Building Social Capital Through Microfinance

By Ben Feigenberg, Erica M. Field, Rohini Pande. 2010

180 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Safety Research

View Paper: https://www.semanticscholar.org/paper/fdf31c849eda95ba6811707f4c95b385a514f2a5

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Susan Schwarz
2. S. Lee
3. Abhijit Banerjee
4. R. Gaiha
5. Petra Persson
6. K. Imai
7. Dan Borgia
8. Alexander Newman

In Economics and Econometrics

1. Susan Schwarz
2. S. Lee
3. G. Thapa
4. Abhijit Banerjee
5. R. Gaiha
6. Petra Persson
7. K. Imai
8. S. Annim

In Safety Research

1. G. Thapa
2. R. Gaiha
3. K. Imai
4. Susan Schwarz
5. Abhijit Banerjee
6. S. Annim
7. Dan Borgia
8. Alexander Newman

Citations in the corpus

• Diffusion, Strategic Interaction, and Social Structure (2011, unknown): “…field experiments, such as those by Duflo and Saez (2003), Karlan, Mobius, Rosenblat, and Szeidl (2009), Dupas (2010), Beaman and Magruder (2010), and Feigenberg, Field, and Pande (2010), also provide some control over the process, while working with real-world network structures to examine…”
• How does microfinance enhance entrepreneurial outcomes in emerging economies? The mediating mechanisms of psychological and social capital (2014, methodology): “Using data from microfinance clients in Peru, Feigenburg et al. (2010) demonstrated the positive impact of group-based lending on the social capital of clients.”
• Offering Rainfall Insurance to Informal Insurance Groups: Evidence from a Field Experiment in Ethiopia (2012, unknown): “We note that much of the success of micro-credit has been attributed to group lending, not just because of joint liability, but because it reduces transactions costs and allows co-insurance (Feigenberg et al., 2010).”
• Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups (2009, unknown): “Work along these lines includes Abbink et al (2006), Cassar et al (2007), Fischer (2010), and Giné et al (2010)).”
• Striving for balance in economics : towards a theory of the social determination of behavior (2016, unknown): “Fiske et al. (1998). 8 The sociologist Alfred Schutz (2013[1953], p.”
• Financing from Family and Friends (2016, result): “Complementing this finding, Feigenberg et al. (2010) document that group lending can improve social relations among group members, notwithstanding—we presume—that joint-liability defaults could still harm these relations.”
• Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups (2014, unknown): “The group meetings have also been shown to be beneficial in theory (Rai and Sjostrom, 2010) and in practice (Feigenberg et al., 2010).”
• Microcredit Under the Microscope: What Have We Learned in the Past Two Decades, and What Do We Need to Know? (2013, background): “The evidence of better insurance that Feigenberg et al. (2010) find could, in principle, result from better information, but that they find better insurance also in laboratory games supports a preference interpretation.”
• Microfinance and Poverty—A Macro Perspective (2012, background): “Feigenberg et al. (2010) offers the first experimental evidence on the economic returns to social interaction in the context of microfinance.”