NGO, Social Capital and Microfinance: A Conceptual Model

Abstract

One of the major programs advocated by NGOs worldwide and, more specifically, in South Asia is 'credit' provision along with their other social agendas. NGOs providing such credit have become known as microfinance institutions or MFIs. By advocating and implementing microfinance programs, MFIs aim to assist and enable their members to have an improved quality of life. Theoretically, these successes rely heavily on the conception that MFI members or borrowers can make use of their social capital to overcome many of the problems associated with asymmetric information in credit markets, such as adverse selection, moral hazard, collateral and contract enforcement, etc. Together these concepts constitute the notion of 'wellbeing' and are made up of human development, physical assets, social capital and increased income. On the other hand, Bourdieu’s (Bourdieu 1986b) definition of social capital as 'economic, cultural and social' forms of capital which can be converted into money or may be institutionalized into a form of a qualification, or as a form of 'social obligation' that can be institutionalized as a form of a 'title of nobility'. Bourdieu put forward the argument that economic capital is the 'bottom line' whereas social and cultural capital is instrumental to improving one’s economic standing or economic capital in capitalist societies. The social effect of microfinance can lead to higher social status, and also help in the formation of social capital in society. Thus, microfinance programs around the world have a strong pivotal role in harnessing social capital for its successful programs as well as complementing the formation or further strengthening of social capital in a social or community setting. This paper discusses aspects of non-government organizations (NGOs), given their importance to the microfinance sector. It includes their typology, early development and the theoretical underpinnings of their growth, followed by a review of the more controversial schools of thought around the emergence of NGOs. Then a discussion on social capital provides a theoretical link with NGOs, in this case, to the context of Microfinance Institutions. The paper presents and concludes with a conceptual model that shows how the intervention of microfinance can impact positively on several elements of social capital and improve the socio-economic situation and vice versa.

Keywords: Microfinance, contract enforcement, social obligation, social capital