Microenterprise and social capital: a framework for theory, research, and policy Michael Woolcock Brown University and the World Bank, Washington, DC, USA 1. Introduction One of the most intriguing aspects of recent welfare reform debates has been the explosion of interest in—and bipartisan endorsement of—microenterprise programs as both an effec- tive and efficient approach to reducing poverty. In the wake of successful efforts to transplant to the United States the experiences of large, high-profile organizations in South Asia and Latin America, ‘helping the poor to help themselves’ through the extension of credit to underwrite small business ventures has moved from popular slogan to concrete poverty alleviation strategy. The Microcredit Summit has helped focus and publicize these efforts, while setting ambitious global targets for the coming years. A key feature of microenterprise programs is their use of social relationships as an alternative source of collateral. The poor are typically denied loans from standard commer- cial sources because they lack adequate surety, and because the size of the loans they require have such high relative costs. From a banker’s perspective, in short, lending to the poor is a high-risk venture. One way in which microenterprise programs endeavor to circumvent these problems is by lending not to individuals, but to groups, thereby dispersing risks and lowering costs by devolving to borrowers’ social relationships— or “social capital”—tasks that are ordinarily performed by material or monetary assets. The social capital of the poor thus acts as a substitute for what they lack by way of physical or financial capital. This approach to providing financial services in poor communities has a rich history in the economic anthropology literature, which has long been fascinated by rotating savings and credit associations (RoSCAs), tontines, ethnic savings clubs, etc. Indeed, much of the early empirical validation of the concept of social capital drew on this literature, citing indigenous * Tel.: +1-202-473-9258; fax: +1-202-522-1153. E-mail address: mwoolcock@worldbank.org (M. Woolcock). Journal of Socio-Economics 30 (2001) 193–198 1053-5357/01/$ – see front matter © 2001 Elsevier Science Inc. All rights reserved. PII: S1053-5357(00)00106-2