A shorthand definition would be that social intermediation is financial intermediation with a capacity-building component, aimed at those sectors of society that lack access to credit and savings facilities. Social intermediation involves the building of social capital in the form of groups that can generate an information asset for their members, allowing financial organizations to develop confidence in establishing a lending relationship. It transforms beneficiaries into clients through the development and enforcement of contracts between lender and borrower, and through the support for ownership and control over resources by the poorest. It leads to the establishment of systems and structures in which one or more institutional players create a sustainable process that successfully links poor borrowers to sources of capital and financial services, both credit and savings. Within such a system, social intermediation elements may be subsidized for a time, whereas financial intermediation is expected to achieve self-sufficiency.
Institutions use a variety of strategies to support social intermediation.
The choice of strategy also depends on whether the organization believes its clients require organizational inputs alone, or whether these must be joined to other services in literacy and health, for example so that they can take advantage of financial intermediation most effectively. Choice of strategy, finally, depends on whether the organization sees its role as promotional organizing groups and linking them to formal sources of credit or as providing credit and savings services directly. The terms linking and parallel are associated with these two options. Because experience with linking strategies is not well documented, these strategies do not provide as many examples of successes as do parallel models. Although there are certain advantages to a linking strategy where the financial structure appears well developed, it also carries with it several disadvantages.