Can community-based microfinance groups match savers with borrowers? Evidence from rural Malawi
This paper examines how members sort across community-based microfinance groups, specifically Village Savings and Loan Associations in rural Malawi. Our central question is to ask whether such groups allow savers (especially commitment savers) to match with potential borrowers, thereby promoting financial intermediation. We analyse novel data in the form of a census of all 3,800 members of 150 VSLA groups. We first develop predictions on sorting in terms of individual members’ occupation and present bias, and then test these predictions in a dyadic regression framework. We find evidence that whilst there is positive assortative matching on occupation, suggesting unrealised intermediation possibilities; there is negative assortative matching on present bias, indicating that these groups do at least create a degree of financial intermediation between commitment savers and borrowers. The latter may be welfare-enhancing for both commitment savers and borrowers, given the low access to commitments savings technologies and to credit in these communities.
Cassidy, R.; Fafchamps, M. Can community-based microfinance groups match savers with borrowers? Evidence from rural Malawi. CSAE Economics Department, University of Oxford, Oxford, UK (2015) [CSAE Working Paper WPS/2015-13]