Abstract
Abstract Lending groups (LGs) and social capital are two central elements to the many microfinance solutions operating around the world. However, LG effectiveness in reducing transaction costs and lending risks for microfinance institutions (MFIs) is mediated by institutional environments. Starting from this assumption, we discuss the existent interactions between the institutional environments of developed (Anglo-Saxon and communitarian) and developing countries with different stocks of social capital (individual, network and institutional) and the influences of this interaction on LG effectiveness. In order to do so, we applied the institutional perspective of O. Williamson to build a theoretical framework to examine the interaction of all these conditions, allowing for analysis of their main relations within the microfinance context. Based on this framework, we propose on the one hand that in developing and Anglo-Saxon developed nations, stocks of both individual and network social capital are the most important for an LG's effectiveness. However, in Anglo-Saxon countries, these two stocks of social capital are complemented by formal contracting devices. In communitarian developed countries, on the other hand, the stocks of institutional social capital have a stronger positive impact on LG dynamics.
Highlights
Microfinance institutions (MFIs) – briefly defined as organizations devised to offer small financial and finance-related services to poor families – are currently recognized as consolidated strategies in the fight against poverty, and have multiplied throughout the world
Considering that (a) the historical civic traditions studied by Putnam (1993) and the efficient formal institutions derived from these traditions require decades to be constituted; and that (b) the formal institutions of developing countries are not sufficient to guarantee the viability of microfinance operations, we present our first proposition: Proposition 1: In developing countries, the stocks of individual and network social capital are the most efficient for Lending groups (LGs) in the screening, monitoring and enforcement activities
In this paper we proposed a systemized institutional view for the relations established between the institutional environments of developed countries (Anglo-Saxon and communitarian) and developing countries, and the different stocks of social capital held by microfinance LGs
Summary
Microfinance institutions (MFIs) – briefly defined as organizations devised to offer small financial and finance-related services to poor families – are currently recognized as consolidated strategies in the fight against poverty, and have multiplied throughout the world. Considering that (a) the historical civic traditions studied by Putnam (1993) and the efficient formal institutions derived from these traditions require decades (maybe centuries) to be constituted; and that (b) the formal institutions of developing countries are not sufficient to guarantee the viability of microfinance operations (considering the risks involved and the costs to control them), we present our first proposition: Proposition 1: In developing countries, the stocks of individual and network social capital are the most efficient for LGs in the screening, monitoring and enforcement activities (for decreasing MFIs’ transaction costs, and moral and adverse selection risks). Influence of the Interaction of the Different Institutional Environments and the Different Stocks of Social Capital on LGs’ Ability to Diminish the Transaction Costs and Risks of MFIs
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