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Does Solidarity Pay? The Case of the Small Enterprise Foundation, South Africa

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  • Jens Reinke

Abstract

This article argues that the costs of lending through solidarity groups are high. This is explained by the nature of groups: groups are not a forum for contractual exchange, but are costly institutions built on social capital. The costs of group formation and interaction outweigh the benefits of high repayment rates associated with group control. Supposedly sustainable group‐lenders often depend on large injections of subsidized loans or capital from donors. This is usually ignored in mainstream literature which does not pay sufficient attention to the operational costs of credit extension. The argument is illustrated with a study of the Small Enterprise Foundation, South Africa, which shows a contradiction between staff‐intensive, personalized lending technology and sufficient cost‐recovery.

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  • Jens Reinke, 1998. "Does Solidarity Pay? The Case of the Small Enterprise Foundation, South Africa," Development and Change, International Institute of Social Studies, vol. 29(3), pages 553-576, July.
    • Handle: RePEc:bla:devchg:v:29:y:1998:i:3:p:553-576
    DOI: 10.1111/1467-7660.00089
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    Cited by:

    1. Marek HUDON & Tchakodo OURO‐KOURA, 2008. "Etude Des Facteurs Contingents Du Taux De Remboursement Au Sein D'Une Institution De, Microfinance: Le Cas Du Togo," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 79(2), pages 301-322, June.
    2. Jones, Gareth A. & Dallimore, Anthea, 2009. "Wither participatory banking?: experiences with village banks in South Africa," LSE Research Online Documents on Economics 23354, London School of Economics and Political Science, LSE Library.

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