Social Capital, Microfinance Group Performance and Poverty Implications in Nigeria

The main argument of this paper is that there is need to improve the performance of informal finance groups and encourage private sector involvement generally in rural financial intermediation in Nigeria. Specifically, the goal of this study is to analyse the impact of social capital on the performance of informal finance in the rural areas of western Nigeria.

The paper points out that the criticisms to informal finance by development theorists are often based on the inaccuracy and scarce information about traditional savings and credit associations. The following issues are addressed:

• Do the existing informal finance groups hold some potential in terms of engendering improved repayment performance?
• To what extent does this potential depend on the participation of the clienteles themselves in credit management?
• Can the existing social capital play any significant role in the transformation of the rural financial system?

Finally, the paper suggests that policy makers should work to integrate the formal and informal financial systems rather than eliminating the latter.