Building social capital through microfinance. NBER Working Paper No

The role of repeat interactions in sustaining cooperation has strong theoretical underpinnings, but is difficult to identify empirically. This paper considers a flagship development program – microfinance – and provides the first experimental evidence on the economic returns to short-run differences in interaction frequency. We exploit experimental variation in the frequency of mandatory meetings across first-time microfinance borrower groups to show that interacting more often builds social capital and reduces default in the subsequent loan cycle. We use a lottery, which we designed to elicit cooperation in a field setting, to provide evidence on one channel of influence- reciprocal economic ties