Since the late 1990s the savings groups have been introduced in the villages of Laos.
This movement has offered new borrowing opportunities for the rural people. Based
on household survey using a structured questionnaire in four study villages (N=684)
in Vientiane Municipality during 2007–08 we analyzed the role and performance of
the savings group in rural financial markets, especially focusing on who borrows,
from which sources, and for what purposes by comparing the savings group with
informal and formal lenders. Two major findings are as follows. First, three types
of lenders (savings groups, formal and informal lenders) have their own particular
features, and thereby loan purposes differ significantly. Formal banks offer loans
exclusively for production purposes, while informal lenders do for coping with emergencies.
Savings groups fall between them. Second, though poor households are
reluctant to be a savings group member, once they participate in they actively obtain
loans from it. In contrast, though rich households actively participate in the group,
they obtain loans less from it. Group members claim that the primary purpose of
joining the savings group is to cope with emergencies. When the members obtain
loans from the savings group, however, nearly 40% of the loans are used for production
purposes, mainly in agriculture. There exists a change between saving purposes
and borrowing ones. It is assumed that in villages with the higher loan credit
for production purposes, the savings groups show favorable performance, and thus
a rapid growth.