Tuesday, November 16, 2010
PUBLICATION: Building Social Capital through Microfinance
A new paper by Feigenberg, Field and Pande:
Despite strong theoretical underpinnings, economic returns to social interaction have proven difficult to identify empirically. We exploit random variation in the meeting frequency of microfinance groups during their first loan cycle to show that more frequent meeting is associated with long-run increases in social contact and lower default. Relative to clients who met on a monthly basis during their first loan, those who met weekly were four times less likely to default on their subsequent loan. We provide experimental and survey evidence that the decline is driven by improvements in informal risk-sharing that result from greater social contact.
Full paper available here (pdf).