Evidence from research undertaken in urban and rural communities of Peru, as presented in this paper, shows that group-based microfinance schemes are often unable to harness local information, and hence resort to inflicting increasingly severe
sanctions in order to achieve high repayment rates. These practices, in turn, appear to severely damage group cohesiveness and hit the poorest and most vulnerable the hardest, creating more poverty and undermining the very foundations of these
microfinance schemes.