An assessment of the effect of village savings and loan associations on poverty reduction; case study: Aluru parish, Moyo District, Uganda

Abstract

Formal microfinance institutions have been regarded an important tool in the fight against poverty in developing countries. Following this, Village Savings and Loan Associations (VSLAs) have emerged as one of the most popular informal mechanisms for mobilizing saving and extending credit to the poor in developing countries. Thus, this study aimed to assess the effects of VSLA on poverty reduction, taking a case study of Aluru Parish, Moyo District, Uganda. Using a mixed qualitative and quantitative research methodology, the study tried to focus on examining the effects of VSLAs contribution to economic and social wellbeing of households, and decision making, and participation in community activities. The study used 254 samples (127 VSLA participants, and 127 non-participants) and collected data using questionnaire and focus group discussion. The study used propensity score matching (PSM) to estimate the effect of participation in VSLA on average monthly household income, and the result indicated the average effect of participation in VSLA on average monthly household income of participant women is positive and significant at 5% significant level, ranging from 21,416.55 UGX/month (nearest neighbor matching) to 17871.33 UGX/month (Kernel matching), on average. Besides, comparison between participants and non-participants using hypothesis testing shows that participation in VSLA has a significant positive association with improvements in household diet, health, children’s education, and involvement in household decisions. However, although hypothesized, no significant association is found in relation to participation in community activities. Findings from the focus group discussions are also consistent with the results from the PSM and hypothesis testing. Following the findings, the study recommends government and nongovernmental organizations to provide regular, timely and need based capacity building trainings for VSLA participants; Link VSLA participants with formal microfinance institutions; conduct regular monitoring and follow ups by either the District or concerned government body; different concerned stakeholders in the District including government, nongovernmental organizations, microfinance institutions and others need to work in coordinated manner to solve the recurrent challenges of VSLA participants in Moyo; and finally government and/or nongovernmental organizations need to take best practices and lessons from existing VSLAs and expand the VSLA initiative to address more impoverished households in the District.