THE ECONOMIC RETURNS TO SOCIAL INTERACTION: EXPERIMENTAL EVIDENCE FROM MICROFINANCE

THE ECONOMIC RETURNS TO SOCIAL INTERACTION: EXPERIMENTAL EVIDENCE FROM MICROFINANCE
2011-Benjamin Feigenberg, Erica Field & Rohini Pande
Lead Center : Centre for Microfinance (CMF)
Focus Area :Credit

We exploit experimental variation in the frequency of repayment meetings across first time micro-finance borrower groups to show that more frequent interaction among group members builds social capital and improves their financial outcomes. We measure social capital using a lottery which we designed to elicit social preferences in a field setting. Lottery participants who belonged to groups which met more frequently exhibited greater cooperation when offered the choice of adding other group members to the lottery. We provide evidence that this reflects higher expectations of reciprocal behavior. In parallel with this, we also find that clients who met more frequently were less likely to default in subsequent loan cycles.


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We exploit experimental variation in the frequency of repayment meetings across first time micro-finance borrower groups to show that more frequent interaction among group members builds social capital and improves their financial outcomes. We measure social capital using a lottery which we designed to elicit social preferences in a field setting. Lottery participants who belonged to groups which met more frequently exhibited greater cooperation when offered the choice of adding other group members to the lottery. We provide evidence that this reflects higher expectations of reciprocal behavior. In parallel with this, we also find that clients who met more frequently were less likely to default in subsequent loan cycles.