This thesis seeks to investigate the possibilities of joint liability lending in the United States and if there is the necessary social capital to support a successful group lending structure. Since joint liability lending has enjoyed great success in foreign countries, I thought it was important to look into the positive effect that joint liability lending could have on the unbanked population in the U.S. I developed a questionnaire regarding joint liability lending's potential in the United States and sent it to six of the most highly regarded microfinance institutions in the U.S. Though I anticipated that joint liability lending would be successful in the United States, as it was abroad, the input I received from the microfinance institutions in my sample indicated that the U.S. would not be able to support joint liability lending. These institutions saw lack of social capital as the main reason that group lending would not be successful in the United States.
Microfinance is a rapidly growing branch of financial services which offers poor people, normally excluded from the formal banking sector, the opportunity to access loans, savings accounts, money transfer services, and other financial options. As the industry progresses, a debate about what microfinance institutions (MFIs) goals should be and how MFIs can best achieve these goals has developed. This paper first traces the historical progression of microfinance. Then, through a literature review it explains the social and economic goals of MFIs and the current debate about the commercialization of the industry. At this point, the idea of mission drift, where MFIs abandon their original goals in order to achieve financial self-sustainability is introduced. While some scholars argue that mission drift is occurring in MFIs, others argue that commercialization is actually enhancing microfinance institutions’ ability to reach their goals. Through an analysis of data from the Microfinance Information Exchange (MIX), this paper compares financially self-sustainable microfinance institutions to non-financially self-sustainable microfinance institutions in order to determine whether these two types of institutions vary significantly and if there is any evidence to suggest mission drift is occurring. Finally, the paper concludes with suggestions for further research and ways in which the microfinance industry can change to be most successful in the future.
This study shows how social capital affects the outreach and operational self-sufficiency of microfinance institutions (MFIs) around the world. Borrowing from the literature, this thesis defines social capital as those features of human relationships—specifically social networks, social norms, and trustworthiness—which help a community to achieve economic development. This research uses quantitative data from the Microfinance Information Exchange and the World Values Survey as well as qualitative data collected during a ten-day case study with the Adelante Foundation in La Ceiba, Honduras. The regression model shows which aspects of social capital have the greatest influence on MFI performance, accounts for explanatory variables, and tests for an endogenous peer effect between MFIs. Results show that social capital—particularly friend networks and trust—has a direct influence on MFI performance, suggest that there is a tradeoff between outreach and sustainability, and proves that there is an endogenous peer effect between MFIs.