What is Social Capital?

The Sebstad & Cohen paper (2000) identified three pathways through which microfinance services can reduce vulnerability for poor households: smoothing income, building assets (financial, physical, human and social) and empowering women. I dealt with smoothing income and building financial and physical assets in Theme Four. Now, in Theme Five (Increased Social Capital & Improved Self-Confidence?), I turn to human and social assets and empowering women.

Human and Social Capital

Human capital is relatively easy to define – the capacity of body and mind; that is, good health and knowledge, dependent on good parenting and food, and supported by good health and education services, especially in the early years of body and mind development. Microfinance is assumed to support human capital development by providing higher and more stable income and consumption.

Social capital is much more difficult. For scholarly guidance, I turn to a paper I discovered years ago by Michael Woolcock of Brown University (at the time, 1998 – now at Harvard and The World Bank). If you can get past all the references to sociology theory, this paper is really enlightening. He offers a general definition of social capital: “a broad term encompassing the norms and networks facilitating collective action for mutual benefit” (p. 155). The emphasis on collective action may make social capital and social solidarity seem the same, but this can be misleading. He later offers a different definition of social capital as “the nature and extent of a community’s personal and institutional relationships” (p. 182). This opens up a broader range of possibilities; social capital can be strong but in ways that may be good or bad for economic development and household welfare.

Woolcock proposes four dimensions of social capital:

    • Integration of individuals within a community (intra-community ties) – pretty close to “solidarity” – think of the cohesion among women within a borrower or savings group
    • Linkage between individuals and groups in a community with individuals and groups outside the community (extra-community ties) – think of the women’s group in relation to a microfinance provider
    • Organizational Integrity (corporate coherence and capacity) – think of the organizational efficiency and effectiveness of a microfinance provider
    • Synergy (state-society relations) – think of the effectiveness of the relationship between the microfinance provider and the communities it serves, especially the women’s groups

The first two dimensions refer to the way individuals in the community get along with each other and with outsiders. High or low integration can combine with high or low linkage to form four conditions of life in the community, only one of which is conducive to “social opportunity” – high integration and high linkage. A secure, supportive family or peer group is essential for a person to succeed, but if this sense of solidarity is so strong that it creates hostility to the outside world (maybe for good reason!), that person cannot forge and benefit from linkages to outsiders, which are also essential for success. This tension is familiar to parents, who must give their children both “roots and wings” for them to become healthy, well-adjusted, successful adults. If you don’t get both right, there is Hell to pay!

The second pair of dimensions refers to the way an organization maintains its own credibility and effectiveness and the way it engages with the communities it seeks to serve. High or low organizational integrity can combine with high or low synergy to form four conditions of relationship between the organization and the community, only one of which is conducive to “development” – high integrity and high synergy. Internal coherence and competence are essential for an organization to succeed, but if internal focus and self-confidence precludes consultation with the communities it serves and the continual negotiation and re-negotiation of goals and policies in relation to the communities, that organization cannot help those communities create lasting development and ensure its own success.

Significantly, Woolcock offers “group-based microfinance institutions” (GBMFIs) as prime examples of institutions explicitly transcending the divide between macro and micro in development, between organization and community, and achieving, at least occasionally and more often than many other development actors, the magical high-high-high-high combination that constitutes really effective social capital. To quote Woolcock directly (p. 184):

This is a highly problematic task, requiring staff to win the confidence of poor villagers, to instruct distrustful and illiterate people in the ways of organized banking. It is a task requiring the [provider] staff to remain credible and efficient in its activities, while recognizing that it must help successful borrowers go beyond their intra-community ties – the basis of their credit groups – to forge new extra-community ties and links to commercial banks as their incomes rise and the economic exchanges in which they are involved become more complex.

The profound implications of Woolcock’s concept of social capital should be obvious to microfinance providers of all stripes. Microfinance can produce powerful results, in theory, but it has to be done just right to do so.

It is not enough to build impressive microfinance institutions, if they do not know their clients and really work with them to figure out how best to serve their needs and wants. They are built on sand.

It is not enough to build impressive borrower or savings groups, if they cannot engage with outsiders who can offer them not just banking services but also market opportunities and health, education, agricultural and other services and products. They are taking collective action to remain poor.

And the individuals in those groups have to be empowered by this social capital to move beyond their groups and their communities into the wider world and be able to deal with it on its own terms, not theirs.

What would be the evidence of this kind of social capital that we should look for in microfinance programs? Notice that good social capital is both input to and outcome of successful development intervention, which makes it really hard to know cause and effect. Maybe we need to look for the empowerment that arises from good social capital. But what is empowerment?

Onward to the next post!