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The role of informal social networks in micro-savings mobilization.

Article Excerpt
The influence of informal institutions on economic outcomes for low income individuals and households has received little attention in the United States. Yet, drawing on social capital theory and existing studies from developing countries where informal institutions have been widely used in promoting economic opportunities of families in poverty, one would expect these institutions to have positive effects on the economic outcomes of low income individuals in the context of an IDA program. Using a sample of 840 respondents who were enrolled in a community action program, this study assesses the effects of informal networks of social support on performance in a matched savings program. Results show partial support for the hypothesized relationship. Specifically, an increase in the amount of help a respondent gives to members of her community is inversely related to performance in an IDA program. This may imply that although informal networks have mutual benefits for both the individual and community, economically these benefits may be mixed. Among low income individuals saving in an IDA program, participating in such networks may constrain the economic resources available to them or their households; hence impacting their performance negatively.

Keywords: informal social network; social support, social capital; IDA program; vulnerability; assets-building

Introduction and Background

Traditionally, welfare policies in the United States have relied on income-based interventions to relieve poverty and deprivation among vulnerable individuals and households. In the past few decades, asset-building--which involves efforts that enable people with limited economic resources and opportunities to acquire and accumulate long-term productive assets--is increasingly being viewed as one of the critical factors for reducing poverty and fostering social and economic development. The shift towards asset-building has been prompted by the growing concern about the level of marginalization currently experienced by vulnerable groups, unequal distribution of wealth, and by scholarship on welfare dynamics (Bynner, 2001; Paxton, 2001).

The asset-based perspective of welfare was benchmarked by Sherraden (1991), who introduced the idea and took initial steps towards asset theory development. Sherraden questioned the prevailing view and suggested a welfare focus that promotes long-term development of households and communities (1991). Within this perspective, he proposed Individual Development Accounts (IDAs)--subsidized accounts--as an intervention to facilitate saving and asset accumulation among low-income individuals and households.

IDA programs, as currently implemented, are not simply saving accounts in that they provide a "program bundle", emphasizing the role of formal institutions in influencing performance (McBride, Lombe, & Beverly, 2003). Research has begun to document positive effects of formal institutions on performance in IDA programs (e.g., McBride et al., 2003; Sherraden, Schreiner and Beverly, 2002; Ssewamala and Sherraden, 2004). In much of this literature, however, the effects of informal institutions on outcomes has received little attention. Yet, given the premises of social capital theory and social network models--which emphasize informal institutions in impacting individual outcomes (see Coleman, 1994; Collier, 1998)--one would expect informal institutions to play a positive role in influencing performance in an IDA program.

This study draws on the premises of social capital theory and social networks models, to explore effects of informal networks of social support, such as: familial, friends, neighborhood, and other extra-household connections, in influencing saving outcomes of the working poor in an IDA program. This question deserves attention because although IDA programs started in the United States, pilot projects are now underway in poor developing countries where informal networks are highly prized. The study may also help identify aspects of an informal network of social support that may be important for performance in an IDA program. Since asset development through IDA mechanism is still relatively new, IDAs and similar programs, aimed at mobilizing savings and asset accumulation, among low income individuals, may use findings of this study to enhance performance and other outcomes.

The Social Capital Perspective

Social capital has been conceptualized in many different ways. Putnam (2000) defines the concept as a representation of the norms of reciprocity and trustworthiness that arise from social relations,...

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