Microenterprise and social capital: a framework for theory, research, and policy.

Publication: The Journal of Socio-Economics

Publication Date: 01-MAR-01

Bookmark this article Print this article Link to this article Email this article Digg It! Add to del.icio.us RSS

COPYRIGHT 2001 JAI Press, Inc.

1. Introduction

One of the most intriguing aspects of recent welfare reform debates has been the explosion of interest in--and bipartisan endorsement of-microenterprise programs as both an effective and efficient approach to reducing poverty. In the wake of successful efforts to transplant to the United States the experiences of large, high-profile organizations in South Asia and Latin America, 'helping the poor to help themselves' through the extension of credit to underwrite small business ventures has moved from popular slogan to concrete poverty alleviation strategy. The Microcredit Summit has helped focus and publicize these efforts, while setting ambitious global targets for the coming years.

A key feature of microenterprise programs is their use of social relationships as an alternative source of collateral. The poor are typically denied loans from standard commercial sources because they lack adequate surety, and because the size of the loans they require have such high relative costs. From a banker's perspective, in short, lending to the poor is a high-risk venture. One way in which microenterprise programs endeavor to circumvent these problems is by lending not to individuals, but to groups, thereby dispersing risks and lowering costs by devolving to borrowers' social relationships--or "social capital"--tasks that are ordinarily performed by material or monetary assets. The social capital of the poor thus acts as a substitute for what they lack by way of physical or financial capital.

This approach to providing financial services in poor communities has a rich history in the economic anthropology literature, which has long been fascinated by rotating savings and credit associations (RoSCAs), tontines, ethnic savings clubs, etc. Indeed, much of the early empirical validation of the concept of social capital drew on this literature, citing indigenous credit delivery mechanisms in particular communities as proof positive of its existence and importance. Microenterprise programs add an additional dimension to these cases, however, because while they draw on similar social mechanisms among borrowers, these mechanisms have not emerged "spontaneously." Rather, they have been initiated and coordinated by "outsiders," namely the staff of professional development agencies or NGOs. Moreover, as sociologists have long been aware, diffuse personal ties are not only to be found in informally organized communities or neighborhoods; they are also critical to the construction and performance of formal organizations. Microenterprise programs are thus an enormously fruitful arena for the study of social capital, precisely because they provide a common setting in which to...

Read the full article for free courtesy of your local library.