Building Social Capital Through Microfinance

51 Pages Posted: 4 Jun 2010 Last revised: 4 Jan 2014

See all articles by Benjamin Feigenberg

Benjamin Feigenberg

Massachusetts Institute of Technology (MIT) - Department of Economics

Erica Field

Duke University, Fuqua School of Business-Economics Group; Duke Innovation & Entrepreneurship Initiative

Rohini Pande

Yale University - Economic Growth Center

Multiple version iconThere are 2 versions of this paper

Date Written: May 2010

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.

Suggested Citation

Feigenberg, Benjamin and Field, Erica and Pande, Rohini, Building Social Capital Through Microfinance (May 2010). NBER Working Paper No. w16018, Available at SSRN: https://ssrn.com/abstract=1612612

Benjamin Feigenberg (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Erica Field

Duke University, Fuqua School of Business-Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States
(919) 660-1857 (Phone)

HOME PAGE: http://sites.duke.edu/ericafield/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Rohini Pande

Yale University - Economic Growth Center ( email )

Box 208269
New Haven, CT 06520-8269
United States

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