot establishment of 93 VSLA groups in the dairy, sorghum, maize, groundnut, and plantain partnerships in Nigeria, benefitting over 2000 smallholder farmers.
Through VSLAs, the groups were linked to a financial institution- CINTRUST Microfinance Bank- and had accounts opened for them to allow for deposits and withdrawals. That was done in order to facilitate easier and more effective depositing and withdrawals for the groups given that the CINTRUST Mirco-Finance bank is not located in all cluster areas. 2SCALE also empowered some selected members of the groups to become agents who will be carrying out financial transactions on behalf of their groups and immediate communities. To enhance youth employment, these agents are majorly youths who are part of the VSLA groups. To further complement this, CINTRUST Microfinance bank donated 20 POS machines to each of the selected agents to service the VSLA groups in their respective areas. This is intended to ensure the groups transact efficiently and empower the agents who will earn a commission for every transaction made.
Improving Access to Finance
Before the formation of VSLAs, smallholder female farmers were unable to directly access funds. Some of them would relegate to small-scale agricultural activities while others would resort to requesting loans from private lenders within their community.
Ms. Aisha Lawan Abdullahi, a member of the Kiru Yalwan Paki VSLA group in the Sorghum partnership (Nalmaco & Adefunke Desh) shares her experience:
Whenever I need to finance my business, I approach private lenders. It is usually a rigorous process because the lenders tend to give out loans to the highest bidder. Whoever is ready to accept the highest interest rate gets the loan offer. Sometimes when I am in desperate need of funds, I have no choice but to accept their offers.
Another member of the VSLA group, Ms. Rakayyat, added that they sometimes get accosted by the lenders about their loans even before the loan duration elapses.
Ms. Aisha Shehu a member of Tiga Yadi VSLA group in the Sorghum partnership (Nalmaco & Adefunke Desh) recounts her experience requesting for credit from a commercial bank:
I had to travel to town, where the banks are located, to apply for a loan. When I got there, I was asked to present my business financial reports, and a referee and fill out a lot of forms. I ended up going back home because I could not meet the requirements.
After the establishment of the groups, the members have continued to meet subsequently and have built a saving culture. Since the pilot in December 2021, over 50 percent of the groups have saved a total of over 600,000 naira ($1,453).
In the sorghum partnership, the Shika Women Tashan Tsamiyya group has 13,000 naira ($31) in savings and has been able to give out loans to their members.
Ms. Awaisu Sani a member of the group who accessed loans says:
When I required a loan, I told the group members that I needed some funds to buy raw materials to increase my sorghum flour production. They checked my savings record and approved a sum which I have repaid with the interest due.
The informality of the VSLA approach allows for inclusivity. The entire process is led by the women- from the creation of the constitution to setting the share value, interest rate, and loan procedures. This gives every member a sense of ownership and responsibility for the growth of their group. Another motivation for full participation is the social fund, where the group members set aside an agreed amount of money at every meeting to be given to members in cases where they need emergency funds. They are offered as grants, with permission from all members.
2SCALE has also supported the groups with capacity building. Before the formation of the VSLAs, the women in the clusters had very basic to no knowledge of financial terms. The training received and linkage to banks have provided them with an understanding of basic banking operations. They have also begun to diversify their sources of income and are more financially disciplined and confident to expand their existing businesses since access to capital is no longer a challenge.
Ms. Zainab Lawan, a member of Gargai Adalchi VSLA, shared that in preparation for the coming period of Ramadan, she wants to diversify and include the production of sorghum drink as an addition to her sorghum farming business. She is confident about this because she has access to credit at a reduced rate, with no collateral.