Abstract
Peru's microfinance market is dynamic and is comprised of a plethora of financial institutions that offer numerous microfinance services. With increasingly more institutions adding microfinance to their loan portfolio, and with no interest rate cap on microloans in Peru, what impact will this growing market have on the poor? In the past, microfinance institutions (MFIs) have had clients abuse the system, but increased transparency between microfinance institutions and new managing practices are now used to minimize adverse selection. Yet as the microfinance market expands with more large banks gaining control how are borrowers, particularly the most vulnerable, going to be impacted? This, paper evaluates the dynamics of how microfinance institutions have emerged and evolved throughout Latin America and then introduces an atypical model, the Uniones de Credito y Ahorro (UNICA). Six UNICA programs from rural villages outside Cayaltà are evaluated using both aggregate loan data that measures the frequency of loan use in the village, and surveys with open-ended response questions to bring in UNICA members' perspective. With the data collected this paper attempts to understand the diverse factors that make the UNICA approach different from the traditional Latin American model. And ultimately strives to discover whether the UNICA model provides distinctive benefits to the borrowers and the financial markets that are not provided by traditional Latin American MFI models.