Microcredit-Microsavings Interlinkage:An Explanation

Group-centric lending has now been recognised as a well known instrument to provide access to formal credit to the poor section across the globe. A series of theoretical studies have tried to explain how the joint liability aspect of group lending mitigates the problems of asymmetric information and thereby expand access to affordable formal credit for the poor. However, study relating to the role of other features of the group-centric lending like direct monitoring by the lender, recurrent savings, peer monitoring, peer selection on over all welfare are less common in literature. With the framework of SHG-PACCS linkage model in India this study analyse how recurrent savings and peer monitoring ensure the access to formal credit for the poor and thereby improve social welfare. This study has also shown that intensity of borrowing in this model excessively depend on cumulative savings of the particular borrower.