The study aims to assess the impact of financial intermediation and availability of loanable funds on the level of agricultural investment and welfare of farmers in the eastern, northern and western provinces of Zambia.
The Rural Finance Expansion Programme (RUFEP) in Zambia aims at improving the livelihoods of the rural poor through sustainable economic growth. RUFEP has set up Village Savings And Loan Associations (VSLAs) to foster rural financial intermediation. VSLAs are democratic, member driven selfhelp groups in which members pool savings and give loans to other members at reasonable rates of interest.
The study evaluates the relative effectiveness of the approaches of linking VSLAs with formal financial institutions. It can offer useful evidence to inform decision making of key actors responsible for the creation of new VSLAs under RUFEP, and if found successful, can be replicated in other contexts.
• Can the VSLAs’ capacity for the intermediation of loanable funds be increased? Will this result in more intermediation of loanable funds?
• Can the VSLAs’ capacity for the intermediation of risks be increased? Will this result in more risk intermediation?
• Can VSLAs stimulate agricultural investment and increase the incomes and consumption levels of VSLA members?
The study evaluates the relative effectiveness of two approaches of linking VSLAs with formal financial institutions. Firstly, it evaluates the linkage of VSLAs to a subordinate financial institution (“centrals”). In the context of Zambia, centrals accept deposits from and make loans to member VSLAs, permitting each VSLA to be a netlender or netdebtor. Secondly, it evaluates the linkage of VSLAs to formal insurance providers in a twostep procedure: the social fund possessed by each VSLA is upgraded with a set of recommendations concerning insurance (selfinsurance at the VSLA level). Then, it is proposed to link the social fund to a formal insurance provider in a second phase (coinsurance between VSLA and formal insurance provider).
Theory of change
It is expected that better availability of funds at the VSLA level will result in more intermediation of loanable funds and risks. This will lead to a higher agricultural investment among VSLA members, reduced vulnerability to economic losses and increased income from agriculture, which in turn would trigger increased household consumption, and overall well-being and welfare.
The study is a randomised controlled trial (RCT) with VSLAs being assigned to one of the four treatment arms: (a) Offer to link VSLAs to a Central, (b) Set of recommendations for VSLA selfinsurance only, (c) Set of recommendations for VSLA selfinsurance and offer to link to a formal insurance provider, and (d) Offer to link to formal insurance provider only.
The randomisation will be based on a matching procedure, where baseline data is used to randomly assign VSLAs as similar as possible into the different treatment groups and the control group. The sample size includes 1000 villages in the eastern, western and northern provinces of Zambia. A sample of five members per VSLA is required, i.e. 5000 households in total. The qualitative data will be drawn from in-depth interviews and focus groups discussions of VSLA members, both new and old (those who have been a part of VSLAs for a long time), and non-members. The study will also explore the heterogeneity of treatments by gender, age group and poverty levels.