The Social Effects of Group Solidarity in Microfinance: A Case Study from the Dominican Republic
Open Access
- Author:
- Colten, Sarah Green
- Area of Honors:
- Community, Environment, and Development
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Leif Jensen, Thesis Supervisor
Anouk Patel, Faculty Reader
Leif Jensen, Thesis Supervisor
Leif Jensen, Thesis Honors Advisor - Keywords:
- microfinance
solidarity group
social capital - Abstract:
- Microfinance has revolutionized the recent international development discourse by allowing individuals, who were previously unable to access trustworthy sources of credit due to lack of collateral and high operational costs, to collect small loans for use directly in business purposes. It has shown high success worldwide in empowering borrowers and providing them an opportunity to create extra income and join the formal or informal sector. In order to abate the overhead costs and the possibility of default, the loans are distributed using the group solidarity model in which a group of five associates are jointly liable for the entirety of the loan and must financially back each other if one member defaults. In order to ensure high repayment rates, literature has stressed the importance of high social capital among the women to create trust, overcome informational asymmetries, and facilitate cooperation. This study was conducted through Esperanza International, a microfinance institution located in the Dominican Republic in their branch office in Santo Domingo. It aims to solidify the connection between social capital, willingness to lend within the group, and in-group repayment timing. As opposed to more theoretical standpoints taken by many microfinance studies, this research focuses in detail on the daily experiences of Esperanza associates interviewed during their regular biweekly repayment meetings. The findings point to the ability of existing monetary and social benefits for joining to overcome incomplete information regarding their fellow borrowers, as well as to the high prevalence of in-group lending and the mixed reactions this solicited. The study’s conclusions and recommendations are applicable to other existing microfinance institutions and provide direction for new institutions.