Closing the Gap: The Link between Social Capital and Microfinance Services
This paper aims to assess the impact of social capital on the performance of solidarity funds in Mexico. It states that social capital has strengthened the solidarity funds when legal mechanisms for monitoring and assistance are not present.
In microfinance, social capital works by solidarity bonds that operate through peer pressure and peer monitoring. Social capital in solidarity funds is expressed by the participation, trust and responsibility of members. The paper measures social capital through an indicator that inversely relates it with inequality. Study results demonstrate that:
- Services provided by solidarity funds depend positively on the amount of resources available to offer loans and existing social capital;
- Number of savings transactions made depends positively on equity and social capital;
- Fund performance depends positively on amount of loans allocated per member and existing social capital;
- Greater investment in social capital allows higher loan recoveries.
Performance and productivity of a microfinance program can be expanded or limited by its social capital. The paper recommends actions to build, maintain and increase social capital through social programs that encourage participation in cooperative and synergistic activities.
