In the rural areas of Amhara, rice farmers live a hand-to-mouth existence. Having enough money to afford inputs for farming, school and household expenditures, particularly before harvest time is a significant challenge. Farmers are often forced to sell rice during harvest season when prices are low, which endangers their livelihood and hinders their income potential. As farmers are without savings habits, any surplus income earned following harvest is squandered at the local Saturday market on drinks. This was the previous experience of thirteen rice farmers who, with the assistance of Mennonite Economic Development Associates (MEDA), formed a group known as Addis Alem Village Savings and Loan Association (VSLA).
In 2011, Gizaw (pictured left), a rice farmer, received MEDA's training on the benefits of saving and how to form a VSLA within his community. The training covered topics on saving, credit, managing risk, and resolving conflict. MEDA also provided Gizaw with the necessary materials to start saving, which included: a savings box with two locks, thirteen passbooks, four plastic plates, and a bookkeeping ledger.
Addis Alem VSLA
Gizaw recognized the vulnerability of his livelihood and the serious lack of saving in his community and as a result, established the Addis Alem VSLA. In Amharic, Addis Alem means "new world," or "appreciating what new thing you have," which reflects the farmer's change in mindset towards saving. Gizaw led the formation of the group and trained the thirteen members on VSLA methodology. The VSLA collectively agreed to each save three birr and one birr weekly for the regular savings and social fund respectively. Regular savings is used towards small loans to members and investment, while the social fund is used for emergency purposes. After one year of weekly saving, Addis Alem accumulated 2000 Birr inregular savings and 547 Birr in the social fund.
The group (pictured above) decided to invest 2000 Birr from their accumulated savings into two plots of land. They planted rice and expect the harvest to generate 15,000 Birr in earnings, including next year's collected savings. Addis Alem plans to store the rice for up to six months and sell the crop when the price of rice is high. Farmers have the confidence to store their rice because the risk is shared between members and the business is an additional stream of income. Previously, members never stored rice because they required cash for monthly expenses. Addis Alem's investment overcomes the frequent need for cash by using regular group savings to support costs. In addition, members have realized other benefits from group saving including a reduction in community disputes, improvement in social life, and renewed interest in microfinance institutions.
"We care for each other. If a member gives birth or is sick, we will use money from the social fund" – Addisie, VSLA Secretary
"We benefited remarkably from VSLA. We understand that our livelihood is dependent on agriculture and there are risks associated with nature such as hail and flood. In such cases, we can take out our savings and use it for household consumption. Without VSLA, there would be no way for us to pay for our living expenses" – Alamrew, VSLA Member (pictured left)
Building Resilient Livelihoods
The most enduring impact of Addis Alem is how it has changed members' perception of saving. Before VSLA, members never saved but now each member understands the importance and necessity of saving. They have experienced how saving positively impacts their farm, family and future. Consequently, the group plans to continue saving and investing in the coming years:
"In the future, we hope to increase our rice production and own milling equipment so that when our children grow up, they will have something to develop our business with. Our children will see how we saved and they will learn from our experiences and be able to expand our business further"
Sustainable and Replicable Impact
Addis Alem demonstrates how Ethiopian farmers can build group trust and combine resources to save and invest productively. Since Addis Alem is self-managed, it will continue to save and invest in the years to come, functioning independent of MEDA. Moreover, MEDA has replicated the VSLA model by forming fifty VSLAs in one year. The rapid establishment of VSLAs can be attributed to MEDA's simple, non-bureaucratic and low cost approach to forming savings groups. MEDA's involvement ends after one year, and 98% of VSLAs have agreed to continue saving autonomously, ensuring sustainable impact. Through MEDA's intervention, VSLAs can form quickly, establish trust, build savings habits, and ultimately strengthen income potential and develop resilient livelihoods.