Evaluating the Role of Peruvian Credit Unions: A Case Study of 8 Credit Unions

This report suggests that one of the most stylized facts of developing economies is that formal financial institutions leave the poorest population tightly constrained in their access to financial services. It is also widely recognized that economic progress relies largely on access to financial services such as savings, insurance, and credit. Where formal financial institutions fail the large majority of the poor population, there is evidence to support the proposition that credit unions can fill some of the gap.

The purpose of the report is to:

  1. Provide the Credit Unions with key marketing information regarding the members’ and non-members’ demographic, and economic characteristics, use of financial services and their perceptions of the credit unions as a financial institution.
  2. Highlight the differences between members’ and non-members profiles so as to guide the improving of services as well as implementation of new services.
  3. Identify Credit Union reach in terms of income distribution and poverty level.
  4. Provide a baseline dataset so that WOCCU can track the impact of the project over time in terms of savings behaviour, access to credit, membership levels, implementation of other services, the economic wellbeing of members, and the contribution of these credit unions towards poverty reduction in their region.

Section I presents a brief overview of Perú and the Credit Unions. A review of pertinent literature can be found in Section II. Section III follows with the survey design and implementation. The results of the survey can be found in Section IV. Finally, Section V concludes.

The survey’s main findings can be summarised as follows:

  • The survey results presented provides strong evidence that these credit unions play an important role in the provision of financial services to small business owners and salaried public or private employees.
  • The credit unions participation in the study provide strong evidence that they currently service low to low-middle income segments of the Peruvian population. All the credit unions in question need to expend outreach efforts to increase participation form the rural poor (below US$2 per day).
  • Credit unions also hold the dominant share of their members’ deposit accounts. In addition to mandatory shares accounts, most credit union members have additional savings accounts. In contrast only 20% of non-members respondents have savings accounts of any type.
  • In addition to promoting savings mobilization other factors are necessary to encourage broader non-member participation namely: Interest rates on deposits have to be more attractive relative to other formal financial institutions. And credit unions also have to improve their image as safe and secure institutions.
  • Most credit union members have some access to credit, however, a third of credit union member respondents were either partially or fully constrained in their access to credit. Furthermore, poorer members were more likely to face credit constraints. Only 46% of members participated in credit markets.
  • A great marketing effort needs to be in place to include the agricultural sector. The random sample of members selected for the survey reveals a very interesting pattern – only 8% of members cite agriculture as their primary occupation.

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