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Building Social Capital Through Microfinance

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  • Feigenberg, Benjamin
  • Field, Erica Marie
  • Pande, Rohini

Abstract

A number of development assistance programs promote community interaction as a means of building social capital. Yet, despite strong theoretical underpinnings, the role of repeat interactions in sustaining cooperation has proven difficult to identify empirically. We provide the first experimental evidence on the economic returns to social interaction in the context of microfinance. Random variation in the frequency of mandatory meetings across first-time borrower groups generates exogenous and persistent changes in clients' social ties. We show that the resulting increases in social interaction among clients more than a year later are associated with improvements in informal risk-sharing and reductions in default. A second field experiment among a subset of clients provides direct evidence that more frequent interaction increases economic cooperation among clients. Our results indicate that group lending is successful in achieving low rates of default without collateral not only because it harnesses existing social capital, as has been emphasized in the literature, but also because it builds new social capital among participants.

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Bibliographic Info

Paper provided by Harvard Kennedy School of Government in its series Scholarly Articles with number 4449105.

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Date of creation: 2010
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Publication status: Published in HKS Faculty Research Working Paper Series
Handle: RePEc:hrv:hksfac:4449105

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Cited by:
  1. Tsai, Alexander C. & Bangsberg, David R. & Emenyonu, Nneka & Senkungu, Jude K. & Martin, Jeffrey N. & Weiser, Sheri D., 2011. "The social context of food insecurity among persons living with HIV/AIDS in rural Uganda," Social Science & Medicine, Elsevier, Elsevier, vol. 73(12), pages 1717-1724.
  2. Augsburg, Britta & de Haas, Ralph & Harmgart, Heike & Meghir, Costas, 2014. "Microfinance at the margin: Experimental evidence from Bosnia and Herzegovina," Discussion Papers, Research Unit: Economics of Change SP II 2014-304, Social Science Research Center Berlin (WZB).
  3. Deininger, Klaus & Liu, Yanyan, 2013. "Economic and Social Impacts of an Innovative Self-Help Group Model in India," World Development, Elsevier, Elsevier, vol. 43(C), pages 149-163.
  4. Dezső, Linda & Loewenstein, George, 2012. "Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(5), pages 996-1011.
  5. Vollan, Björn, 2012. "Pitfalls of Externally Initiated Collective Action: A Case Study from South Africa," World Development, Elsevier, Elsevier, vol. 40(4), pages 758-770.
  6. Fenella Carpena & Shawn Cole & Jeremy Shapiro & Bilal Zia, 2013. "Liability Structure in Small-Scale Finance: Evidence from a Natural Experiment," World Bank Economic Review, World Bank Group, World Bank Group, vol. 27(3), pages 437-469.
  7. Britta Augsburg & Ralph De Haas & Heike Harmgart & Costas Meghir, 2012. "The Impacts of Microcredit: Evidence from Bosnia and Herzegovina," NBER Working Papers 18538, National Bureau of Economic Research, Inc.
  8. Hill, Ruth Vargas & Maruyama, Eduardo & Viceisza, Angelino, 2010. "Breaking the norm: An empirical investigation into the unraveling of good behavior," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 948, International Food Policy Research Institute (IFPRI).
  9. Dufhues, Thomas & Buchenrieder, Gertrud & Quoc, Hoang Dinh & Munkung, Nuchanata, 2011. "Social capital and loan repayment performance in Southeast Asia," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 40(5), pages 679-691.
  10. Pericoli, Filippo M. & Pierucci, Eleonora & Ventura, Luigi, 2012. "The impact of social capital on consumption insurance and income volatility in U.K.: evidence from british household panel survey," MPRA Paper 44214, University Library of Munich, Germany.
  11. Britta Augsburg & Ralph De Haas & Heike Harmgart & Costas Meghir, 2012. "Microfinance at the Microfinance at the margin: experimental evidence from Bosnia and Herzegovina vidence from Bosnia and Herzegovina," Working Papers, European Bank for Reconstruction and Development, Office of the Chief Economist 146, European Bank for Reconstruction and Development, Office of the Chief Economist.
  12. Dercon, Stefan & Hill, Ruth Vargas & Clarke, Daniel & Outes-Leon, Ingo & Seyoum Taffesse, Alemayehu, 2014. "Offering rainfall insurance to informal insurance groups: Evidence from a field experiment in Ethiopia," Journal of Development Economics, Elsevier, Elsevier, vol. 106(C), pages 132-143.
  13. Jun Goto, 2013. "The Impacts of Self-Help Group Programs: Experimental and Survey Evidence from South India," Economics Bulletin, AccessEcon, vol. 33(4), pages 2874-2889.

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