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The effect of social capital on group loan repayment: evidence from field experiments*


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     The authors thank Chris Wendell for outstanding help with data collection, conference organisers Niels Hermes and Robert Lensink along with Chris Ahlin, Dan Friedman, Michael Jonas, Dean Karlan, Craig McIntosh, Stefan Klonner, Ashok Rai, Paul Ruud, Jana Vyrastekova and participants at the July 2005 Conference on Microfinance in Groningen, The Netherlands. Grant funding from the McCarthy Foundation is gratefully acknowledged.


An important question to microfinance is the relevance of existing social capital in target communities to the performance of group lending. This research presents evidence from field experiments in South Africa and Armenia, in which subjects participate in trust and microfinance games. We present evidence that personal trust between group members and social homogeneity are more important to group loan repayment than general societal trust or acquaintanceship between members. We also find some evidence of reciprocity: those who have been helped by other group members in the past are more likely to contribute in the future.