This paper examines whether recently introduced “village funds,” one of the largest microfinance programs ever implemented, improve access to finance. Village funds are analyzed in a cross-sectional approach in comparison to competing financial institutions. We find, first, that they reach the target group of lower income households better than formal financial institutions. Second, village funds provide loans to those kinds of borrowers who tend to be customers of informal financial institutions. Third, village funds help to reduce credit constraints. Thus, village funds provide services in the intended direction, albeit to a seemingly limited degree.
- credit constraint
- informal financial institutions