Relationships between microfinance, solidarity groups, and informal lending in developing countries: the importance of trust and social capital and the WishVast potential

Open Access
Author:
Brown, Adam Patrick
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • James Alan Miles, Honors Advisor
  • Khanjan Mehta, Thesis Supervisor
  • William Kracaw, Faculty Reader
Keywords:
  • microfinance
  • informal lending
  • WishVast
  • SACCO
  • RoSCA
  • Brown
  • Mehta
Abstract:
In developing countries, prospective entrepreneurs have a very difficult time gaining access to capital. Formal lending sometimes works for solidarity groups of small business owners who approach microfinance institutions (MFIs) to access capital for expanding their businesses. However, MFIs are not lending money to entrepreneurs interested in starting new businesses. In order to create an environment where startup business and entrepreneurship thrives, it is crucial to meet the needs of the clients being marginalized. As a response to this trend, the informal lending and credit market in rural Kenya is growing fast and little research is available regarding the mechanics of this system. Instead of decomposing the microfinance industry into a binary relationship between MFIs and their clients, our research views the microfinance industry as a multi-actor system (MFIs, solidarity groups, and informal lenders) and how their success is mutually dependent. This paper will discuss the dynamics between these actors, the role of trust and social capital in these complex relationships, and the potential role of WishVast to help individuals gain better access to capital.