Microenterprise Assistance Programs in the United States and the Pivotal Role of Social Capital

Abstract

"This paper uses the institutional analysis and development framework (IAD) developed by Ostrom and others, to reveal how community attributes, such as social and economic factors, influence the viability of solidarity lending group programs in the United States. Modeled after the highly successful Grameen Bank model used in developing countries, solidarity group lending programs provide small short-term loans at market interest rates to poor people who are ineligible for commercial loans. The main attribute of these programs is the use of social collateral in place of the physical collateral that is normally required by commercial banks. The overriding goals of microenterprise assistance programs are to alleviate poverty, provide economic development, and graduate the poor to commercial sources of credit. Attempts to replicate the Grameen model of microenterprise assistance programs in the United States have been met with mixed reviews. One reason for this may be that the social and economic context for microenterprise assistance programs differs dramatically from that of developing countries and hence significantly affects the level and potential of social capital formation. While the literature identifies the important role that social capital plays in the successful maintenance of these groups, the institutional analysis framework provides a fine tuning instrument with which to reveal how community attributes, such as social and economic factors, influence group formation and maintenance."