Vol 9, No 2 (2021)

Village Savings and Lending Associations: A Roadmap for Small-scale Entrepreneurs Capital Formation in Kenya

Douglas Kiratu, Stephen Muathe


Globally, Savings and Lending institutions are critical institutions within economies that energize a culture of saving which is critical for capital formation. However, most of them operate and provide services in areas which are economically dynamic because investment opportunities are more diverse in such areas. However, Village Savings and Lending Associations in Kenya have come in handy in place of the more formal Savings and Lending institutions as facilitative platforms helping the poor unserved entrepreneurs to save and accumulate capital for small investments as well as consumption. The study investigated the effect of Village Savings and Lending Associations on capital formation among small-scale entrepreneurs in Kenya. Specifically, the study was investigating the role of group dynamics, unique aspects of the saving model, group legislation and duration of membership in these groups on capital accumulation for members in Kenya. Institutionalist theory of Capital Formation and the Game theory anchored the study. A descriptive research design was used while a sample size of 398 respondents was picked from a target population of 4,595 registered members using proportionate stratified and random sampling designs. A questionnaire was used to collect data which was analysed using multi-linear regression. The analysis was done using STATA. The results indicated that Group Dynamics, uniqueness aspect of the saving model, legislation, and duration of membership, had a positive effect on Village Saving and Lending Associations in influencing Capital Formation in Villages in Kenya. It was concluded that indeed VSLAs play an important role in enhancing Capital Formation among rural part of Kenya. Hence, there is need to strengthen the Capital Formation through relevant trainings and guided group management, the model and its unique aspects be promoted throughout the County so as to increase reach to as many small-scale entrepreneurs as possible. The groups should be properly legislated and educated on all legal procedures that are involved in running and management of groups. Finally, to enhance Capital Formation, small-scale entrepreneurs in Kenya must continually be encouraged to maintain membership in saving groups.

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Group dynamics, Membership, Village Savings and Lending Associations, Capital Formation, Savings, MFIs, Small-scale Entrepreneurs.

Publication information

Volume 9, Issue 2
Year of Publication: 2021
ISSN: 1857 - 8721
Publisher: EDNOTERA

How to cite

Kiratu D., Muathe S.: Village Savings and Lending Associations: A Roadmap for Small-scale Entrepreneurs Capital Formation in Kenya. Journal of Applied Economics and Business, Vol 9, No. 2, 5-21. (2021)