Community Lending with Outside Capital

We provide temporary funding to community savings groups in rural Ugandan villages. These savings groups operate on an annual cycle where all members make small weekly contributes, take out loans from the accumulated savings, and distribute the value of the pool of funds at the end of the cycle. When a new cycle begins there with no funds it takes several months before the accumulated savings of group members is sufficient to meet loan demand. We treat a random subset of groups by providing a significant amount of funding (equal to approximately 25% of average annual group savings) at the beginning of group cycles. Unlike traditional debt financing, our repayment schedule and amount is the same as other group members. That is, the funding is repaid at the end of the cycle. The return on the funding is the same as that of the group members, which is lower if members default on group loans or higher if many loans are made at the group's established interest rate. Identification of the effects of outside financing comes by comparison to the untreated groups. We study two sets of outcomes. First, we evaluate how the outside financing affects within-group lending dynamics, such as the volume of loans within the groups, default rates, and saving rates. We observe these outcomes directly by digitizing the record books of the groups. Second, we evaluate how households are affected by this change in the availability of lending using household-level surveys of group members. We focus on consumption, investment and entrepreneurship.