Building Social Capital Through Microfinance

Benjamin Feigenberg, Erica M. Field and Rohini Pande

No 209, CID Working Papers from Center for International Development at Harvard University

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.

Keywords: Social Capital; Microfinance (search for similar items in EconPapers)
JEL-codes: C81 C93 O12 O16 (search for similar items in EconPapers)
Date: 2010-10
References: Add references at CitEc
Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Building Social Capital through Microfinance (2010)
Working Paper: Building Social Capital Through Microfinance (2010)
Working Paper: Building Social Capital Through MicroFinance (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cid:wpfacu:209

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