A stable, secure and equitable financial system is a precursor for sustainable growth. Poverty reduction requires effective financial organizations and instruments at the national level as well as at the household level.
Social capital can affect both formal and informal financial systems.
For individuals, families, and small businesses, financial institutions are a vital component of everyday economic life. Poor but closely-knit communities pledge their social capital in lieu of the material assets that commercial banks require as collateral. Another dimension of social capital illuminated by group-based microfinance programs is the extent to which successful members begin to participate in the formal economy. A key challenge for microfinance programs is to draw on local social capital as a basis for forging linkages into more extensive networks and markets. Corporate Finance Social relations are no less important to the structure and performance of large commercial financial institutions.