VICOBA
In this article, Louise PIZON (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2022) explains the concept of Village Community Bank (VICOBA) which is a type of micro funding used in non-governmental organizations (NGOs).
Village Community Bank (VICOBA)
Village Community Bank (VICOBA) is a savings and loan fund for members who have joined together and formed a group for economic improvement purposes. The system started in Tanzania twenty years ago and has shown great success for its members in being able to lend to each other, helping each other to solve various problems as well set up joint economic projects.
What is micro funding? It is the funding of projects that are too small to gain support from mainstream venture capital firms. Through micro funding, such projects can be linked to a group of investors willing to take a chance on the project. Micro funding allows entrepreneur to network with investors and managers to grow your business to the next level.
Purpose of VICOBA group and activities
A VICOBA group is a group of people who have agreed to gather their strengths and resources together to eradicate poverty and bring development in their household. Group members will participate to all group activities as weekly meetings and general meetings, elect a steering committee and establish group rules to guide them.
It is better for groups to meet weekly to increase intimacy and help the loan’ fund to grow faster. Previous experiences have shown that the growth of a group that meet weekly is faster from the growth of a group that meet once a month. Weekly meeting helps people to repay their loans on time and keep the cash flow within the group stable.
All VICOBA group activities are run by the group members themselves through volunteerism. By experience, group members can effectively carry out their activities after receiving leadership training and management teamwork from VICOBA experts, which are AJISO members.
AJISO is a legal aid provision organization in Tanzania who help women to empowered themselves economically, in pushing them to be part of a VICOBA group and giving them some entrepreneurship trainings to allows them to be engage in economic activities and improve their livelihood.
Steps to create a VICOBA group
A VICOBA group is created following the steps:
- Persons with the idea of starting a group to meet (not less than fifteen and not more than thirty)
- Members collect admission fees usually 10,000 TZS per member. The money is used to buy equipment such as ledgers, passbooks, etc.; Admission fees are also used for group registration costs.
- Members start the training supervised by an AJISO trainer.
- Members formulate a constitution and rules that will include the level of shares, the social fund, and the date of the meeting.
Details rules of VICOBA
VICOBA groups are made up of 15 to 30 members who are self-selected. These groups come from small groups of five people whose members select and assemble themselves. Members begin to buy shares in the group and after a delay of twelve weeks the share fund begins to be lent to its members.
Membership of VICOBA groups is open to women and men and at least two of the five members of the steering committee must be women. A person who is heavily indebted to other such groups will not be allowed to join the scheme until he has paid off his debts. Religious and government leaders will be allowed to join the program but will not be allowed to lead the group, these leaders are not allowed to be leaders due to their positions and responsibilities they have in society, instead they will be group advisors.
VICOBA groups elect their leaders who are a chairperson, a secretary, a treasurer and two accountants. The members of the steering committee are elected annually and may be removed at any time if 2/3 of the members of the general assembly decide so. VICOBA groups formulate their own rules of governance, and these groups are self-reliant. Each group has its own rules, and these rules give authority to the group leadership to show direction for the conduct of group activities as well as the resolution of group conflicts.
Each participant needs to know all the group rules and to follow them accordingly. VICOBA groups met in a specific order: group members determine the best time to meet. This system emphasizes the group meeting weekly but may consider meeting monthly but will depend on the activities carried out by the members themselves. The group will agree on the date of the meeting, the time of the meeting and the place of meeting. However, the group is important to consider what this program suggests to going further strengthen collaboration and communication to be closer among members. Meeting weekly will allow some members who want to take out loans to make it easier and those who want to take out emergency loans as well.
Fundraising process
The fundraising process involves banking transactions and group deposits using a share system. Shares are funds that are injected by a group member into the group for the purpose of making profit and becoming the owner of the group. Group members contribute financially each week in buying one to five shares. The value of one share will be based on the agreement of the members of the group and it is recommended that the rate take into account the economic potential of its members.
This system requires that each group members buy shares in loudly stating the number of shares that they are buying and the amount of social fund they are investing. The member will submit the money to the accountants and the book is handed over to the treasurer for replenishing the shares and social fund in which the member has invested.
Procedures for repaying loans
Loans given to VICOBA members should be repaid with a small interest which is used to fund the group. This supplement is distributed as a benefit to members based on the number of shares, they have each deposited. Initial loans that are usually smaller than subsequent loans are required to be repaid for a period of 3 to 6 months.
Benefits
VICOBA loans are small loans granted to the poor and low-income households for their microenterprises and small businesses to enable them to raise their income levels and improve their living standards.
This micro lending model has ensured women to be empowered and independent enough through loans taken from VICOBA, using this loan to develop their economic activities. This system promotes the integration of the poor into the process of economic growth, people who do not have access to the formal labor market can often benefit from pooling resources and working in these groups. VICOBA has cultivated the culture of saving, now members have some money to curter their daily expenses and savings. Most of them have changed from poor life to a better life.
Example of success story
Mary CHARLES (37 years old) lives in Usseri division tell her story :
“I am able to provide to my family all the necessities they need, including food, clothing, and medical treatment. I can educate my two children, one is in seventh grade and the other one in third grade, thanks to my dress hair salon business. I obtained the capital to start my business after joining a VICOBA group. I was able to borrow six hundred thousand shillings (600,000 TZS) and so far, I have been able to repay four and half thousand shillings (450,000 TZS) through the profit I get from my business. I aimed to have another salon in the Tara kea Division at the marketplace. Corona’s disease has pushed me back because the business was so volatile, customers were afraid of getting an infection.”
Mary Charles in her shop
Source: Mary Charles
Why should I be interested in this post?
If you are interesting to work for a NGO or helping low income people to going out of the poverty through micro funding this post is for you. In this post, I explain the principle of micro funding named VICOBA using by the association AJISO headquarter in Tanzania to help the population to live in better conditions and more particularly empowered women.
This system can be used in all countries, it only needs a good and devoted team to train future members to be autonomous and teach them some basic business knowledges.
Useful resources
Related posts on the SimTrade blog
▶ All posts about professional experiences
▶ Louise PIZON My professional experience as a business developer at AJISO
About the author
The article was written in August 2022 by Louise PIZON (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2022).