Types of Microfinance services offered by VSSU
VSSU is known for its small savings-based credit services. This means that VSSU is not primarily a lending facility, but an organization that aims to create a savings habit with its clients, in order to strengthen their financial position and help them avoid future instability and vulnerability. Of course, VSSU also offers loans to its clients, but the risk incurred by VSSU is quite low because of the savings balances it also holds. Clients are less likely to default on their loans because they understand that they also have savings invested in VSSU, which they would forfeit if they defaulted on their loan.
VSSU offers several savings plans for its customers. The first is also the most popular: the Daily deposit scheme. In this plan, a VSSU staff member visits the client’s home or place of business every day to collect their savings deposit. The minimum deposit under the daily plan is 10 rupees, but the amount can also be much greater. This plan is particularly popular because it allows the clients to commit to saving a relatively small amount of their income every day, which makes it easier to save consistently than if they were required to save a larger sum at the end of a week or month. The daily deposit scheme is also ideal for those clients who are particularly low income because often the amount they have to save does not even qualify them for an account with a formal banking institution. Additionally, having a VSSU staff member come to collect the savings deposit prevents the client from having to sacrifice valuable income earning hours during the day to go to the bank to make their deposit.
VSSU also offers a weekly savings plan. This plan functions virtually identically to the daily deposit plan, except each client only deposits once per week. This plan is most common among VSSU’s women’s groups, as they meet once per week.
Recurring deposits, or RD, are also a type of savings service available through VSSU. RD is a monthly savings agreement, and because of the relative infrequency of the deposits, each monthly installment tends to be of a slightly higher amount.
Finally, VSSU offers a One Time deposit plan. Under this savings scheme, the client deposits one large lump sum of money and selects a duration until the savings will reach maturity. This maturity period can range between six months and six years, and interest ranges from 6% to 12%, where the higher interest corresponds with a longer maturity period. The interest on the fixed deposit plan compounds quarterly, which means by the end of a six-year maturity deposit, the initial deposit has doubled.
Although not strictly a savings plan, VSSU also created the Monthly Income Scheme, or MIS. MIS is specifically designed for individuals who are no longer of working age that have a large sum of money to deposit with VSSU. From the large deposit, VSSU pays interest to the client on a monthly basis, which can then be used by the client to pay for routine expenses. This scheme therefore allows individuals who are retired to generate at least some income from their financial assets, while also providing a safe place to keep the substantial assets.
VSSU offers only two types of loans: individual or group. Group loans are offered only for the women who are members of a VSSU women’s group. These groups are formed by the women themselves, and by doing so, they eliminate the need for collateral. The women who form groups often know each other ahead of time, and they will certainly be from the same village or town. The women apply collectively for a loan, which they then split amongst the members and use as they see fit. A group loan has a repayment period of 46 weeks. Each week, the group meets with a member of their local VSSU branch staff, typically at the home of the group leader or another member, so the VSSU staff member can collect the loan repayment. In addition to collecting the payment, the VSSU branch officer can collect any savings deposits the women wish to make and talk with them about their businesses, challenges, and any comments they have about VSSU’s service.
Individual loans operate in a simpler manner. A VSSU client typically has to hold a savings account with VSSU and hold at least 10% of their desired loan amount in savings as a security deposit. This practices decreases the risk of default for VSSU, because the client understands that if they default on their loan, they will sacrifice their savings balance. Interest charged on individual loan also varies based on the client’s history of repayment and savings, where good and consistent clients may be rewarded with lower interest rates. Loanees are visited either daily or weekly by VSSU staff to collect payments on their loans.
To put it succinctly, money is strength. Having financial resources means more than allowing people, particularly poor people, to purchase necessities such as food, clothing, shelter, and provide education for their children. Having financial resources means being able to engage in a business or job that continues to provide such resources. Having financial resources means being able to increase your household stability and being able to cope with unforeseen circumstances or shocks.
For people that do not already have these financial resources, microfinance provides an avenue to obtain them. By starting slowly and using their own resources to begin saving, people then become eligible for loans and have their own reserves to draw on in times of need. This increased financial agency gives people more economic strength, but also more personal strength as they see their individual abilities heightened through their own efforts.
It is for these reasons that VSSU works in the microfinance sector within South 24 Parganas. In underserved and underbanked sections of the population, microfinance services, which are relatively simple, can promote dramatic improvements in quality of life and personal agency.