Membership has its privileges: the effect of social capital and neighbourhood characteristics on the earnings of microfinance borrowers

In this paper we examine the determinants of self‐employment success for microcredit borrowers. Theories of social capital and neighbourhood effects are integrated in an attempt to account for earnings differentials among a unique sample of microfinance borrowers. We posit that social capital – social relations that facilitate individual action – is essential for microentrepreneurial success. Based on a survey and data collected by the authors, it is demonstrated that social capital is a positive determinant of self‐employment earnings. The role that neighbourhoods play in fostering social capital and improving microentrepreneurial performance are also highlighted.