Can Community-based Microfinance Groups Match Savers with Borrowers? Evidence from Rural Malawi

Village Savings and Loan Associations and Self-Help Groups have the features of both a borrowing and a savings technology. They may therefore bring together savers and borrowers, increasing financial intermediation in villages with low access to formal banking. On the other hand, such intermediation may be impeded by limited liability, or by broader social frictions. To test for evidence of intermediation, we analyse how 3,800 members sort across 150 groups in rural Malawi. The results show that there is positive assortative matching on occupation, implying unrealised intermediation possibilities between farming and non-agricultural households. In contrast, there is negative assortative matching on a measure of present-bias. Such sorting suggests that commitment savers may be gaining a commitment technology by lending to time-consistent borrowers. This may be welfare-enhancing for both present-biased individuals and credit-constrained individuals.