Research Insights: Can Savings Groups Foster Access to Formal Financial Services?
Savings groups provide access to financial services to households who are underserved by formal financial institutions and microfinance lenders. Access to this model in rural Peru reduced vulnerability to idiosyncratic shocks and led to greater investments in housing quality and specialization in agricultural activities, especially in poorer villages. Savings groups reduced access to formal loans and increased reliance on microfinance loans, which goes against the graduation hypothesis. The negative effect on access to formal loans is driven by villages with higher poverty levels and lower pre-treatment access to formal credit.