Building Social Capital Through Microfinance

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Building Social Capital Through Microfinance

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Title: Building Social Capital Through Microfinance
Author: Feigenberg, Benjamin; Field, Erica Marie; Pande, Rohini

Note: Order does not necessarily reflect citation order of authors.

Citation: Feigenberg, Benjamin, Erica M. Field, and Rohini Pande. 2010. Building Social Capital Through Microfinance. HKS Faculty Research Working Paper Series, RWP10-019, John F. Kennedy School of Government, Harvard University.
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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.
Published Version: http://web.hks.harvard.edu/publications/workingpapers/citation.aspx?PubId=7321
Other Sources: http://www.nber.org/papers/w16018
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:4449105
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