Banker my neighbour: matching and financial intermediation in savings groups

Efforts to promote financial inclusion have tended to focus on microcredit and microsavings separately, but not on the possibility of promoting financial intermediation across poor borrowers and savers. "Self-Help Groups" such as Village Savings and Loan Associations (VSLAs) have the features of both a borrowing and a commitment savings technology, potentially enabling savers and borrowers to serve one another's needs. On the other hand, such intermediation may be impeded by limited liability and imperfect information. To test for evidence of intermediation, we use a large-scale survey of mature VSLA groups in rural Malawi to analyse how members sort across groups. We find that present-biased members tend to group with time-consistent members, suggesting that commitment savers may be gaining a commitment savings technology by lending to time-consistent borrowers. In contrast, members of the same occupation sort into groups together, indicating unrealized intermediation possibilities between farming and non-farming households. This has implications for the design of such groups, in terms of efficiency and risk mitigation.