isal impact analysis
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Wesleyan University The Honors College
An Impact Study of the Village Savings and Loan
Association (VSLA) Program in Zanzibar, Tanzaniaby
Conner Brannen
Class of 2010
A thesis submitted to the
faculty of Wesleyan University
in partial fulfillment of the requirements for the
Degree of Bachelor of Arts
with Departmental Honors in Economics
Middletown, Connecticut April, 2010
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TABLE OF CONTENTS
Acknowledgements iv
Abstract v
Introduction 1
Chapter 1: Background to the Study 4
I. Context for the Study
i. Location and Physical Descriptionii. Historical Backgroundiii. Economic Background
a. Socioeconomic Statisticsb. The Education System
iv. Womens Status in the Economy and their Access to Credit
v. The Financial Sector
a. Formal Sectorb. Semi-Formal Sectorc. Informal Sector
II. The VSLA Program
i. CARE in Tanzaniaii. The VSLA Methodologyiii. Apex Organizations and the Sustainability of the VSLAs
Chapter 2: Literature Review 31
I. Impact of Microfinancei. Financial Assets
ii. Povertyiii. Quality of Housing
iv. Educationv. Nutrition and Healthvi. Empowerment and Social Status of Women
II. MicrosavingIII. ROSCA/ASCA ParticipationIV. VSLA Performance
Chapter 3: Research Design, Methods, & Sample 45
I. Impact Assessment Methodologiesi. Selection Bias
ii. Examples in the LiteratureII. Study Design
i. Sampling Strategyii. The Individual Surveyiii. Focus Group Discussions
iv. Interviews with Key Informants
III. Quantitative Data Analysisi. Model Specification
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IV. Data Descriptioni. Basic Characteristics of Respondents
a. An Additional Test
ii. Socio-Economic Status of Respondentsa. Quality of Housing
b. Household Assets
c. Educationd. Nutrition
e. Healthf. Sources of Incomeg. Social Status
iii. VSLA Members Self-Reported Impactsa. Dynamics of VSLA Participation
b. Impacts of VSLA Participationiv. Impacts at the Individual Level
v. Impacts at the Community Level
Chapter 4: Empirical Results at the Household Level 102I. OLS Results
i. Sources of Incomeii. Household Assetsiii. Educationiv. Nutrition and Health
a. Meal Quantityb. Meal Qualityc. Health Expenditure
II. Probit Resultsi. Health
a. Use of Mosquito Netsii. Quality of Housing
a. Home Ownership
b. Housing Improvements
Conclusion 131
I. Lessons Learned
II. Areas for Future Research
III. Implications for the Sustainability of the VSL Modeli. Sustainability of JOCDO and the Apex Model in General
References 140
Appendix A: Literature Review Summary 145
Appendix B: Individual Questionnaire 148
Appendix C: Focus Group Discussion Format 159
Appendix D: Statistical Tables 160
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ACKNOWLEDGEMENTS
First and foremost, I would like to thank my thesis advisor Damien Sheehan-Connorfor his advice, support and patience throughout the entire processes. I am indebted toElias, whose brilliance and dedication inspired me and whose awful econometricsjokes made the many hours spent in the lab more bearable. I would like to thank thebeautiful ladies of 261 Pine, who listened to my concerns about my thesis for months.I especially would like to thank Emma for the camaraderie throughout the thesisprocess and Abby, who was always there whenever I needed a study break. I would
like to thank Lev for the work parties and the constant support. Last but certainly notleast; I would like to thank my family for their constant love and support. Dad Itruly could not have done this without your thoughtful guidance. Thank you for yourpatience and the countless hours spent proofreading.
I am very grateful to the staff at CARE International and the regional apexorganization who assisted with the field research in Tanzania. In particular, I wouldlike to thank George Mkoma, the director of the VSLA program for CARE Tanzania,as well as the village trainers, who carried out the individual surveys. Finally, mysincere gratitude goes to the members of the VSLA program who participated in thesurvey and the focus group discussions, without whom this assessment would not
have been possible.
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ABSTRACT
In 1991, CARE International, a leading humanitarian organization, launched a uniquesavings-based microfinance program called a Village Savings and Loan Association(VSLA). Today, the model is being replicated across sub-Saharan Africa. Althoughprevious studies have shown substantial benefits from participating in the VSLAprogram, these studies likely suffer from selection bias and other methodologicalweaknesses. This study attempts to improve upon the existing work by examining theimpact of one of the first VSLA programs, located in Zanzibar, Tanzania, using both
quantitative data from individual surveys, and qualitative data from focus groupdiscussions and key interviews. In order to control for selection bias, this studyutilizes a control group of new VSLA members who are still in the initial trainingphase, and also statistically controls for differences in demographic characteristicsincluding age, gender, religion, marital status and education, which may affectprogram impact. The results suggest that participation in the program has an overallpositive impact on various indicators of household and individual welfare, includingasset expenditure levels, the development of income-generating activities (IGAs),education expenses, access to health services, nutritional levels and quality ofhousing. Such positive results are particularly encouraging given the long-termsustainability of the VSLA model - the program does not rely on outside donor
funding and does not require continued support from the founding organization.Overall, these results suggest that the VSLA model is both successful and sustainable.Furthermore, it may offer potential teaching benefits for other microfinance programsin developing countries.
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INTRODUCTION
Over the past twenty years, microfinance has become one of the hottest topics
in development economics. In 2007, more than 100 million of the worlds poorest
families received a microloan (Daley-Harris 2009, 1). Microfinance encompasses the
provision of financial services, including loans, savings and insurance, to low-income
clients who generally lack access to more formal banking services. The promise of
microfinance lies in its ability to empower people to work their own way out of the
poverty trap, while avoiding dependency and the hand out shame of conditional aid.
As the number of microfinance institutions has increased across the globe, so has an
interest in understanding the nature of the clients and how they are impacted by
program participation. Although impact studies face a variety of methodological
limitations, numerous studies have found substantial positive impacts of participation
in microfinance programs, specifically in the areas of eradicating poverty, promoting
childrens education, improving health outcomes for women and children, and
empowering women.
I. Objective of the Study
Although traditionally the provision of microloans has been the dominant
feature of most microfinance programs, recently there has been an increasing
appreciation of the importance of savings mechanisms. In 2001, CARE International
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implemented a unique savings-based microfinance program called a Village Savings
and Loan Association (VSLA) in Zanzibar, Tanzania. In 2006, Decentralized
Financial Services (DFS), a consulting group based in Kenya, carried out an impact
study of the program to examine its long-term sustainability and its impact on its
members (Anyango et al. 2006). Although their results are encouraging, the study
suffers from several methodological weaknesses. Today, as the VSLA methodology
is being replicated across not only Tanzania, but across all of Sub-Saharan Africa, it
is of utmost importance to return to one of the original projects to analyze once again
its impact and long-term sustainability, so that its operations may be better
understood, improved upon and adjusted where needed. The purpose of this study is
to expand and improve upon the study conducted in 2006 and to re-examine the
impact of CARE Internationals VSLA program in Zanzibar. The results are intended
to assist CARE and other affiliated organizations to better understand the dynamics
and impact of VSLA participation so that the program might better serve its members.
II. Framework and Hypotheses
The study is comprised of an individual questionnaire administered to 170
households, including those of current members, previous members and incipient
VSLA members (who serve as a control group in order to isolate and assess the
impact of the VSLAs). The survey data is complemented by three focus group
discussions as well as several interviews with key informants within CARE and its
affiliated organizations. Finally, a thorough understanding of both the economic and
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social setting in which the program operates, as well as of the institution itself,
facilitates interpretation of the data from the survey and focus group discussions.
The hypotheses tested are that participation in the VSLA program would
result in (1) improvements in the economic and social welfare of the household; (2)
growth and/or diversification in income-generating activities (IGAs); and (3)
increased empowerment (social, as well as economic) for members. Under each of
these broader hypotheses, a number of specific hypotheses are developed and
explored in greater detail throughout the report.
III. Organization of the Report
The next chapter provides background information for the study. After
presenting a general profile of Tanzania, it highlights the historical, economic and
social context of the study. It then describes CAREs role in Tanzania and the VSLA
methodology. Chapter 2 investigates the findings in the literature, in order to facilitate
comparisons with the results of this study. Chapter 3 explains the survey
methodology and the sample of respondents, and presents the initial comparisons
between the statistical means of the data. Chapter 4 presents the results of the
quantitative data analysis. The final chapter reviews the findings and addresses their
significance and implications. Appendix A summarizes the impact studies referenced
in the report. Appendix B presents the format used for the individual questionnaire
while Appendix C presents that used for the focus group discussions. The data tables
referenced in the text are presented in Appendix D.
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CHAPTER 1BACKGROUND TO THE STUDY
I. Context of the Study
i. Location and Physical Description
The United Republic of Tanzania lies on the East African coast between
Kenya and Uganda to the north, Rwanda, Burundi and the Democratic Republic of
the Congo to the west, and Malawi and Mozambique to the south. It covers an area of
approximately 364,929 square miles (945,166 km2), which is about 1.5 times the size
of Texas. About 25 miles off the coast of Tanzania sits the semi-autonomous islands
of Zanzibar. Zanzibar is comprised of several islets and two larger islands: Unguja
(the main island, generally referred to as Zanzibar Island), and Pemba. Zanzibar
Island is about 53 miles (85km) long and between 12 and 19 miles (20-30km) wide;
Pemba is about 47 miles (75km) long and between 9 and 12 miles (15-20km) wide.
The largest settlement is Zanzibar Town, or Stone Town, on the west coast of
Zanzibar Island. Both of the larger islands are fairly flat and have a tropical climate.
Temperatures generally fall around 90F most days with extremely high levels of
humidity. Tanzania is too near to the Equator to experience any sort of dramatic
contrast between summer and winter. However, the months between October and
April are marginally hotter than those between May and September, with January
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being the hottest month of the year. The rainy season is generally split into the short
rains, or mvuli, in November and December, and the long rains, or masika, from late
February to early May (Tanzania National Website).
With a population of approximately 40.4 million in 2007, Tanzania is the
second most populous country in East Africa, after Ethiopia. The total population of
Zanzibar Island is about 620,957 and Pemba is about 360,797. The majority of the
Zanzibari population (97 percent) practices Islam, owing to the centuries-long
colonization as an Omani sultanate; the remaining population is a mix of Hindus and
Christians (World Bank 2009, 1). Kiswahili and English are Tanzanias two official
languages, but Arabic is also commonly spoken in Zanzibar (Tanzania National
Website).
ii. Historical Background
Zanzibar was formerly an Omani colony with a strict racial hierarchy in which
Arabs dominated the black majority. In the late 19thand early 20thcenturies, the
power of the Omani sultans waned and they became simply puppet rulers under the
British Empire. In the early 1960s, as the nationalist tide swept across the colonies,
the British began to withdraw and on December 10th, 1963, Zanzibar became an
independent nation. A month later, the bloody Zanzibar Revolution, supported by the
black majority, overturned the largely Arab government, banished the sultan and his
family and brought the majority Afro-Shirazi Party (ASP) to power. On April 12 th,
1964, the socialist-oriented president, Sheikh Abeid Amani Karume, signed a
declaration of union with Tanganyika, thus forming the United Republic of Tanzania
(Tanzania National Website).
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In 1967, just three years after unification, with the adoption of the Arusha
Declaration, the newly-created Tanzanian government launched the Ujamaa village
development scheme across all of Tanzania, including Zanzibar. Ujamaa was
intended to rally the citizenry around the banner of socialism and to increase
productivity through the creation of communal villages. Within just seven years,
more than 9 million people (60 percent of the population) had been resettled into
6,000 villages (Ingle 1972). Rather than increasing production and generating
development as expected, these policies left the rural population worse off than
before. State marketing boards were created to act as the middleman between the
producers and consumers. However, these marketing boards simply facilitated the
overtaxation of the rural agricultural sector. Government taxed the agricultural sector
heavily through both direct taxation (usually by turning the internal terms of trade
against agriculture through such interventions as artificially low consumer prices for
food and high input prices) and indirect taxation (mainly through the impact of an
overvalued exchange rate on agricultural tradeables). The surplus generated from the
overtaxation of the rural population was not subsequently reinvested in rural
infrastructure or services, but rather in gaudy and unnecessary development projects,
primarily in urban areas, such as monuments or ill-planned industrialization projects
(Lubawa 1985).
In Zanzibar, clove production particularly suffered under the socialist policies
of Ujamaa. In the early 1970s, Zanzibar was the worlds leading producer of cloves.
However, under Ujamaa, in a process similar to that occurring throughout Tanzania,
the large farms were split up into fewer units and it became illegal to sell cloves to
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any buyer other than the government. As a result, farmers received a price lower than
the world market value, which caused systematic underinvestment (Lubawa 1985).
Few new trees were planted and the current trees are now coming to the end of their
productive lives. Consequently, clove production in Tanzania has never returned to its
pre-Ujamaa glory. Today, Zanzibar ranks a distant third in the world market, with
Indonesia supplying 75 percent of the world's cloves compared to Zanzibar's 7
percent (Country Report2008).
The failure of Ujamaa goes beyond state marketing boards and diminished
incentives in agriculture. From the very beginning, the project was plagued with poor
planning and ill-suited strategies. Administrators designated a large proportion of
funding to modern technologies, which were ill-suited to the environment as well as
the subsistence-style farming. Despite the burden of such inappropriate technologies
and the artificially low prices, most farmers had few alternatives. Private
entrepreneurship was discouraged and for those who did hold strong entrepreneurial
ambitions, access to the necessary credit was severely limited, even non-existent. The
government prohibited the formation of private initiatives, such as Non-
Governmental Organizations (NGOs) and credit cooperatives, and all commercial
banks were nationalized and thus responded solely to the needs of the state rather than
the poor entrepreneur (Mutesasira 1992, 2). Therefore, though most remained
employed in agriculture, they chose to decrease production in response to the
detrimental policies of Ujamaa.
In the late 1970s, as overall agricultural output began to decline and hunger
intensified across the country, the Ujamaa program began to unravel. It subsequently
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fell apart completely when an economic crisis struck the country in the beginning of
the 1980s. Real per capita income growth dropped from 1.9 percent between 1970-76
to negative 1.0 percent between 1980-85. Meanwhile, inflation rose unabated, spiking
to 44 percent by 1984, while internal and international deficits continued to rise. The
situation was further exacerbated by the 1978 war with Ugandas Idi Amin and a
large drought in the 1980s (Muganda 2004, 1).
In 1986, the magnitude and intensity of the economic crisis led the Tanzanian
government to adopt the IMF-directed Economic Recovery Program (ERP), which
included economic stabilization and structural adjustment measures (Muganda 2004,
1). As government jobs and overall spending were cut, unemployment increased
significantly. More and more people were forced into self-employment and informal
business activities. However, lack of access to credit made success in the informal
sector difficult to achieve, particularly in rural areas where the majority of the
population lived. The privatization of the National Microfinance Bank (NMB) and
Cooperative Rural Development Bank (CRDB), which was part of the IMFs
structural adjustment measures, resulted in the closure of seventy-eight branches
throughout the country, further restricting credit accessibility for the increasing
proportion of the rural population involved in the informal sector (Ssendi and
Anderson 2009, 5). Although the late 1980s also saw a shift in financial policy, with
an increasing number of private and NGO-institutions and cooperatives participating
in microcredit schemes, access to credit continues to be severely limited to this day.
As of 2007, just 10 percent of the population had access to formal financial services,
up from 6.4 percent in 2001 (World Bank 2009, x).
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iii. Economic Background
Tanzanias economy was slow to recover from the legacy of Ujamaa. Real
GDP growth was stagnant throughout the 1990s. However, it picked up in the second
half of the decade, averaging 4.2 percent between 1996 and 2000. Since 2000, growth
has continued to rise, despite several years of drought, reaching 7.0 percent in 2007,
making Tanzania one of the fastest growing non-oil economies in Sub-Saharan Africa
(World Bank 2009). The small economy of Zanzibar, however, has been much more
erratic, with wide swings in GDP growth rate from year to year. Although real GDP
growth averaged 7 percent between 1996 and 2000, it peaked at 16.1 percent in 1996,
but was only 1.6 percent in 1998. In 2001 and 2003, growth rebounded, with rates
around 9 percent. However, the rate slowed again in 2005 to 5.6 percent (Country
Report 2008).
Due to rapid population expansion, growth in the national GDP per capita has
not kept pace with real GDP growth. Nonetheless, there has still been substantial
improvement. In 2002, GDP per capita (measured at purchasing power parity (PPP)
in current U.S. dollars) was $594; by 2008, it had increased to $1,243 (World Bank
2009). However, this is still low compared to Tanzanias neighbors for example, in
2008, Uganda had a GDP per capita of $1,512, Kenya had a GDP per capita of
$1,455, and South Africa had a GDP per capita of $12,574 (Human Development
Report 2009).
The Tanzanian economy is still heavily dependent on agriculture, which in
2007 accounted for just over a quarter of GDP and employed approximately 80
percent of the labor force, mostly in subsistence farming and smallholder cash-
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cropping. Tanzania is also endowed with substantial mineral and natural resources,
such as gold, diamonds, and several other precious and semiprecious stones,
including tanzanite, a blue-purple stone unique to the country. In 2006, Tanzania
accounted for almost 2 percent of world gold production. Tanzania, which is home to
many well-known natural wonders, including Mount Kilimanjaro, Africas highest
peak; Lake Victoria, Africas largest lake; and the plains of the Serengeti, has also
benefited from significant increases in tourism growing form 7.5 percent of GDP in
1995 to 16 percent in 2004 (World Bank 2009).
The breakdown of the economy of Zanzibar is very similar to that of Tanzania
overall, with agriculture accounting for approximately a quarter of the economy. The
Zanzibari economy, however, is very vulnerable to fluctuations in agricultural
production, especially in clove production, which still accounts for just under 25
percent of Zanzibars agricultural production. Food production accounts for 60
percent of all cultivated land, with the main subsistence crops being millet, maize,
sweet potatoes, bananas, cassava, peas, rice, groundnuts (peanuts) and sorghum
(World Bank 2009). Zanzibar also has an extensive local fishing industry, and the
government is hoping to develop a modern fishing fleet. Finally, tourism is becoming
an increasingly important aspect of the economy, as Zanzibar is becoming a
progressively more popular destination in Europe and East Asia, in particular
(Tanzania National Website).
Recently, Zanzibars economic growth has been restricted because of frequent
power outages. At the time of this study, Zanzibar was currently in the middle of a
two-month long power outage. The islands were entirely dependent on alternative
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methods of electricity generation, primarily diesel generators. Zanzibar suffered a
similar power outage during May and June 2008. Such power outages threaten to
shock the island's fragile economy, which is heavily dependent on foreign tourism.
However, rural areas are considerably less affected, as few households have access to
electricity anyway.
a. Socioeconomic StatisticsZanzibars growth, like the growth of Tanzania overall, is also constrained by
the extremely high population growth rate. Tanzania is one of only 35 countries in
world where the total fertility rate is still higher than five children per woman.
Fertility has not declined in the past 10 years, and the UN is predicting that the
population will reach 67 million by 2050 (Ellis et al. 2007, 33). Such rapid population
growth has far-reaching implications for human capital development, employment
creation, and the environment, as well as for public services and resource
mobilization. Because of the high population growth rate, Tanzania has a larger
proportion of its population in the younger age groups than in the older age groups.
With only about half of the population in the economically productive range (15-64),
a substantial burden is placed on that age group to support older and younger
household members (NBS 2005).
The high population growth rate also puts immense pressure on the education
and healthcare sectors. As a result, the country still lags behind other developing
countries in the region in terms of demographic and socioeconomic statistics. As
measured by international poverty standards, Tanzania has the highest rate of extreme
poverty in the world, with 88.5 percent of the population subsisting on less than $1.25
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per day and 96.6 percent on less than $2 per day (World Bank 2009, ix). Tanzania is
ranked 151stout of 177 countries assessed in the United Nations Development
Program (UNDP) 2009 Human Development Index (HDI), which is based on a
number of factors, including life expectancy and adult literacy. Its position has not
improved substantially in recent years as Tanzania ranked 151stout of 173 countries
in 2002. For the sake of comparison, war-torn Sudan is currently tied with Tanzania
in the HDI rankings (World Development Report 2009).
While the overall health status of Tanzanians remains poor, major health
indicators are generally better than the Sub-Saharan African average, although they
are worse than the low-income-country average. In 2007, life expectancy at birth was
a meager 52 years, compared with 51 years for Sub-Saharan African countries on
average, and 58 for low-income countries on average. In the U.S., life expectancy is
approximately 78 years. Tanzania has made little improvement in maternal mortality
with a significantly higher-than-average rate of maternal mortality among Sub-
Saharan African countries. Tanzanian mothers die at a rate of 950 per 100,000 live
births, compared to the Sub-Saharan average of 900 and the low-income countries
average of 780. However, substantial improvements have been made in infant and
child mortality rates. In 2007, the infant mortality rate was 74 per 1,000 live births,
compared to 94 for Sub-Saharan Africa and 85 for low-income countries. The under-
five mortality rate for Tanzania was 118 per 1,000, compared to 157 for Sub-Saharan
African countries, on average, and 135 for low-income countries (World
Development Report 2009). Nevertheless, the vast majority of child deaths are still
the result of preventable illnesses, including malaria, pneumonia, diarrhea,
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malnutrition, HIV/AIDS, and complications from low birth weights. Malnutrition also
remains a significant problem - almost four out of every ten children under the age of
five are chronically undernourished and too short for their age (stunted) and about
one out of every five children weighs too little, given his or her height. A significant
percentage of all Tanzanians (44 percent) are energy deficient and unable to
simultaneously sustain their body and carry out even light physical activity (World
Bank 2009, 8). This has detrimental implications for the growth prospects of the
country.
b.
The Education System
The Tanzanian population is also poorly educated in 2007 only 69.4 percent
were literate (World Development Report 2009). However, Tanzania has made
remarkable progress in increasing primary school enrollment in the past several years,
from 59 percent in 2001 to more than 84 percent in 2007 (NBS 2005). The structure
of the formal education system comprises seven years of primary education, four
years of ordinary level secondary school, two years of advanced level secondary
school, and up to three or more years of tertiary education. Students must past a
national standardized exam to advance to the next stage of their education. In 2008,
49.41 percent of the 999,070 students who sat for the National Standard 7 exam, at
the end of primary school, received passing marks. Ninety percent of these students
were subsequently selected to join public secondary schools in 2009 (Tanzania
National Website).
In 2002, the federal government eliminated tuition for public primary school.
However, families still have to pay for uniforms, school supplies and testing fees.
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Secondary schools are not tuition free, but they are subsidized by the government,
allowing tuition to remain around Tsh20,000 (US$18) per year (World Bank 2009).
Additionally, the attendant fees for secondary school are often greater than those for
primary school, which when combined with the cost of tuition, prohibits many
families from sending their children to secondary school.
Swahili is the language of instruction in public primary schools. However, by
law, all secondary and tertiary education is taught in English. This policy has caused
some controversy. While some argue that English is necessary to prepare students to
compete in the global economy, others argue that forcing students to learn in English
distracts them from concentrating on the subject matter and often causes talented
students to be left behind. Students often reach tertiary school without having attained
proficiency in English, which has a detrimental effect on their higher education.
Although substantial improvement has been made in primary school
enrollment, secondary enrollment, at only 25 percent, remains low and there is a
substantial gap across income levels. The 2005 Demographic and Health Survey
(DHS) showed only 2 percent of the poorest 40 percent of students advance to
secondary school after taking a selective exam (NBS 2005). Gross tertiary enrollment
in Tanzania is also among the lowest in Africa, at 1.5 percent in 2007, compared with
3.5 percent in Uganda, 2.8 percent in Kenya and 5.1 percent for Sub-Saharan Africa,
on average (World Bank 2009, 6).
Furthermore, there is a large gap in educational attainment between males and
females in Tanzania. The median number of years of school for Tanzanian males is
3.2, which is 33 percent more than the median number of years of schooling for
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females, 2.4. This disparity is even greater between urban and rural residents. The
median number of years of schooling is 6.1 among both urban males and females,
compared with just 2.5 and 1.5 years of schooling for rural males and females,
respectively (NBS 2005). Obviously, these numbers will need to improve if the
Tanzanian economy is going to continue to grow.
iv. Womens Status in the Economy and their Access to Credit
Although women are responsible for much of the countrys economic activity,
especially in agriculture and informal business, economic opportunities are often
markedly different for men and women in Tanzania. Creating opportunities for
women can help to not only empower women, but also to unlock the full economic
potential of their country.
Women constitute 50.6 percent of the employed labor force in Tanzania. Their
overall labor force participation rate (including the informal sector) is 80.7 percent,
which is slightly higher than that of men at 79.6 percent (Blackden and Rwebangira
2004, 7). Despite womens high economic participation rate, men account for 71
percent of workers in formal sector employment and are more likely to be in paid jobs
than women (Ellis et al. 2007, 4). This may be due to traditional cultural explanations
on differing roles for men and women, or to womens lower educational attainment.
Even for the women who do have paid jobs, in most paid labor occupations, men
have substantially higher earnings compared with women. For example, in
manufacturing, the mean monthly income paid to women is Tsh42,413 (US$38),
which is approximately 30 percent lower than the average income earned by men
(NBS 2002).
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Because of such inequities in formal employment, women often rely on
microenterprises as a means of income generation. The International Labor
Organization (ILO) estimates that the number of women entrepreneurs in Tanzania
ranges from 730,000 to 1.2 million (ILO 2003). The majority of these
microenterprises operate in the informal sector because of the difficulties of starting a
business in Tanzania. In fact, 98 percent of all businesses in the country operate
extralegally because of the obstructive regulatory and administrative obstacles to
registering, incorporating and conducting business activities (Ellis et al. 2007, 41).
Given that women have many more competing demands on their time than men,
because of domestic responsibilities, the bureaucratic hurdles of entering into
business is likely to have a disproportionately negative impact on them. Therefore,
the vast majority of women micro-entrepreneurs operate within the informal sector.
Because women tend to be less educated and because they are also subject to
cultural and religious perspectives on the kinds of jobs acceptable for females, they
tend to engage in more traditional activities, such as street vending or charcoal
production, which have a much lower profit margin. Women are often unable to
break out of the confines of these low-margin activities because they generally lack
access to formal sources of credit.
Womens access to formal sources of credit is restricted because they often
lack collateral, the primary source of which is land. Women are estimated to own
about 19 percent of registered land, and their plots are less than half the size of those
of their male counterparts (Ellis et al. 2007, 50). Although the law guarantees
womens right to property ownership, customary law often overrides statutory law,
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leaving the majority of women without the required assets to provide collateral for
loans. This is particularly the case in relation to inheritance and in circumstances of
the death of or divorce from a spouse.
In the case of death, it is not uncommon for the husbands relatives to take the
family property, including land, homes, livestock, furniture and household items, and
leave the widow and her children without any support. The widow can choose to be
inherited as a wife by one of the relatives of her deceased husband, to go back to her
people or to live with her children. Although efforts to reform the customary law of
inheritance have been underway since 1983, the government is reluctant to force
through reforms on laws and practices that have their roots in such strongly held
traditional, cultural and religious values (Ellis et al. 2007, 52)
Divorce is similarly devastating for most womens economic circumstances.
The Marriage Act of 1971, which in theory supersedes customary and Islamic laws,
gives women the right to retain and control their own property whether they acquired
it before or during their marriage. If property is acquired during the marriage in the
name of either the husband or the wife, that property belongs to that person to the
exclusion of the other spouse. However, given the strong cultural inhibition against
women holding property in their own name or even jointly with the husband,
properties are customarily registered in the name of the husband. When granting a
separation or a divorce, the court is required to take into account the extent of the
contributions made by each party towards the acquisition of the major assets,
including property, but this approach tends to undervalue domestic services
performed by a wife. It can be very difficult to prove her contribution to the
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household. Moreover, the court is required to take into account the customs of the
community to which the parties belong (Ellis et al. 2007, 54). Again, like in the case
of death of a spouse, customary law often leaves women without access to land and
thus without collateral for formal credit.
Because of these additional constraints facing women and because of the
overall importance of women in the Tanzanian economy, many microfinance
institutions have made a concerted effort to include women. Furthermore, in studies
from a variety of developing countries, loans have been shown to have a greater
effect on the household and the community, as a whole, when the borrower is a
woman (Pitt and Khandker 1998, 2003; Khandker 2005; Strauss and Beegle 1996;
Hoddinott and Haddad 1994).
v. The Financial Sector
a.Formal Sector
It is helpful to divide Tanzanias financial sector into three general categories:
formal, semi-formal and informal. The formal financial sector is comprised of
licensed commercial, regional and rural banks, which fall under the supervisory and
regulatory jurisdiction of the Bank of Tanzania. These institutions tend to be
concentrated in urban areas, especially after the financial sector restructuring in the
late 1980s. They are also primarily designed for use by the wealthier segment of
society. The poor and women, in particular, rarely rely on the formal financial sector
for a myriad of reasons, including high account opening balances, high minimum
balances, unrealistic limits on withdrawals, complicated procedures that are
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incomprehensible for the illiterate population, inaccessibility and high transaction
costs (Mutesasira 1999, 15).
b. Semi-Formal Sector
The semi-formal financial sector includes both Savings and Credit
Cooperative Organizations (SACCOs) and NGO-based microfinance institutions
(MFIs). A SACCO is a semi-formal savings device, in which members contribute a
weekly savings share to a central fund. Eventually, the fund may be used to grant
short-term loans to members, at a chosen interest rate. Although there is a similar
mechanism within the informal sector, SACCOs fall into the semi-formal sector as
they must be legally registered with the government. While this allows for greater
scale of operations, it also involves greater transaction costs. Formal registration
requires a higher level of bookkeeping skills, which makes SACCOs less user-
friendly for the poor, who are often illiterate. Furthermore, unlike their informal
counterpart, SACCOs are not self-sustaining as they generally rely on external capital
injections from donors, rather than the savings deposits of other members (Johnson et
al. 2005).
There are over 20 NGO-MFIs in Tanzania (Mutesasira 1999, 13). These
organizations are operated by a paid professional staff and can provide more
sophisticated financial services compared to SACCOs. They are also considered to be
a lower risk alternative for the borrower, especially if the MFI is large and well-
established. NGO-MFIs operate on a much larger scale, typically serving thousands
of clients. However, because of certain government regulations, including a
requirement of owning a business to access loan services, many poor people are
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unable to access the services of NGO-MFIs (Mutesasira 1999). These organizations
are also limited in the breadth of services they provide. They are not allowed, by law,
to accept savings deposits except those used as collateral, which denies the poor the
opportunity to save (Gallardo et al. 2005). Because they are more heavily regulated
and employ a professional staff, NGO-MFIs also involve high transaction costs. As a
result, in order to function on a sustainable basis, they tend to concentrate in more
urban or suburban areas, thereby limiting their rural outreach.
c. Informal SectorThe informal sector is by far the largest and most important in Tanzania. Out
of Tanzanias approximately 1.8 million enterprises, only 0.4 percent obtains their
credit from formal sources and less than 0.3 percent from semi-formal sources
(Mutesasira 1999, 5). The informal sector has emerged to satisfy the financial needs
of the majority of the population, who are left behind by the formal and semi-formal
sectors.
There are a variety of mechanisms for accumulating capital available in the
informal sector. Saving at home is arguably the most prevalent savings mechanism in
Tanzania but is rarely successful as a long-term strategy because savings are
susceptible to outside demand from ones family and neighbors. This mechanism
involves no entry barriers but high risk. Reciprocal lending among friends and
relatives is another prevalent mechanism but is on the decline because of the
increasing dishonesty and lack of trust among many people (Kashuliza et al. 1998).
This method also presents barriers because one needs to know and trust the
counterparty in order to have access to financial exchange. However, risks involved
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are relatively low since people tend to lend only to those they know. Moneylenders
provide another alternative. They generally demand relatively high interest rates but
transaction costs are low and disbursement is normally quick. Moneylenders tend to
operate in highly localized markets and have close relationships with their debtors,
which allows for flexible lending arrangements. However, there is a general feeling
among potential borrowers that moneylenders behavior is exploitative and that they
should be avoided. Furthermore, there is a general understanding that moneylenders
will not lend to the poorer members of the community (Buckley 1997).
Within the informal sector there are two more formal alternatives: Rotating
Savings and Credit Associations (ROSCAs) and Accumulating Savings and Credit
Associations (ASCAs). ROSCAs, which are called upatuin Tanzania, are the
simplest form of financial intermediation. In a ROSCA, a small group of people,
generally between 15 and 30, form a group and contribute an agreed amount at
regular meetings. The entire fund is then distributed to each member on a rotating
basis, until everyone in the group has received a loan. The system involves a high
degree of flexibility, with the participants determining the size of the group, the
amount to be saved, the frequency of contributions, and how the funds can be used
(Johnson et al. 2005). Although ROSCAs may provide a variety of social benefits and
impose savings discipline, they do not accrue interest and therefore may be relatively
ineffective for productive investment.
An ASCA is essentially an unregistered and informal version of a SACCO.
They are very similar to ROSCAs but, like a SACCO, involve a central fund into
which the weekly contributions are deposited. Instead of the fund being automatically
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distributed to each member in turn, members can take out loans at an agreed interest
rate (Mutesasira 1999). Members can theoretically take out a loan at any time and in
amounts aligned to their actual needs and opportunities. Furthermore, through the
interest paid on loans, members can earn a substantial return on their savings
contributions. However, ASCAs require slightly more complex record keeping than
ROSCAs.
The structure of ROSCAs and ASCAs provide a variety of benefits. Because
they are largely self-operated, transaction costs are relatively low and, therefore, they
are able to reach poorer individuals living in less densely populated areas (Johnson et
al. 2005). Both ROSCAs and ASCAs are also self-sufficient. They do not rely on
external infusions of capital, which may lead to a dependent relationship, decrease
members incentives to save and to monitor operations, or lead to investments in
projects that are too big and will not survive based on local demand and resources.
Risks are also relatively low because the process of self-selection allows for a high
level of mutual understanding and trust. However, the method of self-selection also
creates a risk of excluding the poorest members of society.
II. The VSLA Program
i. CARE in Tanzania
CARE is a non-political and non-sectarian, leading humanitarian organization
dedicated to the fight against global poverty. CARE was originally founded in 1945
to bring emergency relief to the survivors of WWII in Europe and East Asia, but over
the years the organization has expanded its work and now operates in more than 65
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developing countries across the globe. CAREs mission is to help tackle the
underlying causes of poverty so that people can become self-sufficient and live in
dignity and security. In service of that mission, CARE launched its first Village
Savings and Loan Association (VSLA) in Niger in 1991. Since then, CARE has
established more than 54,000 microfinance groups in twenty-one African countries,
serving over 1 million members (Allen and Staehle 2007).
CARE arrived in Tanzania in 1995 in order to assist with the influx of
refugees from neighboring Rwanda and Burundi. After its arrival, CARE recognized
a need for a greater variety of services, including establishing institutions to promote
sustainable development in the region. In April of 1995, in a partnership initiative
with the Department of Commercial Fruits and Forestry (DCFF), CARE established
the Jozani-Chwaka Bay Conservation Project (JCBCP) in Zanzibar, with the goal of
improving the livelihoods of communities adjacent to the area. The conservation area,
which sits about 22 miles (35km) south of Stone Town and covers approximately
6,200 acres, is an extremely rich mosaic of Zanzibar's diverse natural habitat,
including groundwater forest, mangroves, coral rag forest and salt marshes. The coral
rag zone serves as a haven for a variety of wildlife, including rare, endemic and
endangered species, such as the Zanzibar Red Colobus Monkey, Aders duiker and
the Zanzibar leopard (CARE Tanzania 2003).
JCBCP initiated a savings and credit scheme in August 1999 to assist
community members in financing conservation-friendly enterprise activities. The
program followed a Grameen Bank-type model in which loans were dispersed to
individuals organized in groups of five. Although the program was extended to
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almost 720 clients by April 2000, loan repayment quickly fell below 50 percent
(CARE Tanzania 2003). Under Ujamaa, the people of Tanzania had become
accustomed to government handouts, and they subsequently misinterpreted the loans
from CARE as simply a continuation of the government program. In response, CARE
restructured the program, eventually adopting the VSLA methodology, which was
piloted in Niger.
ii. The VSLA Methodology
The costs of bringing microfinance services to Africa is often considered
prohibitive, because of the abundance of sparsely populated areas, the higher rates of
illiteracy and HIV/AIDS, and a widespread lack of identity papers, all of which serve
to increase credit risk and transaction costs. The VSLA model overcomes many of
these obstacles and promises to reach the very poor and rural population better than
formal, centralized microfinance institutions. It essentially enables the poor to
become their own bankers.
A VSLA is an Accumulating Savings and Credit Association (ASCA), which
requires no external borrowing by, or donations to, the loan portfolio it is entirely
self-sufficient. Its work, therefore, falls within the informal sector. It differs from a
Savings and Credit Cooperative Organization (SACCO) in that it is does not receive
external funding, only training, and is not formally registered with the government,
which allows it to operate with less formal bookkeeping and thus be more user-
friendly for illiterate members. A VSLA allows for variable savings, unlimited
savings withdrawal, and loans with variable terms and flexible repayment conditions.
A single association consists of 15 to 30 people who save a small amount every week.
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A share is usually Tsh1,000 (US$0.90) with members contributing up to three shares
every week.1However, each group is able to determine their own share value and the
maximum number members can contribute each week. The value of each share
remains low so as to allow the poorest members to participate. The groups funds are
kept in a cash box that is fitted with three padlocks, the keys of which are held by
different officers in the group. This system improves transparency and makes it easier
to refuse loans to non-members, such as ones husband (Allen and Staehle 2007).
In addition to the savings fund, the cash box holds the social fund and the
education fund. The social fund is a self-insurance mechanism, which can provide
members with a small amount in the case of emergencies. Each member contributes a
set value every week, usually between Tsh200 (US$0.18) and Tsh400 depending on
the group. In the event of an emergency such as a fire or the death of a family
member, the fund dispenses a fixed amount, generally between Tsh10,000 (US$9)
and Tsh20,000 (US$18). No interest is charged for loans from the social fund and,
although members are expected to pay back the loans, repayment is not strictly
enforced. The social fund is managed separately from the savings and loan fund and
is not shared out at the end of the cycle and is thus carried over to the next cycle. Like
the social fund, weekly contributions to the education fund vary between groups, but
generally fall in the range of Tsh100 to Tsh200 per week. The education fund is used
to pay the nominal monthly training fee and to buy the necessary materials, such as
passbooks and the lockbox.
1In a county where the average weekly income is around Tsh26,400 (US$24), this represents a savingrate of approximately 8 percent. For the sake of comparison, the U.S. savings rate is around 5 percent.
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After several months, the savings shares accumulated by the group become
large enough to launch the loan function. All members have the right to take out a
loan regardless of the number of shares they have contributed, but can only take out a
loan equal to at most three times the value of their shares. Most loans are short-term,
generally around one month, at an interest rate determined by the group, usually 5
percent per month this is low compared to moneylenders who often charge up to 30
percent per month, but slightly higher than NGO-MFIs, which generally charge less
than 4 percent per month (Mutesasira 1999, 10). Each group is able to set their own
repayment terms. However, a VSLA never fines borrowers for late loan repayment as
this may aggravate any underlying crisis the household may be facing. It is assumed
that the embarrassment of being late is sufficient penalty (Allen and Staehle 2007,
10).
On a date chosen by the members, usually after about a year, the savings and
accrued interest are divided among the members in proportion to each individuals
savings. This event, known as an auction audit, is usually scheduled so as to occur
when members are most likely to need money, such as at the start of the school year
or before a major holiday, in order to encourage the use of savings to meet pressing
needs and discourage their use for unnecessary expenditures. After the disbursement
of funds, the groups normally re-form immediately and start a new cycle of savings
and lending.
The VSLA model is lauded for its transparency and adaptability for illiterate
members. All operations (deposits, withdrawals, loans, loan repayments) occur at
weekly meetings with the entire group present so that all activities remain transparent.
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Record keeping was also designed to be as simple and as transparent as possible.
Each member has an individual passbook, which is stamped every week, with each
stamp representing one share. Only the starting and closing balances of the social
fund as well as loan disbursement is recorded in the group ledger (Allen and Staehle
2007).
VSLAs are built entirely on member savings and interest from loans; they
receive no direct capital investment from CARE or any other supporting organization.
CAREs role is to supply extensive training on group dynamics, governance and
money management. VSLA training is based on a four-phase curriculum. During the
first phase - an intensive, three-month period - a field officer from CARE visits the
group every week and holds training sessions on group dynamics. The field officer
also selects and trains a Community Contact Person (CCP or village trainer) who
lives in the target community. The CCP is paid by the VSLA not by CARE. In the
second phase, the field officer visits the groups once or twice a month as they begin
to rely more on the CCP. In the third phase, after approximately a year of supervision,
if the CCP passes a certification test, the field officer will move on to another area
and start the process again. In the fourth phase, in the original VSLA model, once a
group is mature, it can function with no external support (Training Guide 2004).
However, CARE quickly realized that even mature groups could benefit from
additional monitoring and technical support. In order to respond to such needs while
maintaining a degree of self-sustainability, CARE developed a system known as an
Apex Organization, which would support and monitor existing groups while fostering
the growth of new groups, allowing CARE to move onto new areas.
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iii. Apex Organizations and the Sustainability of the VSLAs
As CARE prepared to leave Jozani Bay in 2003 after two years of successful
VSLA implementation in the area, the organization, together with the CCPs,
developed the Jozani Credit Development Organization (JOCDO). Today, JOCDO is
often sited as the prime example of an Apex organization. The Apex model, generally
lauded as a paradigm of sustainability, has been expanded throughout Tanzania and is
beginning to move across Sub-Saharan Africa.
An Apex organization is owned by the affiliated VSLA groups. It provides a
number of services to member VSLAs, but, like CARE, it does not provide direct
loan capital. The objectives of an Apex organization are: to serve as an umbrella
organization by promoting and protecting the interests of existing VSLA groups; to
assist in formation of new groups; to provide VSLA kits (cash boxes, pass books,
etc.) and other materials; to supervise the quality and standards of performance of
affiliated VSLA groups; to monitor groups and collect monthly data; and, finally, to
assist affiliated VSLAs through capacity building.
The Apex organization is responsible for the selection and training of new
Community Contact Persons (CCPs), who, in turn, are responsible for the formation
and training of new VSLA groups. The training of new groups under the Apex
organization essentially follows CAREs four-phase curriculum described above. The
greatest difference is that after a group is fully mature, they continue to receive
monthly visits from a CCP, either the original CCP who carried out the initial training
or the newly trained and certified CCP from the local community. At this point, the
role of the CCP becomes one of monitoring and technical assistance. He is expected
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to visit a mature group once a month to ensure quality control and before the final
payout of each cycle.
The organizational structure of an Apex organization is made up of a General
Assembly, a Board of Trustees, an Executive Committee, and a Director. However,
the VSLAs are always the main building blocks of an Apex organization (Mkoma
2009). Currently, JOCDO maintains a board of trustees selected from a group of
important members of the community; however, the board members are not involved
in the operations of the organization. All decisions are carried out by the executive
committee, which has twenty members, including a chairperson, secretary, assistant
secretary, treasurer, assistant treasurer, and an executive director. The position of
executive director is currently empty and will not be filled again until the election in
October 2010.
Every Apex organization, including JOCDO, is sustained by several income
sources. Each VSLA group pays an initial entry fee of Tsh60,000 (US$55) to the
Apex organization. Following the first year, the annual subscription fee for member
groups is Tsh15,000 (US$14) per year. In most groups, members contribute up to
three shares of Tsh1,000 (US$0.90) every week, yielding a total possible share value
of Tsh156,000 (US$142) per member and Tsh4,680,000 (US$4,255) per group.
Therefore, the initial entry fee represents, at a minimum, 1 percent of a groups
annual savings, while the yearly subscription fee corresponds to 0.3 percent of a
groups savings. As there is no external funding, these nominal fees denote the only
transaction costs of the VSLA program. The subscription fee covers basic support and
monitoring services. There are currently 233 VSLA groups in Zanzibar. However,
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only 106 of these groups are registered and paying members of JOCDO. As JOCDO
still provides a variety of support services for non-registered members, this presents a
major financial obstacle for JOCDO. However, JOCDO may also make a profit from
the sale of VSLA kits to groups at a small margin, usually around Tsh10,000 (US$9),
and also draws a cut of the training fee paid to the CCP from each VSLA for
example, from the Tsh3,000 (US$2.70), Tsh2,000 (US$1.80) is pocketed by the CCP
and Tsh1,000 (US$0.90) is sent to the Apex organization (Mkoma 2009).
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CHAPTER 2 Literature Review
As interest in microfinance has grown over the past three decades, so has the
compilation of related literature. The major findings of the key studies in the field are
presented below. These findings are summarized in Appendix A for convenience.
I. Impact of Microfinance
i. Financial AssetsMost studies have found that microfinance allows the poor to protect,
diversify and increase sources of income, which helps to smooth out income
fluctuations and to maintain consumption levels even during times of crisis. Zaman
(2000), who examines the Bangladesh Rural Advancement Committee (BRAC)s
impact on the welfare of its clients, finds that participation in micro-credit programs
reduces vulnerability by smoothing consumption, building assets, providing
emergency assistance during natural disasters, and empowering females. The
methodology of each study will be discussed in greater detail in Chapter 3, but the
results are generally considered robust. In addition to using a control group, Zaman
uses a Heckman two-step procedure, an advanced econometric technique, to control
for any biases in his estimation.
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MkNelly and Dunford (1999) also find a positive impact on income. They
control for potential biases by assigning communities to either a program or control
group following baseline data collection, thereby allowing program impact to be
measured through simple comparison between the treatment and the control group.
Their results show that the majority of participants (67 percent) of the CRECER
Credit with Education Program in Bolivia feel that their incomes have increased or
increased greatly since they joined the program. Additionally, MkNelly and
Dunford find that clients of Lower Pra Rural Bank Credit with Education Program in
Ghana have increased their incomes by $36 compared to $18 for non-clients. Clients
have also significantly diversified their income sources eighty percent of clients
have secondary sources of income compared to fifty percent of non-clients. Dunn and
Arbunkle (2001), who control for potential biases with the use of a control group and
a combination of advanced quantitative and qualitative methods, find that
microfinance clients in Lima, Peru have over 50 percent higher income than non-
participants.
Household income is often very difficult to measure in a survey format.
Therefore, household expenditure level is often used as a substitute for income to
determine overall program impact. Pitt and Khandker (1998) find that for participants
of the Grameen Bank, the Bangladesh Rural Advancement Committee (BRAC),
annual household consumption expenditure increases 18 taka for every 100 additional
taka borrowed by women, compared with 11 taka when the borrowers are men. They
control for participation endogeneity by using the specific design of the credit
programs to identify the effect of program credit, by gender of participant, in a
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limited-information-maximum-likelihood framework, and by controlling for
nonrandom program placement by using village-level fixed effects. Khandker (2005),
using a household-level fixed-effects model with panel data, which resolves both
household- and village-level endogeneity, finds that Pitt and Khandker (1998)
actually underestimated program impacts. He finds each additional 100 taka of credit
to women increased total annual household expenditure by more than 20 taka, but
finds no returns to male borrowing at all.
A few studies, however, have failed to find positive impacts on income from
microfinance participation. Masanjala and Tsoka (1997) find little impact of FINCA-
Malawi on living standards and expenditure patterns. Ssendi and Anderson (2009)
also find little long-term effect, as measured by increases in household assets.
However, both studies use a much less robust methodology and make little attempt to
control for selection bias.
ii. Poverty
A number of studies have found that access to microfinance services
decreases the incidence of poverty. Dunn and Arbunkle (2001) find that only 28
percent of microfinance clients in Lima, Peru live below the poverty line compared to
41 percent of non-clients. Khandker (2005) also finds positive effects on poverty
rates. He finds that between 1991/92 and 1998/99, moderate poverty in all villages
declined by 17 percentage points: 18 points in areas where Grameen Bank or BRAC
was active, and 13 points in non-program areas. Among program participants who
had been members since 1991/92, poverty rates declined by more than 20 percent
about 3 percentage points per year. Khandker estimates that more than half of this
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reduction is directly attributable to microfinance, and finds the impact to be greater
for extreme poverty than moderate poverty. Khandker further calculates that
microfinance programs reduce average village poverty level by one percentage point
each year in program areas. Microfinance thus helps not only poor participants but
also the local economy. Overall, Khandker finds that microfinance accounts for 40
percent of the entire reduction of moderate poverty in rural Bangladesh.
iii. Quality of Housing
Considering the difficulty in obtaining other measures of welfare, such as
income or even expenditure, in the majority of developing countries, the quality of
housing is often used as a proxy for a households socio-economic status. Overall, the
literature suggests a positive impact of microfinance program participation on both
the quality of housing as well as the level of investment. Hossain (1988), who
compares Grameen Bank members to both eligible non-participants in Grameen
villages and target non-participants in comparison village, finds that members spend
six times more on housing investments than non-members.
Neponen (2003), who uses a control group of new members to avoid selection
bias while monitoring the performance of microfinance program participants in
Trihcirappalli, India, finds that members of the microfinance program live in much
higher quality housing. Sixty-four percent of members live in tile roof and concrete
houses, which is considered to be the highest quality material available, compared to
only 50 percent of new members (the balance live in mud and thatch houses).
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iv. Education
In general, studies have found a positive impact of microfinance program
participation on education - children of microfinance clients are more likely to go to
school and stay in school longer (Neponen 2003; Littlefield et al. 2003). Barnes
(2001), who, like Dunn and Arbunkle (2001), controls for potential biases with the
use of a control group and a combination of advanced quantitative and qualitative
methods, finds that the Zambuko Trust program in Zimbabwe has a positive impact
on the education of boys aged 6 to 16. However, the program has no effect on the
education of girls within the client-household. Pitt and Khandker (1998), however,
find that microfinance program participation increases the probability of enrollment
for girls. On the other hand, Coleman (1999), who controls for participation
endogeneity through the use of a quasi-experimental design, finds little impact on
education expenditures, which may be seen as a proxy for either access to or quality
of education.
v. Nutrition and Health
Households of microfinance clients, particularly those of female clients,
appear to have better nutrition and health statuses compared to non-client households
(Pronyk et al. 2007; Littlefield et al. 2003; Hossain 1988). Pitt et al. (2003) find that
womens credit has a large and statistically significant impact on two of three
measures of childrens health. A 10 percent increase in credit provided to females
increases the arm circumference of their daughters by 6.3 percent - twice the increase
that would be expected from a proportionately similar increase in credit provided to
men. Female credit also has a significant and positive, but somewhat smaller effect on
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the arm circumference of sons. Female credit is estimated to have large, positive and
statistically significant effects on the height-for-age of both boys and girls. However,
no statistically significant effects are found for body mass index (BMI) of boys or
girls.
Barnes (2001) finds that participation in Zambuko Trust in Zimbabwe has a
positive impact on the frequency with which food is consumed in extremely poor
households as well as on the quality of food. Specifically, participation has led to a
positive impact on the consumption of high protein foods (meat, fish, chicken and
milk). MkNelly and Dunford (1999) also find that children of participants of the
Lower Pra Rural Bank Credit program in Ghana experience significant improvements
in feeding frequency compared to children of non-clients. However, positive impacts
on the nutritional status of clients of the CRECER Credit program in Bolivia and their
children are not evident. Deeper analysis of the client group alone, however, reveals
that childrens weight-for-age is positively related with the quality of education
services provided. This finding suggests that without important improvements in
caregiver practices, increases in income and even empowerment are unlikely to bring
about marked improvement in childrens nutritional status.
vi. Empowerment and Social Status of women
Numerous studies have found that targeting women as clients is an effective
method of ensuring that benefits of increased income accrue to the general welfare of
the family (Pitt and Khandker 1998, 2003; Khandker 2005; Strauss and Beegle 1996;
Hoddinott and Haddad 1994). Such gender-targeted microfinance has also been
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shown to have a positive effect on the empowerment and equality of women
(Mwenda and Muuka 2004).
Hashemi, Schuler and Riley (1996), in an attempt to deal with the
complexities and ambiguities of the meaning of empowerment, create a composite
empowerment indicator based on eight components: mobility, economic security,
ability to make small purchases, ability to make larger purchases, involvement in
major household decisions, relative freedom from domination within the family,
political and legal awareness, and involvement in political campaigning and protests.
A woman is considered empowered if she scores positively on 5 out of the 8
components. Using a combination of sample survey and case study data and
controlling for selection bias by statistically controlling for differences in
demographic characteristics such as age, education and wealth, Hashemi et al. find
that membership in either the Grameen Bank or the BRAC has significant effects on
all eight dimensions. They find that each year of membership in either program
increases the likelihood of a female client being empowered by 16 percent. Even
women who do not participate in the program are more than twice as likely to be
empowered simply by living in Grameen villages. The authors argue that credit
programs empower women by strengthening their economic roles, increasing their
ability to contribute to their families income, enabling them to establish an identity
outside of the family, and giving them experience and self-confidence in the public
sphere.
Terry (2006) finds that loans from FINCA-Tanzania create major positive
changes in the lives of female borrowers, including an improvement in social status
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and self-esteem, and an increase in confidence. Women also feel empowered through
an increase in income and the ability to accumulate savings, purchase household
assets and contribute towards childrens education. The findings also suggest that
members of the household and the community, at large, view female participants in a
more positive way. However, Terry relies completely on qualitative data and does not
include a control group. Therefore, the results of the study are not necessarily reliable.
II. Microsaving
Recently, practitioners have begun to increasingly acknowledge the
importance of savings mechanisms. Research has even found that most people prefer
savings to credit (Hirschland 2005).Furthermore, small loans are not always
appropriate for poor women (Kabeer 2001). A loan becomes a debt, and the poor
often face a crisis if an expected source for repayment evaporates. Therefore,
borrowing is often much riskier than saving. Because starting a new business is risky
and sustainable providers of credit cannot afford to lose money, credit is generally not
used to start a new business but rather to expand an existing one. Therefore, most
people must rely on savings to start up new business ventures. Savings enables future
investment, by giving access to lump sums of money. These large sums of money can
be used for investment opportunities, for life cycle events, such as marriages,
funerals, etc., or for emergencies. Savings can also be used to smooth consumption.
Furthermore, while borrowers pay interest, savers can earn interest. Finally, although
not everyone is creditworthy or is willing to take such risk, all people are deposit-
worthy and want to develop assets.
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Savings clearly offers substantial benefits and correspondingly, in general,
savings programs have been shown to have a positive impact on participants. Dupas
and Robinson (2009), who used a unique study design that controlled for potential
biases while allowing for the use of simple regression analysis, find that access to a
formal savings account has substantial positive impacts on womens productive
investment levels and expenditures, and also makes women less vulnerable to shocks
from illness.
Chen and Snodgrass (2001), who rely on a similar method to that of Barnes
(2001) and Dunn and Arbunkle (2001) to control for potential biases, also find a
positive impact of savings. Although the impact of savings is smaller than that of
borrowing, income of savers is more stable than that of borrowers. Chen and
Snodgrass compare the impact of SEWA Bank on clients who borrow to those who
save without borrowing, and compare both groups to non-clients (who are drawn
randomly from women engaged in the informal sector in the same neighborhood as
clients in Ahmedabad, Gujarat, where SEWA is based).
In round 1, the borrowers were shown to be considerably better off than
savers, who were in turn better off than non-participants. Some of these differences
may be attributable to participation in SEWA prior to the round 1 survey. However,
between the two rounds, the savers showed the fastest rate of income growth. Still,
borrowers income was over 20 percent greater than that of savers, and 40 percent
higher than that of non-participants. Savers, however, enjoy an income, which is 20
percent greater than that of non-participants. For borrowers, the findings show a
mixed report of the impact on poverty - the numbers of households with incomes
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below $1/day and those above $2/day (the World Banks official cut-off line for
absolute poverty and moderate poverty respectively) both increased between
rounds. Borrowers experienced the largest increase in the number of non-poor
households between rounds, but they also had the most households that slipped to a
lower poverty category. Saver householders were less volatile with the numbers in
both the $1-2 range and above $2 rising, demonstrating again the lower risk involved
in saving. Overall, the results suggest that the use of either credit or savings services
raises household income, both total and per capita. The use of financial services, in
general, is also associated with increased spending on housing improvements,
consumer durables and school enrollment, especially for boys.
III. ROSCA/ASCA Participation
Recently, an increasing amount of literature has attempted to specifically
explain ROSCA participation. As there is no interest to be gained by saving in a
ROSCA, the question is, why do individuals choose to save through a ROSCA
instead of individually accumulating savings? Besley, Coate and Loury (1993) argue
that individuals who have no access to credit may choose to join a ROSCA to finance
the purchase of indivisible durable goods, taking advantage of the gains from
intertemporal trade between individuals. Anderson and Baland (2002) argue that
ROSCA participation is a strategy used by women to protect their savings against
claims from their husbands. Dupas and Robinson (2009) expand upon this theory by
suggesting that women also face constant demands from other relatives and neighbors
and may find it difficult to refuse requests if the money is available in the house.
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Bauer and Morduch (2008), Gugerty (2007), and Dagnelie and LeMay-Boucher
(2008) suggest that individuals use participation in a ROSCA as a device to commit
themselves to save money and to deal with self-control problems. Although ASCAs,
unlike ROSCAs, do generally provide interest on savings that comes from interest
payment on loans, it is often a small amount. As such, much of the literature on
ROSCA participation probably can be applied to participation in ASCAs as well.
IV. VSLA Performance
Despite the apparent success of the VSLA model, few detailed studies of the
models performance have been undertaken. Allen and Hobane (2004) conclude that,
in Zimbabwe, membership in a VSLA contributes to an increase in household
productive and non-productive asset levels among the majority of participants, as well
as to some improvement in quality of housing. The findings also suggest that program
participation has led to an increase in the number of income-generating activities
(IGAs) and to an increase in stability of such activities. Households also allocate
more labor to IGAs. Furthermore, 81 percent of respondents feel that their status in
community has improved. However, it is difficult to attribute these results to the
interventions of the VSLAs alone. The study has no control or comparison group and
relies on recall data for a period of four years, which may not yield accurate
information, as people tend to forget what their status was four years ago.
However, Anyango (2005) reaches similar conclusions as Allen and Hobane
(2004) when studying the VSLA program in Malawi. He finds that program
participation has helped to improve the livelihoods of its members and to alleviate
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poverty, particularly for women who constitute the majority of the groups. Number
and magnitude of economic activities has increased as a result of participation in the
program. However, members have divested away from certain economic activities
that require greater capital. The study also does not have a control group, although it
does have a baseline. The baseline, however, is taken at the community level.
Therefore, there may be a selection bias if the members of the VSLA systematically
differ from the members of the community.
There have been two major studies done on the VSLA program in Tanzania.
The most extensive study is the Womens Empowerment Strategic Impact Inquiry
(SII), which was completed in 2006. The study incorporates a quantitative
questionnaire, which was given to 181 women, including 134 VSLA members and 47
non-members. In addition to several case studies, a series of focus group discussions
were carried out to explore more deeply the issues raised in the questionnaire.
Baseline data was not available, but the authors attempt to address the problem by
asking questions linking participation to changes in the impact variables, and
requesting respondents to compare their current situation to their situation prior to
joining VSLA group. The greatest weakness of the study is that the quantitative data
are not tested for statistical significance. The assessment of significance is therefore
based on the judgment of the research team and is thus largely subjective.
The study finds, in terms of short-term economic empowerment, VSLA
women benefit more than non-VSLA members from increased savings, more IGAs,
greater food security and health, and increased education expenditures. Most VSLA
women (75 percent) have increased their savings since joining VSLA group. VSLA
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women are more likely (68 percent) to be engaged in an IGA than non-VSLA women
(13 percent), with most VSLA women reporting the VSLA group as the source of
funds for their IGA. Furthermore, VSLA womens households experience greater
food security compared to non-VSLA households. More VSLA households also
report a great improvement in the quantity and quality of meals over the last 3 years,
compared to non-VSLA households. Thirty-four percent of VSLA households report
improved family health over the last three years compared to 22 percent of non-
VSLA households. About twice as many VSLA households (57.3 percent) as non-
VSLA households (30.4 percent) report an improvement in the education status of
family members over the past three years. A higher proportion of VSLA households
(79.9 percent) have made expenditures on education over the last 12 months, than
have non-VSLA households (65.2 percent).
In terms of long-term economic empowerment, the SII finds more VSLA
women own household and productive assets than non-VSLA women. For each asset
category, between 40-77 percent of the women have acquired assets with funds (loans
or payouts) directly from the VSLA group. The other women have acquired assets
with revenue from IGA or some other source. Moreover, compared to non-VSLA
women, almost twice as many VSLA women have made investments in housing
during the last three years. Although VSLA membership is not a necessary condition
for womens investment in long-term assets, the study indicates that VSLA
participation increases womens chances of making such investments.
In the case of womens social empowerment, the SII study finds that VSLA
women demonstrate more confidence than their non-VSLA counterparts and appear
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more motivated to take action to improve their lives. VSLA women also have more
freedom to participate in community social activities than non-VSLA women.
Finally, VSLA women have more control over decisions to engage in income-
generating activities and to spend time income accruing than do non-VSLA women.
The other major study in Tanzania, and the precursor to this study, was
Anyango et al.s (2006) examination of the performance of VSLA groups in
Zanzibar. The study, however, does not have a baseline and does not use a control
group. No tests of statistical significance were performed. The study finds that
VSLAs in Zanzibar have performed well in terms of growth and sustainability. Total
membership rose 258 percent from 2002 to 2006. They have also performed well in
terms of profitability during the last payout for all 25 groups, members received up
to a 53 percent rate of return on savings. Respondents also name improved standard
of living (22 percent), improved housing (21 percent) and increased income (20
percent) as three major changes as a result of VSLA program participation.
Although the results from Anyango et al. (2006) are promising, the study
suffers from several methodological weaknesses and therefore its results are not
entirely reliable. This study therefore aims to expand and improve upon this work,
and the entire set of literature concerning VSLA performance and microfinance
impact.
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CHAPTER 3 Research Design, Methods, & Sample
I. Impact Assessment Methodologies
From the wealth of literature referenced above it is clear that in the last fifteen
years impact assessment has become an increasingly important aspect of development
activity as international agencies and aid donors, in particular, have sought assurance
that aid funds are well spent. There are several methodological options for conducting
impact assessments, which can be roughly grouped into two different paradigms: the
scientific method and the humanities tradition (Hulme 2000).
The scientific method seeks, through experimentation, to ensure that
outcomes can be directly attributed to inputs. In the social sciences, however,
controlled experiments are difficult and often impossible to arrange. Therefore, most
social scientists have come to rely on the control group method, which involves
comparisons between a treatment group and an identical group (or as nearly
identical as possible) that did not receive the treatment. This method allows for
stronger estimations of program impacts and more robust conclusions of causality.
By contrast, the humanities tradition eschews statistical tools and proof of
impact. Rather, the humanities tradition seeks to interpret the processes involved and
to explore the range of plausible impacts, using mainly qualitative data. Although it is
considerably more