Social Capital and Market Imperfections: Accessing Formal Credit in Thailand
TL;DR: In this paper, four social capital variables are defined according to the tie strength and social distance between the respondent and his/her network members, resulting in four different social capital variable: (1) bonding (strong ties to persons of similar social standing); (2) bridging (weak ties to others of similar status); (3) bondinglink (strong connections to persons with higher social standing; and (4) bridgedlink (weak connections to others with higher status).
Abstract: Social capital matters in the economy. This study shows how different forms of individual social capital affect access to formal credit in rural Thailand. Social capital is defined as interpersonal network (ties) resources. A data collection approach is used that originates in the field of sociology and is innovative in the context of development economics: the personal network survey. Four social capital variables are defined according to the tie strength and social distance between the respondent and his/her network members, resulting in four different social capital variables: (1) bonding (strong ties to persons of similar social standing); (2) bridging (weak ties to persons of similar social standing); (3) bondinglink (strong ties to persons of higher social standing); and (4) bridginglink (weak ties to persons of higher social standing). It has been found that bondinglink social capital reduces the chances of being credit access-constrained. Political patronage or nepotism as the driving force behind...
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TL;DR: In this article, the authors take a fresh look at the role of informal finance in the development of modern finance, and propose a new model for formal and informal finance based on the rope and the box.
Abstract: Introduction, Dale W. Adams and Delbert A. Fitchert taking a fresh look at informal finance, D.W. Adams the rope and the box - group savings in The Gambia, Parker Shipton informal finance groups in Cameroon, Gertrud R. Schreider and Carlos E. Cuevas rural finance in Somalia, Virginia DeLancey informal finance in Niger - lessons for building form institutions, Douglas H. Graham informal finance in Sri Lanka, Nimal Sanderatne informal rural finance in Thailand, Tongroj Onchan informal finance in Papua New Guinea - an overview, Nimal Fernando informal finance in the Philippines footwear industry, Mario B. Lamberte collateral substituted in rural informal financial markets in the Philippines, Emmanuel F. Esquerra and Richard L. Meyer the Kou in Japan - a precursor of modern finance, Yoichi Izumida pawn-broking and small loans - cases from India and Sri Lanka, F.J.A. Bouman and R. Bastiaanssen strengths of informal financial institutions - examples from India, C.P.S. Nayar informal finance in Indonesia, F.J.A. Bouman and H.A.J. Moll evolving forms of informal finance in an Indonesian town, Otto Hospes linking formal and informal finance - an Indonesian example, Hans Dieter Seibel and Uben Parhusip the financial evolution of small businesses in Indonesia, Ross H. McLeod small-scale enterprise dynamics and the evolving role of informal finance, Carl Leidholm formal credit for informal borrowers - lessons from informal lenders, Robert P. Christen regulatory avoidance in informal financial markets, Robert C. Vogel and Robert Wieland contract lending to small farmers in the Dominican Republic, Jerry R. Ladman, et al rotating savings and credit associations in Bolivia, D.W. Adams and Marie L. Canavesi ROSCAs - state-of-the-art financial intermediation, J.D. Von Pischke what have we learned about informal finance in three decades?, U. Tun Wai where to from here in informal finance?, Dale W. Adams and P.B. Ghate.
143 citations
Journal Article•
TL;DR: In this article, the authors examined the determinants of financial inclusion in Western Africa with specific focus on Ghana and found that only two in five adults are included in the formal financial sector of Ghana.
Abstract: There is low financial inclusion across developing countries, especially those in Sub-Saharan Africa including Ghana. This paper examines the determinants of financial inclusion in Western Africa with specific focus on Ghana. The data used in the analyses came from 1000 individual adults across Ghana and included people across the different wealth classes, occupations, geographical locations, gender and generations. Using the logit model, the determinants of individuals’ inclusion in the formal financial market were estimated. The results show that only two in five adults are included in the formal financial sector of Ghana. Age of individuals, literacy levels, wealth class, distance to financial institutions, lack of documentation, lack of trust for formal financial institutions, money poverty and social networks as reflected in family relations are the significant determinants of financial inclusion in Ghana. The implication of this for policy is that there is the need for governments in Western Africa, particularly Ghana and their development partners to formulate a holistic financial framework that seeks to mitigate the negative determinants of financial inclusion and sustained the positive ones. It is recommended that such a policy framework should be politically neutral, economically viable, gender sensitive, socially stable and financially feasible so as to make it sustainable.
69 citations
Cites methods from "Social Capital and Market Imperfect..."
...Besides, it has been used by a number of researchers in related studies (examples include Akudugu et al., 2009; Akudugu, 2012; Akudugu et al., 2012; Dufhues et al., 2013)....
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TL;DR: In this paper, the authors investigated the relationship between the extent to which social capital formation is facilitated within different societies and the financial and social performance of micro-finance institutions and concluded that microfinance is more successful, both in terms of their financial goals and social aims, in societies that are more conducive to the development of social capital.
Abstract: In recent years, the microfinance industry has received a substantial amount of cross-border funding from both public and private sources. This funding reflects the increasing interest in microfinance as part of a more general trend towards socially responsible investments. In order to be able to secure sustained interest from these investors, it is important that the microfinance industry can show evidence of its contribution to reducing poverty at the bottom of the pyramid. For this, it is crucial to understand under what conditions microfinance institutions (MFIs) are able to reduce poverty. This paper contributes to this discussion by investigating the relationship between the extent to which social capital formation is facilitated within different societies and the financial and social performance of MFIs. This focus on social capital formation is important, because in many cases MFIs use group loans with joint liability to incentivize asset-poor borrowers to substitute the lack of physical collateral by their social capital. Hence, the success of a large part of the loan relationship between MFIs and their borrowers depends on the social capital those borrowers can bring into the contract. We carry out a cross-country analysis on a dataset containing 100 countries and identify different social dimensions as proxies for how easy social capital can be developed in different countries. We hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis.
57 citations
01 Jan 2014
TL;DR: In this paper, a group lending with joint liability is presented as an effective instrument to circumvent information asymmetries because it incentivizes group members to use their social ties to screen, monitor, and enforce loan repayment on their peers.
Abstract: Microfinance institutions (MFIs) grant loans backed by social collateral to poor entrepreneurs whose incomes originate mostly from informal economic activities. As a consequence, MFIs are often committed to rely on soft information to assess borrowers’ credit-worthiness. Group lending with joint liability is seen as an effective instrument to circumvent information asymmetries because it incentivizes group members to use their social ties to screen, monitor, and enforce loan repayment on their peers. The social ties embed social capital and facilitate the collective actions of group members, allowing them to coordinate their repayment decisions and cooperate for their mutual benefit.
28 citations
TL;DR: The authors found that during the post Washington-consensus period countries with a high prevailing level of social capital can ensure that financial liberalization positively influences financial development, despite the poor quality of their formal institutions.
Abstract: The relationship between financial liberalization policies and financial development is controversial. The impact of these policies differs greatly across countries. In the literature, the quality of formal institutions has been identified as an important source of this heterogeneity, as countries with a weak institutional environment generally fail to benefit from financial liberalization. Using panel data covering 82 countries for the period 1973–2008, we find evidence that social capital may substitute for formal institutions as a prerequisite for effective financial liberalization policies. In particular, we find that during the post Washington-consensus period countries with a high prevailing level of social capital can ensure that financial liberalization positively influences financial development, despite the poor quality of their formal institutions.
23 citations
References
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TL;DR: In this paper, it is argued that the degree of overlap of two individuals' friendship networks varies directly with the strength of their tie to one another, and the impact of this principle on diffusion of influence and information, mobility opportunity, and community organization is explored.
Abstract: Analysis of social networks is suggested as a tool for linking micro and macro levels of sociological theory. The procedure is illustrated by elaboration of the macro implications of one aspect of small-scale interaction: the strength of dyadic ties. It is argued that the degree of overlap of two individuals' friendship networks varies directly with the strength of their tie to one another. The impact of this principle on diffusion of influence and information, mobility opportunity, and community organization is explored. Stress is laid on the cohesive power of weak ties. Most network models deal, implicitly, with strong ties, thus confining their applicability to small, well-defined groups. Emphasis on weak ties lends itself to discussion of relations between groups and to analysis of segments of social structure not easily defined in terms of primary groups.
37,560 citations
TL;DR: In this paper, the concept of social capital is introduced and illustrated, its forms are described, the social structural conditions under which it arises are examined, and it is used in an analys...
Abstract: In this paper, the concept of social capital is introduced and illustrated, its forms are described, the social structural conditions under which it arises are examined, and it is used in an analys...
31,693 citations
"Social Capital and Market Imperfect..." refers background in this paper
...In contrast to human capital, for example, which is based on individuals, social capital resides in relationships (Coleman, 1988)....
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...By calling it individual social capital, we distinguish our concept of social capital from definitions that consider social capital to be a public good (e.g. Coleman, 1988), benefiting all members in a network....
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TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
Abstract: According to basic economics, if demand exceeds supply, prices will rise, thus decreasing demand or increasing supply until demand and supply are in equilibrium; thus if prices do their job, rationing will not exist. However, credit rationing does exist. This paper demonstrates that even in equilibrium, credit rationing will exist in a loan market. Credit rationing is defined as occurring either (a) among loan applicants who appear identical, and some do and do not receive loans, even though the rejected applicants would pay higher interest rates; or (b) there are groups who, with a given credit supply, cannot obtain loans at any rate, even though with larger credit supply they would. A model is developed to provide the first theoretical justification for true credit rationing. The amount of the loan and the amount of collateral demanded affect the behavior and distribution of borrowers. Consequently, faced with increased credit demand, it may not be profitable to raise interest rates or collateral; instead banks deny loans to borrowers who are observationally indistinguishable from those receiving loans. It is not argued that credit rationing always occurs, but that it occurs under plausible assumptions about lender and borrower behavior. In the model, interest rates serve as screening devices for evaluating risk. Interest rates change the behavior (serve as incentive mechanism) for the borrower, increasing the relative attractiveness of riskier projects; banks ration credit, rather than increase rates when there is excess demand. Banks are shown not to increase collateral as a means of allocating credit; although collateral may have incentivizing effects, it may have adverse selection effects. Equity, nonlinear payment schedules, and contingency contracts may be introduced and yet there still may be rationing. The law of supply and demand is thus a result generated by specific assumptions and is model specific; credit rationing does exist. (TNM)
13,126 citations
"Social Capital and Market Imperfect..." refers background in this paper
...In other words, transaction costs decrease the efficiency of exchange relationships (Stiglitz & Weiss, 1981; Grindle, 2001).10 At the extreme, transaction costs can inhibit economically beneficial transactions or result in rationing (Richter & Furubotn, 1996)....
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Book•
21 Feb 1986
TL;DR: The first handbook on the sociology of education as discussed by the authors synthesizes major advances in education over the past several decades, incorporating both a systematic review of significant theoretical and empirical work and challenging original contributions by distinguished American, English, and French sociologists.
Abstract: The first of its kind, this handbook synthesizes major advances in the sociology of education over the past several decades. It incorporates both a systematic review of significant theoretical and empirical work and challenging original contributions by distinguished American, English, and French sociologists. In his introduction, John G. Richardson traces the development of the sociology of education and reviews the important classical European works in which this discipline is grounded. Each chapter, devoted to a major topic in the field, provides both a review of the literature and an exposition of an original thesis. The inclusion of subjects outside traditional sociological concern--such as the historical foundations of education and the sociology of special education--gives an interdisciplinary scope that enhances the volume's usefulness.
7,071 citations
TL;DR: In this article, the authors trace the evolution of social capital research as it pertains to economic development and identify four distinct approaches the research has taken : communitarian, networks, institutional, and synergy.
Abstract: In the 1990s the concept of social capital defined here as the norms and networks that enable people to act collectively enjoyed a remarkable rise to prominence across all the social science disciplines. The authors trace the evolution of social capital research as it pertains to economic development and identify four distinct approaches the research has taken : communitarian, networks, institutional, and synergy. The evidence suggests that of the four, the synergy view, with its emphasis on incorporating different levels and dimensions of social capital and its recognition of the positive and negative outcomes that social capital can generate, has the greatest empirical support and lends itself best to comprehensive and coherent policy prescriptions. The authors argue that a significant virtue of the idea of and discourse on social capital is that it helps to bridge orthodox divides among scholars, practitioners, and policymakers.
4,094 citations
"Social Capital and Market Imperfect..." refers background in this paper
...It connects people of similar economic, social and political status (Woolcock & Narayan, 2000)....
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...Bonding social capital relates to “strong ties”, while bridging social capital relates to “weak ties” (Woolcock & Narayan, 2000)....
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...Social capital is not a homogeneous concept (Woolcock & Narayan, 2000)....
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