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Building Human and Social Capital:
Economic Development for the Twenty-First Century
Chris Glick
As we approach the twenty-first century, the world confronts a number of realities that will affect how we live
and work in the future. Among these is the rise of a global economy, depletion of natural and environmental
resources, and growing inequality among people, regions, and nations. These change present challenges to our
current models of ordering and explaining human actions. To respond to the changes that the twenty-first
century presents us with, we must discard or revise those theories that have no longer fully explain the human
condition and develop new ones that reflect the true nature of the human experience.
The concepts developed here provide a model and a workable solution to the inability of poor individuals
and countries unable to compete in an emerging global economy.1
An examination of two financial institutions,
Grameen Bank in Bangladesh and the Shorebank Corporation in Chicago, will demonstrate the role financial
institutions play in building human and social capital. Their activities have developed into an economic model of
income and wealth creation that appears to have universal implications in cultures and nations unable to
complete in a growing global economy. These institutions provide a challenge to the current capitalist theory
about the role of capital investment, collateral-based loans, and expectations for the production of new wealth.
Support for this elaboration and extension of economic theory comes from recent observable economic and
social phenomenon, in addition to the two case studies presented. Understanding the role of human and social
capital in economic development and growth will have global applications as the challenges of the next century
present themselves.
Criticisms of Western Capitalist Thought
As we look around the contemporary world, the poverty of the prevailing economic paradigm is all too apparent.
The rise of the east Asian economic system is pointed to as evidence of the viability of free market economics,
with the implication that all societies would surely see similar development if their populations would pursue
their material self-interest. Free markets and stable political systems are indeed a precondition to economic
growth. Not often recognized by casual observers however, is the cultural heritage of those Far Eastern societies.
The ethic of work, saving, family networks of social support and cooperation, and other deeply ingrained moral
qualities, are equally important in explaining economic success in these as well as other countries. Yet there is
not a current theory of economic development that adequately addresses ―consciousness and culture seriously as
the matrix within which economic behavior is formed.‖2
By looking at the social aspects that contributed to the
remarkable success of the economies of East Asia, a deeper appreciation can start to be formed as to the role
culture and society play in economic determination.
The East Asian Economic System
The ―East Asian miracle‖ includes the eight economies of Hong Kong, Indonesia, Japan, the Republic of Korea,
Malaysia, Singapore, Taiwan (China), and Thailand. Although there are particular factors to each of these
economies, there are underlying aspects that are basic to all of them. Several studies have looked at the East
Asian growth and argue that the East Asian experience can largely be explained by extraordinary growth in
inputs like labor and capital.3
Furthermore, ―East Asia‘s success was based on a combination of factors,
particularly the high savings rate interacting with high levels of human capital accumulation,4
in a stable,
market-oriented environment—but one with active government intervention—that was conducive to the transfer
of technology.‖5
Related to the notion of human capital accumulation is the concept of social capital or externalities and
spillovers, positive or negative, that develop from human interaction. Popular discussions of the success of
Japan and several other East Asian countries have stressed the cooperative relations between government and
business, between workers and employers, and between small and large businesses. The extent of this

2 Chris Glick
cooperation has been exaggerated, yet a variety of institutions and practices facilitated cooperation in the
Japanese economy yielding enormous benefits.6
Further examination of the governments of East Asia demonstrates the role of formal and informal networks
in the economy. The business community had superior information about investment decisions and they also
recognized that the overall information base could be improved, by sharing this information with rival firms and
with the government everyone benefited.7
Similar development of networks and their benefits will be
demonstrated in the method the Grameen Bank and Shorebank Corporation have used in organizing its
borrowers into groups or supporting social networks to help guide decisions and provide a basis for cooperation.
The level of actors is different in the Japanese example, yet the premise is that human development combined
with social cooperation and coordination increases economic performance.
The East Asian example points to the deficiencies in the current theory of economic development which is
unable to recognize those aspects of culture which contribute to economic performance. The study of East Asian
economies reveals two important concepts which add to the theory of economic growth currently proposed by
Western capitalism. One of these is the principal role of developing human capital through increases in the
productive capacity of people. Second, that institutions of all kinds matter; the role of East Asian governments
was important in establishing a culture that was conducive to saving, technology transfer, and most importantly
providing the institutional framework that facilitated cooperation. These two elements currently play a less
prominent role in the development of Western growth theories and in economics in general. To understand why
this is, one must go back to the original source of the prevailing classical paradigm.
Classical Economics
The philosophy behind classical economic theory was first described in Adam Smith's The Wealth of Nations.
The economic philosophy espoused in the work was that of laissez faire. According to this view, each person
assumes the role of a rational decision maker that left to their own free will would seek to maximize their wealth.
Individuals also know better than government how to maximize their wealth or the best government is one that
governs least. Finally, by seeking to realize their interests, each individual would then serve the best interests of
society increasing not only their wealth, but that of the nation. The result of this was that the forces of the free,
competitive market were sufficient to guide production, exchange, and distribution. All this occurred through the
working of an ―invisible hand‖ that harmonizes the self-interests of individual producers and consumers for the
benefit of society.8
The main criticism of these premises is that they ignore the social conditions under which these three
axioms can be true and never explicitly define the social framework in which human decisions and actions take
place. Classical economics claims that no system can do better when it comes to maximizing an individual‘s
personal preferences. The shortcoming of this approach is the inability of the theory to articulate the formation
of these values and preferences. The motivation of the actors is more complicated and their preferences less
stable than assumed in current theory.9
Whereas the belief that individual's preferences and wants are internally determined and then acted on in
society, the reverse is actually true. Social values inform individual values, with individuality being the product
of community rather than something sacrificed to the community. Several institutions make it their primary goal
of building individual preferences—child rearing, education, religion, advertising, and legislation, but capitalism
fails to recognize any of them. Even though Adam Smith recognized two hundred years ago that, ―Men could
safely be trusted to pursue their own self-interest without undue harm to the community not only because of
restrictions imposed by laws, but also because they were subject to built-in restraint derived from morals,
religion, custom, and education‖ yet, this observation was not to play a prominent role in economics.10
We have known for some time that it is easier for everyone to raise their standard of living in an
environment where cooperation was the norm. Social organizations have existed as long as humankind has
existed and they are important in determining the complex nature of rationality, self-interest, motivation, and
preference formation. Social support and social pressure are what makes humans human. But there is no way to
recognize the need for, and organize, those outside social factors in a system that recognizes only individual
rights and admits no social responsibilities.11

Building Human and Social Capital 3
An individual who‘s only interest is in maximizing personal gain, contributes to a capitalistic state that
recognizes no social responsibilities and indicates that individual greed simply cannot hold society together in
the long run. In doing so, capitalism focuses on short-run gain and not long-term benefits that come from
investment and saving. Good physical infrastructure and good social infrastructure are necessary if economic
progress is to occur, yet none of these investments are called for in capitalism. This leaves us in a precarious
position as we head into the twenty-first century.
The traditional behavioral assumptions of classical economics presented here have prevented economists
from coming to grips with the fundamental issues and that a modification of these assumptions is essential.12
The
behavioral assumptions of economists are useful for solving certain problems and capitalist theory works well in
the analysis of certain markets, usually those that function efficiently. However, in some instances, such as
inner-city markets‘ capitalism fails to deal with those segments that do not fit neatly into the classical
framework.
America’s Declining Social Capital
The argument regarding what can happen to a society built around maximizing individual wealth is already
becoming reality. One such case is the striking evidence that the vibrancy of American civil society has notably
declined over the past several decades. Organizations and institutions are crumbling exactly at a time when
needed most to renew economic vibrancy in America.13
This situation is in stark contrast to the East Asian
societies where the institutional elements of family, business and government are contributing significantly to
economic prosperity.
Robert Putnam states, ―The quality of public life and the performance of social institutions (and not only in
America) are indeed powerfully influenced by the norms and networks of civil society. Researchers in several
fields such as education, urban poverty, unemployment, the control of crime and drug abuse, and even health
have discovered that successful outcomes are more likely in civically engaged communities.‖14
This has
tremendous implications for a theory of economic development that can incorporate the social determinants into
economic outcomes.
Additionally, Putnam has observed considerable decline in several facets of American society, including
voter turnout, attendance at public meetings, participation in parent-teacher organizations, and volunteers for
mainline civic organizations such as Boy Scouts and Red Cross.15
All of this may seem insignificant, yet the true
importance of these changes is not they are inherently unfortunate, so much as they predict a broader decline in
our society‘s economic vitality, since that vitality rests on a cultural bedrock of local associational strength.16
As
these changes are occurring around us, we are left without an adequate understanding of how human actions are
formed and what conditions are necessary to achieve economic growth—the prevailing economic theory offers
little explanatory force.
Human Based Economic Development
Economic development seeks to achieve the creation of wealth and income. In a theory of human based
economic development, we determine demand through our individual wants and preferences. Yet, unlike
classical economics, this model does not claim that it can measure or aggregate these without an understanding
of the culture in which they are formed. And as human beings we are not individual actors, but make decisions
in the context of social constraints. Therefore, socialization is fundamental in economic development. On the
supply side, we build human development through increases in education and productive capacity. Therefore all
economic development occurs through inputs into people.17
The mechanism for achieving economic
development and growth is through institutions that act to increase the productivity and reduce the costs of
human development. Through an examination of the arguments below, an elaboration to the basic premises of
classical economics will occur and a alternative model of economic development will be investigated.
Economic Growth Theory
Economic growth of a nation is usually measured in terms of its total output of real goods and services or in
terms of real Gross Domestic Product (GDP). To account for population growth, economists determine

4 Chris Glick
economic growth by measuring increases in per capita real GDP measured by its rate of change. The problem
with this definition is that it says nothing about the distribution of output and income. A nation might grow very
rapidly in terms of increases in per capita real GDP, and at the same time its poor people remain poor or become
poorer. There is therefore an uneven distribution of wealth and income in and across nations.
The prevailing economic theory recognizes certain fundamental factors that affect economic growth, such
as, the rate of savings, the rate of population growth, and the rate of productivity growth. In addition to these
factors, knowledge and property rights also have an impact. The current theory recognizes that the ability of a
nation to create and sustain productivity growth depends on the scientific capabilities of the population, the
quality and size of a nations educational and training system, and the percentage of income that goes into basic
research and development each year. Basically, the better educational setting the more improvements that get
made to human capital. All other things held constant, the greater the human capital for a given labor supply, the
greater its productivity. It is not surprising that the major difference between developed nations and developing
nations is the difference in the rate of improvements to human capital.18
Increasingly the role of human capital is becoming recognized as the major determinate in the ability of a
nation to grow and prosper. The earlier examination of the East Asian economies seems to support this
conclusion. The prevailing economic paradigm has been slow to recognize this because human capital
accumulation is difficult to measure, in addition to being affected by culture which economists have no method
of dealing with except to dismiss it completely. The examples and case studies illustrated here seek to enrich the
current theory of economic development through an appreciation of the role of human capital in the new global
economy.
Human Capital in the Changing Structure of Capitalism
In the twenty-first century, knowledge industries built on imagination, invention, and the organization of new
technologies will be the primary strategic sources of competitive advantage.19
Daily we read stories about
companies that posses these resources, they are the Microsofts of the coming age, they are companies that have
grown and developed because of the competitive advantage of the knowledge they hold in the form of human
capital. These entrepreneurs need not be the owners of physical or financial capital or someone who focuses on
putting a supply of capital together. They will focus on, and have the knowledge necessary to put together the
right human brains. These can be located in one place as is needed as seen in some industries; i.e. Silicon Valley
and Route 128. Yet with the changing structure of the communications systems, the means of production do not
have to be concentrated in one place.
The development of human capital has significant implications for the future and for defining the nature of
capitalism. This change was already somewhat apparent in the late 1980s as growth theorists began to question
the key assumptions of the prevailing economic growth models. Many of the new growth theories emphasize the
role of human capital or knowledge accumulation, which may yield externalities or spillovers.20
People who
work around other educated people have a higher productivity than if the reverse was true.
The recognition is that human capital is now the dominate factor of production and not just an important
adjunct to physical capital. This poses several problems for capitalists. ―Human capital differs from physical
capital in three important ways. (1) Human capital cannot be owned. Capitalists don‘t invest in things that they
cannot own. (2) Human capital investments often require a time horizon far longer than that permitted by
capitalism. (3) The knowledge investments that have to be made generate man-made brainpower industries have
to be made in a social context completely foreign to the individualistic orientation of capitalism.‖21
The consequences are that if capitalism is to work in the long run, it must make investments that are not in
any particular individual‘s immediate self-interest, but are in the community‘s long run self-interest. But how
does short run individualism emphasize long-run community gains? ―Put simply, who represents the interests of
the future to the present? Capitalism must do what it does least well-invest in the distant future and make
deliberate adjustment to the institutional structure to encourage individuals, firms, and governments to make
long-term decisions.‖22
In the coming decades, capitalism will have to create institutions that are capable of
promoting long run values that benefit society first and then the individual. This will occur when effective
institutions are able to build not only human capital but social capital.

Building Social Capital
By analogy of notions of physical capital and human capital—tools and training that enhance productivity—
―social capital‖ refers to the features of social organization such as networks, norms, and social trust that
facilitate coordination and cooperation for mutual benefit. Individuals set within a social structure of constraints
and opportunities produce wealth rather than simply greed and self-interest alone as producing wealth under
classical economic conditions. All this implies notions of trust, social cooperation, and peer pressure to meet
standards of socially responsible behavior. Life easier in a community blessed with these traits. Such
communities and networks facilitate coordination and communication, amplify reputations, and thus allow
dilemmas of collection action to be resolved. Community networks also embody past success at collaboration,
which can serve as a cultural template for future collaboration.23
This model of economic development focuses
on building networks where they did not exist before and providing a mechanism by which people can rely on
one another to get ahead collectively.
There is a social threshold to wealth creation that tends to go unnoticed and undetected in prevailing
economic theory—in some markets only after social capital has grown will self-interest as a starting and
continuing mechanism of economic growth be explicable. If growth is to occur in certain communities there
must be a desire in the people to raise their level of consumption. It is possible that cultural forces may
overcome market forces. In Blossoms in the Dust, the overwhelming effect culture can have on economic
development is outlined as it describes conditions in India in the late 1950s. Kusum Nair states, ―People‘s
attitudes to work and life, hardened by stagnation, isolation, ignorance and poverty, and underpinned by
tradition and often by religion, are frequently found to be inimical to change of any kind(But people, even, and
not least, the poorest people, often set their sights, not upon individual progress, but upon mere survival, and
then they can still less be expected to have the inclination to, and the daring, to aim at an intentional, concerted,
co-operative effort to remake society.‖24
Development must then become a self-generating process by which the value system and social structure
rest harmoniously with economics. Only when culture is recognized as one of the primary determinants of
economic underdevelopment and development can institutions seek to reverse the growing inequalities in
income in wealth currently experienced in our global society.25
The Role of Institutions in Economic Development
Institutions are defined as ―any form of constraint that human beings devise to shape interaction.‖26
They can be
formal such as the rules that human beings devise or they can be informal such as conventions and codes of
behavior. Institutional constraints tell us what individuals cannot do and they also tell us what activities‘
individuals may undertake. Institutions form the framework within which all human interaction takes place. It is
apparent there are many causal relationships and connections between purely economic factors and social and
cultural associations, which are determined by institutional arrangement and organization and cannot be ignored
or excluded from economic analysis.27
Economic growth occurs when institutions can develop and increase the gains that come from investing in
human capital. The evolution of these institutions creates an environment for cooperative solutions to complex
exchange problems and opportunities and provide a vehicle for economic growth. Institutions provide the
structure for exchange the cost of transacting and the cost of transformation. How well institutions solve the
problems of coordination and production is determined by the motivation of the players, the complexity of the
environment, and the ability of the players to control and order the environment. In certain cultures and
societies, this is the most important aspect in producing economic growth.
The concern here is the role ―community development financial institutions‖28
play in the development of
human and social capital. The two case studies examine how Grameen Bank in Bangladesh and the Shorebank
Corporation in Chicago use their institutional resources and abilities to increase income and wealth for the rural
and urban poor. Each example is in a different cultural setting and country and therefore the market in which
they create or work within is somewhat different. However, the common themes of building upon individual
entrepreneurship and building strong communities support an alternative view of economic growth that rests
upon human and social capital. This model of growth recognizes the basis of all economic development starts

6 Chris Glick
with the individual set within an economic, social, and political order and serves to enrich our current
understanding of economics.
Case Study: Grameen Bank of Bangladesh
Institutions in Third World Countries
Bangladesh like many other Third World countries and unlike the United States or Japan has a culture that is not
conducive to economic development. In Third World countries characteristics include redistributive rather than
productive economic activity, creation of monopolies rather than competitive conditions under which
individuals and firms can compete, and restriction of opportunities through cultural norms and traditions rather
than expansion of them.29
Perhaps the greatest worry to development officials is that they seldom invest in
education to increase productivity. This occurs because short-sightedness in Third World countries may place a
greater value on a child‘s contribution to the family now, instead of investing in a child‘s education which may
not benefit the parents in the future.30
The organizations that develop in these cultures become efficient at
making the society even more unproductive and the basic institutional structure even less conducive to
productive activity. Grameen Bank started out in Bangladesh to increase income and wealth for the poorest
people in that society. The story below describes how they have achieved what was once thought to be
impossible—giving loans to the poor and landless without collateral.
Bangladesh: The Socio-Economic Setting
Bangladesh is one of the world‘s least developed countries by any conventional standard. The World Bank
estimated per capita income at $170 in 1988, with an annual growth rate of 0.4 percent between 1965 and 1988.
Estimates of the extent of poverty in the country suggest that 70 percent or more of the population lives below
the poverty line. Agriculture is the primary economic activity, however, most of the population is landless and
data show that the landless are a growing percentage of the total population. Low wages, shortage of financial
capital and low level of skills and literacy all contribute to low productivity. The Government has not been
effective in playing a leading role in economic development, and since 1970, Bangladesh has seen the
emergence of national non-governmental organizations contributing effectively to development activities.31
Why the Grameen Bank?
The method the Grameen Bank uses creates an alternative market and one that those practicing conventional
economics and banking would not touch. Conventional banks and conventional theory have ignored the poor as
a market segment assuming that the poor have no income earning capacity. If the poor cannot earn at all, how do
they survive? This question points to a deeper issue of what are the basic human resources that we all possess.
The poor have survived as well as others through their capacity for work or labor and for learning. The Grameen
Bank model of targeted rural credit is simple—give credit to the very poor in rural areas who already have the
skills required to operate a viable productive enterprise, but not the small amount of capital needed.32
This
approach is the basis for all income and wealth generating activities and Grameen Bank has developed the
institutional setting to increase both economic activities, especially for the poor.
Through acquiring control over the capital needed for the independent application of a person‘s skills, they
are able to fully utilize their productive capacity. This begins a process for ensuring continual increases in assets
and income. With increased assets, the capital from which one has to work with becomes larger, and therefore
leads to higher income from still greater use of one‘s skills.33
This approach challenges the economic
assumptions of diminishing returns of human capital and the ability of all individuals to be productive regardless
of socio-economic status.
History of the Grameen Bank
The Grameen Bank in Bangladesh was founded in 1976 by Dr. Muhammad Yunus to explore the possibilities
and to design a framework that brought the rural poor into mainstream economics with the development of a

viable banking network. The purpose of the project was to secure loans for the landless villagers, so that they
could use the money to purchase materials and supplies to create opportunities for self-employment. Dr. Yunus
reasoned that if financial resources could be make available to the landless people, at terms and conditions that
were appropriate to the people, these millions of small people with their millions of small pursuits can add up to
create the biggest development wonder.
Initially, the project operated as an action research project that involved only one village at the time, Jobra.
The Bangladeshi Krishi (Agriculture Bank) would not arrange the loans immediately, because without collateral
the bank would not make loans to the poor. It was through this initial experience that Dr. Muhammad Yunus
learned that banks do not give loans to those who are landless and illiterate. Only after Dr. Yunus served as the
personal guarantor, would the bank permit the loan. To insure repayment of the initial loan, borrowers made
daily payments of very small installments. Furthermore, without supervision of the borrowers there was risk for
abuse of the loan for other purposes than income generating activities. The solution was to set up cooperative
societies that would meet every week. Grouping the borrowers turned out to be a highly effective means of
encouraging peer pressure and support for honest utilization and full repayment of the loans. If any of the
borrowers failed to repay a loan, no one in the group would receive another loan. This became the central
organizing principle of Grameen Bank—creating economic incentives for poor people to improve their social
condition and to ensure that their peers enjoyed similar success.
Once released from the exorbitant rates the moneylenders were charging, the people showed amazing
ingenuity in making money with small amounts of income. Dr. Yunus was able to continue to secure loans from
the bank in this manner, but to process a new loan entailed a lot of difficulties and often it took a new loan
proposal four to six months to get approved. Dr. Yunus approached the Krishi Bank in Dhaka with a plan. He
persuaded them to ask one branch to work with his operation, so he could experiment with a system of credit
without collateral for the poor. The operation started under the name ―Grameen Bank Project‖ and later
converted to Grameen Bank when it obtained a bank charter. This title signifies its mission and when translated
means ―village‖ or ―rural‖ bank.
When the project began to attract attention of some influential people in Dhaka, Yunus challenged them to
expand the project nationwide. They declined, but when pressured from Yunus, agreed to support him by
bringing the project to another region of Bangladesh on a larger scale. The region suggested was Tangail, a
region north of the capital of Dhaka, and one of the poorest districts in Bangladesh. Yunus liked the idea of
going to Tangail and believed that if he could succeed there his ideas would work anywhere in Bangladesh.
Yunus succeed in Tangail and produced the same results similar to the earlier action research project. In
September 1983, Grameen Bank was issued a charter that established it as an independent bank with sixty
percent ownership controlled by the government and forty percent by the landless who would borrow from it.
Revised in 1990, Grameen Bank removed control from the Government and moved it into the hands of the
landless who borrowed from the bank.
By May 1994, the bank had 1,915,000 members in 34,243 villages served by 1,042 branches. At this time,
cumulative loan disbursement exceeded $1 billion and total savings in the Group Fund was $80.1 million.
Another measure of its financial success in the endeavor is the calculation of the percentage of loans overdue.
Grameen calculated the percentage of loans overdue after two years at 1.32 percent and those unpaid at one year
where 3.49 percent of the total amount.34
Bank Organization and Activities
Established early on, the model for Grameen Bank rested on applications of small non-collateral loans to the
poor landless people in Jobra and Tangail. The organization was copied and refined into a process that continues
to ensure success of the bank. Instead of insisting on personal collateral, Grameen Bank asks landless villagers
to form into small groups of five people of the same sex35
and then to form into groups of 50. The ten groups of
five each meet regularly with a bank worker for training and with each other to discuss their business ideas. Each
loan is approved by a smaller group of five, by the larger group, and finally by the bank's officer in the field.
Two people in a small group can then apply for a loan. If these two group members make regular payments over
the next two months than two more members are extended loans. The chairperson of the group is the last to

8 Chris Glick
receive a loan and does so only if the previous four make timely payments. Women borrowers use their loans for
such things as buying a cow, paddy husking, and cattle fattening, while men tend to invest in paddy and rice
trading, cattle fattening and setting up grocery stores. As they depend on each other's success in repaying them,
the system works. The default rate is only 2.7 percent, a 97.3 percent on-time repayment record, and in recent
years the bank has made a profit on its activities.
One characteristic of the Grameen model of economic development is that awareness building,
consciousness-raising, and leadership development proceed rather than follow the delivery of credit services.
Grameen operations focus on group formation and initiating the loan process. This method takes place in each
village and a loan officer who resides near that village travels there to supervise all these activities. Once
individuals decide to take a loan and form a group they participate in what the bank calls continuous training,
learning bank rules and regulations and the ―Sixteen Decisions.‖ These are resolutions of improved social
practices that when successfully implemented enable members and their families to be healthier, better educated
and more productive (see Figure 1). Once all members demonstrate their knowledge of the bank and its
operations, the group must participate in weekly center meetings for about a month. After this initial orientation
and training, loans are extended to the first two group members. This organization of the center develops group
leadership skills and helps individuals undertake further self-help activities.
The Grameen Model also supports savings and investment. Five percent of each loan is automatically paid
into the Group Fund with members making an additional payment of one taka36
each week into the fund. This
Fund belongs to the group and its use is decided on by the group. The Group Fund is used when members lack
money in times of need, usually at a time of sickness or social ceremony, so that the borrower does not have to
make these payments out of their own capital. Additionally, each member pays about 25 percent of their total
interest payment into an Emergency Fund that serves as life and accident insurance for the members. This fund
is an insurance against default and proceeds of this fund are often used to help repay the loan of a member.37
Success of the Grameen Bank
Several studies have attempted to analyze the success of Grameen Bank in increasing income and assets, as well
as, the impact in other aspects of the borrowers lives. The bank has also found that their operations are
sustainable and that this type of activity can indeed be profitable.
1. The four principles of Grameen Bank—Discipline, Unity, Courage and Hard Work—we shall follow and advance in
all walks of our lives.
2. Prosperity we shall bring to our families.
3. We shall not live in dilapidated houses. We shall repair our houses and work Toward constructing new houses at the
earliest.
4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.
5. During the planting seasons, we shall plant as many seedlings as possible.
6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.
7. We shall educate our children and ensure that they can earn to pay for their education.
8. We shall always keep our children and the environment clean.
9. We shall build and use pit-latrines.
10. We shall drink tube-well water. If it is not available we shall boil water or use alum.
11. We shall not take any dowry in our son‘s weddings, neither shall we give any dowry in our daughter‘s weddings. We
shall keep the center free from the curse of dowry. We shall not practice child marriage.
12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.
13. For higher income we shall collectively undertake bigger investments.
14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help them.
15. If we come to know of any breach of discipline in any center, we shall all go there and help restore discipline.
16. We shall introduce physical exercise in all our centers. We shall take part in all social activities collectively.
FIGURE 1 The ―Sixteen Decisions‖ of the Grameen Bank model. Source: Susan Holcombe, Managing to Empower: The
Grameen Bank’s Experience of Povery Alleviation (Alantic Highlands, NJ: Zed Books, 1995): 41–42.

Impact on Income and Assets
A Bangladeshi economist, Mahabub Hossain, has done two principal evaluations of Grameen Bank. In his
studies, he collected information on target and non-target families in five Grameen villages and two control
villages. He also included non-participating target families in the Grameen villages.
Hossian‘s findings indicate significant increases in member‘s income and assets. Survey data show that
Grameen Bank households had income that was 43 percent higher than those of non-participants in Grameen
villages. The largest income increases were in non-agricultural pursuits, particularly processing and
manufacturing, trading and transport activities. Another facet of success of those who borrowed was that they
generated new production or employment that typically would not have taken place. This is employment that
would not have taken place if the prevailing economic theory was practiced.
Hossain‘s findings also point out that the most direct effect of Grameen credit has been the accumulation of
financial capital by the poor. The study found large increases in the amount of working capital (a rate of 64
percent per year, adjusted for inflation, for 975 borrowers with an average membership of 2.25 years). The first
investments by borrowers were typically put into activities which generated additional income. However, after
three years the borrowers tended to put their money into social investments. This included housing, education
and sanitation all of which build upon one another to provide a better standard of living than thought possible.38
Additional studies have confirmed the success of Grameen Bank at the household and village level. At the
household level, participation in the program has increased income, asset accumulation, net worth, and other
household welfare indicators (such as contraceptive use, school enrollment, and so forth).39
A study by Shahidur Khandker found that
a program participating household owns 56 percent more resources and 51 percent more net worth than a
non-participating household;
participation has increased calorie intake, especially among female members of the household;
women‘s labor force participation is 66 percent among Grameen members as compared to 52 percent for
non-participants; and
school participation rate of girls is also higher for participants, 57 percent, as compared to 36 percent for
non-participants.40
Sustainability of the Banks Operations
The Grameen Bank from the start has relied upon subsidized funds and grants to support its institutional
development. However, through increased membership and increased lending activities, the Bank has reduced
its subsidy dependency from 23 percent of subsidy per taka lending in 1987 to 13 percent in 1993.41
Now nearly
55 percent of its branches are operating with profits. The Grameen Bank has proven that it is a sustainable and is
replaceable in other countries where market failure requires credit to be targeted, but where the existing financial
institutions cannot be used to deliver credit or are unwilling to deliver credit.
Lessons Learned from the Grameen Bank
The Grameen Bank succeeds because of the institutional arrangements it fosters in member villages. Group and
center operations are key to success of the Grameen Bank model. It is at this level where human and social
capital development takes place. The ―Sixteen Decisions‖ that every borrower must learn and practice help to
overcome the cultural aspects that keep the people in Bangladesh in poverty. There are the key elements of the
model that build the initial human and social capital in the borrowers, so that they can make better economic
decisions. This may be more important than the peer pressure used to ensure repayment. The group formation is
often pointed to as the most important element in the model because it is easily recognized as being different
from conventional practices. However, the group is secondary to the initial training the members receive and
helps to continue to insure repayment and success of the Grameen Model.

10 Chris Glick
Furthermore, the self-selection process of group formation itself contributes to the strength of the Grameen
Bank. Members choose whom to include in their group before they go to the bank to ask for a loan. This process
also helps members screen good borrowers from bad borrowers. The negotiation before approaching the bank
aids in a process of understanding and confidence building and the borrowers already know through this
arrangement that they can succeed.
Since the entire group serves as guarantor for the repayment of the loan, if a member is in default, no other
member may request a loan, so there is an economic incentive for other members of the group to provide help in
paying the loan. Because the group is responsible for repayment of each individuals loan the right kind of peer
pressure at times when a member tries to violate Grameen Bank principles and again peer support at times of
difficulty helps those who borrow from the bank to overcome such difficulties. If a member is having difficulty
repaying a loan, the other members of the group with or without the loan officer, work out a solution that assures
repayment to the bank.42
Organized groups provide the social and empowerment aspects of the Grameen model.
By participating in the group and the center over time, members acquire the self-confidence and skills to take on
other actions.
The Grameen Bank has shown that collective action when combined with sound economic decision making
provides a model for economic growth that otherwise would not have occurred. The Grameen Model
demonstrates that building human and social capital can be an effective program for poor and low income
individuals anywhere in the world. The human resources based model proposed here also has significant
implication for the Western world as well. Following the Grameen example, hundreds of organizations in the
United States and elsewhere have applied the methods of targeted group lending to address those currently
without access to credit.
Case Study: Shorebank Corporation
Urban America
For many years, America‘s cities have been in serious trouble. As urban growth extends the boundaries of
metropolitan regions outward, poor families and poor inner-city neighborhoods have become disconnected from
the opportunities and prosperity of their regions, the nation, and the emerging global economy.43
This presents a
serious crisis that Western capitalism has been unable to address and has led to some very serious problems in
these urban inner-city neighborhoods. An article in the Journal of the American Planning Association describes
the conditions in a study of high poverty versus low poverty neighborhoods:
More than 60 percent of families with children are headed by single women, compared to less than 20
percent in nonpoverty neighborhoods.
More than half of all adults have less than a high school education, compared to less than 20 percent in
nonpoverty neighborhoods.
More than 40 percent of working-age men are unemployed, compared to just over 19 percent in
nonpoverty neighborhoods in the central city.
Almost one if five youths of ages 16 to 19 are high school dropouts, compared to about one in ten in
nonpoverty neighborhoods.
One is three households receive welfare benefits, compared to only 11 percent of all central city
households.
As Erol Ricketts and Isabel Sawhill note, ―In these high poverty neighborhoods, the problems of poor education,
discrimination, joblessness, teen pregnancy, single parenthood, drug abuse, and crime all reinforce one another,
perpetuating a vicious cycle of poverty, inequality, violence, and despair.‖44
This has been described as a cycle
of poverty in which low per capita incomes are an obstacle to realizing the necessary amount of savings and
investment that is required to achieve economic growth. Moreover, in the concepts examined here these
neighborhoods lack any significant levels of human or social capital needed to pull themselves out of the above
conditions.

The factors above represent only one threat to the economic well being of America. Perhaps the greater
threat is the failure of inner-city school systems to adequately educate large numbers of the nation‘s children.
This becomes critical in a world where highly technical, knowledge based industries require vast amounts of
human capital that only education can provide.
None of these problems are insurmountable, however. The United States remains a tremendously wealthy
nation and the work ethic persists even in the distressed communities identified above. To overcome these
problems, programs must focus on community-led efforts to revitalize distressed urban neighborhoods and
reconnect these residents to the opportunities and obligations of American society. A strategy of place based
initiatives—such as targeted business and housing development in inner-city neighborhoods—will fail unless
they meet the needs of individual residents, such as education and training.45
The Shorebank Corporation in
Chicago has been following this strategy for over twenty years now and has shown considerable success in
rebuilding the community in several neighborhoods in the city.
Chicago’s South Side
The south side of Chicago is a half a world away from the rural villages of Bangladesh, but the social and
economic conditions of the residents of these neighborhoods in Chicago are not so different from the conditions
experienced by the poor in Bangladesh. The commonality between the poor people in Bangladesh and those in
America is that they are capable people.46
The South Shore neighborhood is defined by Washington Park to the north and Lake Michigan to the east.
Originally, it was an attractive residential section of the city, located just south of downtown Chicago. However,
like many poor neighborhoods in the late 1960s and early 1970s, Chicago‘s South Shore was a community in
distress. Much of the housing was deteriorating, businesses were leaving the area, and white residents were
fleeing for the suburbs. During the 1960s significant changes were taking place in the South Shore. As Ronald
Grzywinski notes:
[From 1960 to 1970,] South Shore went from lily white and middle class to overwhelming black and working
class. More importantly, the equilibrium vanished, and the community went from growth to a spiral of decline.
The flow of capital reversed direction; people stopped upgrading their homes; landlords stopped maintaining their
apartment buildings; store owners stopped improving their businesses and began to close them or move to other
parts of Chicago.47
This meant that many of the previous landlords no longer lived in their buildings, with absentee landlords
came mismanaged facilities. The welfare population was rising, as well as the number of households headed by
a single individual. The tax base was beginning to drop and so did City services in response. Tax delinquencies
were beginning to rise and property values stagnated. Crime was rampant and businesses fled. In the middle of
all this was the South Shore Bank, basically the only institution left in the neighborhood that had the economic
power to do anything. However at the time, the owners of the bank wanted to move out of the neighborhood to a
downtown location. It was around this same time that four interested individuals, Mary Houghton, Milton Davis,
Jim Fletcher, and Ronald Grzywinski, became interested in acquiring the bank.
The individuals came across a newspaper article about the sale of the South Shore National Bank to a group
of investors who were willing to purchase the bank on the condition that its operations could be moved to the
downtown. The federal Comptroller of Currency turned down the offer stating that the bank ―had failed to show
a persuasive reason for abandoning its service area.‖48
This left an opening for the four founders to make a bid
for the South Shore Bank, and on August 23, 1973 walked in the door and took over.
Philosophy Behind the Shorebank Corporation
The four founders were working in a nearby Hyde Park bank doing minority lending in the late 1960s and early
1970s. Having lived in an era of increased social consciousness, these four were engaged in community
organizations during the night in efforts to stem the decline of the surrounding neighborhoods. Ronald
Grzywinski stated, ―We saw that community organizations had identified the right issues but lacked the capital
and the technical competency to make a real difference.‖49
What they envisioned was a development bank—a

12 Chris Glick
bank that could be tough-minded about loans, qualify borrowers according to strict standards, make a profit, and
revitalize a neighborhood without driving out the people who lived there. They figured that such an institution
already existed and all they would have to do is find and copy it, yet as it happened, they have spent years trying
to create it.
The mission of the founders was supported in part by a number of amendments passed in 1970 by Congress
to the Bank Holding Company Act. These were significant because it allowed the institution envisioned by the
four interested individuals to design a special bank holding company that would have a real-estate-oriented,
community development subsidiary and a not-for-profit affiliate for job training and low-income housing.50
The
mission of the holding company was to become a socially motivated financial institution that would be able to
release the energy of local residents. Equally important was that it must both earn a financial return and provide
information and financial services.51
The Shorebank Corporation organized with the following elements:
a housing management and construction firm
a limited-dividend housing corporation
a Minority Enterprise Small Business Investment Corporation
a neighborhood financial institution along the lines of a credit union
a not-for-profit institute to obtain foundation grants, conduct research, and provide job training and other
social services
a community organization to serve as an investment trust, which would provide a vehicle for
neighborhood residents to participate in the development process.52
In the end, a traditional bank replaced the credit union because of the wider range of services it offered. This
type of bank holding company was attractive for a number of reasons. A bank symbolized economic stability
and strength that other institutions cannot match. Most importantly, a bank could offer a range of commercial
services to meet the needs of its borrowers.53
The Shorebank Corporation 1973 to Present
The South Shore Bank set out with a mission to build trust and confidence in the local community. To begin
with, the bank cleaned up its physical image, by restoring the facade, doing some interior work, creating a
parking lot, and finding a location for a drive-in branch. All these activities were connected with conveying a
commitment to the community. These activities were supplemented by changing banking hours, procedures for
opening an account, and minimum balance requirements were reduced all in the hope of attracting more
customers from the community to the bank.
The special appeals to the local residents did not result in an increase in the deposit base, and in fact, total
deposits declined initially. A new focus was needed if the bank was going to be able to build a base from which
to conduct its development lending activities. In 1975, a direct mail campaign targeting institutional investors
and wealthy, socially responsible individuals began to increase deposits. This logic reversed the flow of capital
out of the South Shore community and instead funneled it back into the bank. The premise was simple, ―Instead
of taking deposits from poor communities and using them to make loans elsewhere, South Shore was taking
deposits from outside to makes loans in the South Shore neighborhood.‖54
These new deposits became known as
―Development Deposits‖ and they were able to supplement the slowly growing deposit base of local residents.
Between 1974 and 1980, the bank provided extensive support for small businesses. The results where not as
expected, and through most of the 1970s the South Shore Bank limped along. As they looked for a strategy, they
found ―an unexpected group of entrepreneurs—‗Ma and Pa rehabbers‘—who rehab and manage 24-36 unit
walkup rental apartment buildings.‖55
This ―gray market‖ or ―informal market‖ was invisible to outsiders and
consisted of handymen who did household repairs, but had no financing, technical support, or networking
capacity. The bank has found scores of such people, including 200 black couples who renovate one apartment
house, then buy a second, a third, and so on.

This market of small business owners was almost invisible to any outsider when looking at the community.
Now they are the core of the community development strategy of the bank and represent a market that
conventional banks will touch.56
Yet the Shorebank Corporation has developed a program that fills this market
niche and is able to make a profit in addition to conducting economic development activities to revitalize the
South Shore neighborhood.
The bank concentrated these loans in the South Shore neighborhood and refused to lend outside its service
area.57
This strategy had the effect of each new loan serving to reinforce the previous ones. Through these real
estate loans the bank‘s conventional multi-family mortgage lending has been financing the rehab of 70-100
buildings a year. This type of investment has had a significant impact on the community by restoring 10,000
units of rental housing consisting of more than 30 percent of the housing units in the South Shore.58
It took the bank awhile to realize it, but these real estate loans were succeeding because of the
entrepreneurial skills of the builders‘ doing rehabilitation. Along with the banks financial success with this
market, the people doing the rehabilitation work have benefited. The bank originally set up meetings on the
weekend to provide a forum for the borrowers to discuss their knowledge with one another, through the years
this changed from a formal requirement to an informal setting that continues to today. This has provided a
support network for the entrepreneurs and has generated horizontal bonds that generate a sense of mutual trust
and cooperation. These types of activity have help to build social capital in the neighborhood that is crucial to
the success of these entrepreneurs.
This market is similar to certain craft manufacturing markets found in Italy. Robert Putnam has investigated
this and determined that these people display what he calls ―civic virtue‖ or ―an ingrained tendency to form
small-scale associations that create a fertile ground for political and economic development, even if the
associations are not political or economic.‖59
This civic virtue is pointed to as the missing independent variable
that will help explain economic development, even though it is hard to measure quantitatively. In the terms used
here, it is the social capital that goes unnoticed in the economic equation.
Besides the bank itself, the Shorebank Corporation holds a number of other subsidiaries that support its
mission of restoring markets and increasing opportunities in under-invested neighborhoods. Two for profit
subsidiaries, City Lands Corporation and Shorebank Capital Corporation, were created to promote real estate
development and to invest in minority enterprises. The Neighborhood Institute, a not-for-profit affiliate, is used
to provide comprehensive educational, job training and placement services to develop human capital in South
Shore.60
This organization allows each subsidiary to specialize in what it does best, while at the same time
providing a common theme and reinforcing one another. Recently, the bank has also become involved in a
number of projects outside the South Shore community to help other neighborhoods and regions learn from their
model of economic development. The subsidiaries and the non-profit affiliates allow the Shorebank Corporation
to tackle South Shore‘s development problems on multiple levels.61
By the mid-1980s, the holding company has
shown an ability to sustain itself profitably and contribute to its mission of revitalizing the South Shore
neighborhood.
Success of the Shorebank Corporation
Except in the early years, the bank has been consistently profitable since 1975. By 1985, it was producing a
healthy return on assets and compared favorably with other banks of similar size. Loan losses are low and the
Shorebank Corporation has been producing a substantial profit. Over the past 20 years, Shorebank has grown
from $44 million to $272 million in assets, and has done so by developing new markets and finding new
customers. The Shorebank‘s Development Deposits program has proven to be an effective approach to attracting
funds. Many of the depositors live outside of the South Shore neighborhood, including all 50 states and over 17
countries. People chose to open accounts because they know their money is being used for community
development activities. This practice of raising funds from outside the community is know as ―greenlining‖ as
opposed to ―redlining‖, and was used by the bank to support an inadequate deposit base from within the
community. The bank now has $135 million of Development Deposits, an amount that accounts for over 60
percent of total deposits and 50 percent of assets.62

14 Chris Glick
South Shore Bank makes about 75 percent of all the multifamily loans in the community. Of their total loan
portfolio of $125 million, real-estate loans account for $75 million, including $55 million in multifamily
buildings. The average yield is 11.25 percent, slightly above market; the delinquency rate (loan payments 30
days or more past due) averages 1 percent to 2 percent, as opposed to a national average of 3 percent to 5
percent; and their real estate losses ran one-tenth of 1 percent ($79,000) in 1990, which was well below
average.63
Even though the Shorebank Corporation has shown that it can compete with other holding companies
of similar size and still pursue a community development agenda, there has not been a good evaluation of the
comprehensive impact the bank has had on the South Shore neighborhood. One such study tried to do so, but
admitted that the methodology may have produced flawed results.64
Without this type of data it is hard to get a
full appreciate for the impact the bank has had on the development of the South Shore neighborhood.
Lessons Learned from the Shorebank Corporation
Rather than a regulatory solution or a government solution, community development financial institutions—
often banks that specialize in the economic development of low-income communities—represent a market-based
solution. The Shorebank Corporation has found a market that neither a conventional bank loans nor a
community development institution programs can address. In addition to development, these community
development financial institutions have a second, and equally important, objective: to be profitable.65
The
current capitalistic theory would be unable to predict the success of the Shorebank Corporation, because it
operates for both social and economic reasons it does not have to maximize profit to achieve its goals.
The extension of credit to entrepreneurs in the South Shore neighborhoods allows the bank to tap into a
stock of human capital untouched by the market. The bank‘s managers take a personal approach to lending by
meeting many community residents to learn about their needs and aspirations. When meeting with prospective
borrowers, bank lending officers carefully assess each applicant's character, skills, and business ideas. The
bank‘s lending officers have come to know the area and the market. The information that arises from targeting a
particular area is important when making loans to low and moderate income individuals. A conventional bank
will never make these types of loans because of the transaction costs. The premise behind their reasoning is
simple: it costs as much or even more to process a loan for a low income individual as it does for individuals
with high income. Therefore, a loan officer when working in the South Shore neighborhood often times has to
make a qualitative analysis of the perspective lender, because often the borrower does not have the skills or the
time to produce a formal business plan with a quantitative analysis of the venture. Through experience then, the
bank is able to reduce transaction costs and reduce its risk by concentrating on and evaluating only one market.
In addition to uncovering markets and promoting economic opportunity, the bank has concentrated its
efforts on human development needs.66
The Shorebank Corporation has done this through applying market
principles to labor force development and job creation through the activities of their subsidiary companies. The
efforts of the subsidiaries center around three major activities:
private sector job creation through financial and technical assistance to manufacturers;
reducing labor market inefficiencies which foster high unemployment; and
enhancing the market appeal of targeted communities.67
The benefits of this approach are numerous. It allows the Shorebank Corporation to be both a lender and an
initiator of development. The two activities tend to reinforce one another and prime the pump for more
development.68
By targeting their lending to a specific geographic area and by drawing capital into the community, they
hope to reverse the process of decline. This allows Shorebank Corporation to manage its risk by making its
loans "support one another." For the first 15 years, the bank refused to lend outside the South Shore
neighborhood, and targeted specific sub-neighborhoods to create mutually reinforcing programs. The effects of
targeting credit are important in the success of this program. The result of this is that each loan is able to build
upon one another to create a base of redevelopment activities from which to grow. Most banks will make loans
in several neighborhoods or regions and therefore can only make the loans that have low risk.

As pointed out earlier, the social capital of a neighborhood is valuable in creating economic development.
In tightly knit communities, strong intra-neighborhood relations are a valuable source for uncovering jobs. The
social networks in these neighborhoods can provide support motivation, training, job search information,
transportation, day care and housing. The Shorebank Corporation has realized that the barriers to building social
capital in distressed neighborhoods are overwhelming. To start to revitalize these areas strong institutions are
required to lead the process. ―Those institutions must display clarity of purpose, adequate capital, staying power
and diverse skills.‖69
All of these efforts contribute the success of the Shorebank Corporation and provide a workable model for
economic development. The bank has started to replicate its efforts in other cities and regions in the United
States including Detroit and Arkansas. Additionally, the bank has used its experience to help to finance
developing markets in Europe. The corporation through these efforts has shown that there are a number of areas
where market failures require a creative solution to economic development and one that focuses on building
human and social capital.
Conclusion
Through an examination of the arguments and the two case studies, this paper has shown that human and social
capital are important elements in economic development—if not the most important elements. Financial
institutions are one example of the role that institutions play in the economy and society. In both Grameen Bank
and Shorebank Corporation, the focus on the entrepreneurial ability of low income individuals is the key to their
success. Mary Houghton states,
The growth of small firms achieves the benefits of wealth accumulation, increased employment, and multiplier
effects in the local economy. While firm growth is the quickest route to employment and multiplier benefits, the
ability of lower income residents to take on entrepreneurial activity is one of the few routes to long term structural
change in low income communities. It provides a superior option to capital accumulation than low wage
employment.70
Both institutions through the extension of credit are able to fully release the energy of these entrepreneurs. This
signifies that a significant change must take place in the financial community and society to produce significant
changes for those at the lower socio-economic levels. In the same way that earlier generations learned the
necessity of permanent, self-sustaining hospitals, colleges, and museums, this generation must recognize the
need for permanent financial institutions as the ones described here.
Under the prevailing economic theory the actions of Dr. Muhammad Yunus and the four founders of the
Shorebank Corporation cannot be predicted. This is because the focus for these institutions is only partially
motivated by maximizing profit. Even harder to for economics to understand is the social agenda these
institutions promote reaches individuals left outside the market. This is important because these institutions work
to create markets where the previously did not exist and expand markets that are unable to compete in a global
economy.
Finally, the prevailing economic theory needs to be revised to incorporate the effect that culture and society
has on individuals. Most people can be assumed to act rationally if they are raised in a society where tradition
and education supports this type of thinking. However, in certain countries, the culture serves to stifle economic
growth and opportunity. All this points to a modification of current economic theory and policy. Only when we
discard our antiquated notions of economics will we be able to focus on the real source of growth and find
solutions to use in promoting better lives for all in the twenty first century.

16 Chris Glick
Notes
1. See, for example, Edward O. Welles, ―It‘s not the Same America,‖ Inc., (May 1994): 82–98. This articles reviews
several problems that lower income individuals in the United States experience because of changes in the economy. The
premise of the article is that it is now harder than ever for those at the bottom rung of the economy to work their way up the
ladder to succeed.
2. Francis Fukuyama, ―The End of History?‖ National Interest (Summer 1989): 7.
3. Paul Krugman, ―The Myth of Asia‘s Miracle,‖ Foreign Affairs 73 (6) (Nov/Dec 1994): 70.
4. Emphasis added.
5. Joseph E. Stiglitz, ―Some Lessons from the East Asian Miracle,‖ The World Bank Research Observer 11 (2) (August
1996): 156.
6. Ibid., 163.
7. Ibid.
8. This is a summarization of the arguments made in Adam Smith‘s An Inquiry into the Nature and Causes of the
Wealth of Nations (London: Printed for W. Strahan and T. Cadell et al., 1776). These are recognized as being the basic
premises of classical economics and most economic theory is based on these assumptions.
9. Lester Thurow, The Future of Capitalism (New York: Murrow, 1996), 277.
10. Ibid., 304.
11. Ibid., 257.
12. Douglass C. North, Institutions, Institutional Change, and Economic Performance (New York: Cambridge
University Press, 1990), 17.
13 Robert D. Putnam, ―Bowling Alone: America‘s Declining Social Capital,‖ Journal of Democracy (1995): 65.
14 Ibid., 66.
15 Ibid., 69. In his article, Putnam measures membership in several civil organizations and activities. Of those in his
paper, the ones listed here are the most relevant to pointing out that social organization and participation is important in
economic outcomes.
16. Nicholas Lemann, ―Kicking in Groups,‖ Atlantic Monthly (April 1996).
17. The main premises behind the human resources theory of economic development were modified from discussion of
this topic in the lectures of Dr. Salim Rashid at the University of Illinois at Urbana–Champaign. Many of the thoughts for
this paper were developed under his guidance and that of Dr. Edward A. Kolodzeij.
18. Roger L. Miller, Economics Today (New York: HarperCollins 1994), 408.
19. Thurow, 279.
20. Richard Pomfret, Development Economics (New York: Prentice Hall), 217. This ideas here come from Chapter 15,
which covers the concept of Human Capital in economic development. The location of this material in the book indicates
the importance it has received in economic literature.
21. Thurow, 280.
22. Ibid., 309.
23. Putnam, 67.
24. Kusum Nair, Blossoms in the Dust: The Human Factor in Indian Development (New York: Praeger Publishing
1961), xiv. This is an excellent book that describes how culture affects development efforts specifically in India, but has
broader implications for this paper. Many of the facets of culture in India that prevent development are seen in other Third
World countries including Bangladesh.
25. Ibid., 159.
26. North, 4.
27. Nair, 194.
28. This term was introduced through a personal interview with Mary Houghton, president of the Shorebank
Corporation, on April 24, 1997.
29. North, 9.
30. Pomfret, 218.
31. Susan Holcombe, Managing to Empower: The Grameen Bank’s Experience of Povery Alleviation (Alantic
Highlands, NJ: Zed Books, 1995), 36–7.
32. Ibid., 38–39.
33. David S. Gibbons, The Grameen Reader: Training Materials for the International Replication of the Grameen
Bank Financial System for Reduction of Rural Poverty (Dhaka, Bangladesh: Grameen Bank, 1992), 57.
34. See, for example, Gibbons,15–57; Holcombe, 37–38.
35. Since Bangladesh is a Muslim country, the bank separates male and female borrowers from one another.

36. The taka is a unit of currency in Bangladesh.
37. Atiur Rahman, ―Factors Contributing to the Excellent Repayment Performance of Grameen Bank.‖ Paper presented
at the seminar on Issues in Rural Loan Recovery in Bangladesh, Ohio State University, 14 December 1986; Grameen Bank
Evaluation Project, Working Paper No. 6, 9–13.
38. Holcombe, 49.
39. Shadidur R. Khandker, Poverty Reduction Strategy: The Grameen Bank Experience, HRO Dissemination Notes,
Number 23, February 1994.
40. Ibid.
41. Ibid.
42. Holcombe, 39–41.
43. Michael A. Stegman and Margery Austin Turner, ―The Future of Urban America in the Global Economy,‖ Journal
of the American Planning Association 62 (2) (Spring 1996): 158. In this article, Stegman and Turner seek to determine the
what is happening in America‘s global cities and to start to put some quantitative numbers together to get a handle on the
extent of the problems. They also propose planning solutions that start to address the growing inequalities between the rich
and the poor.
44. Erol R. Ricketts and Isabel V. Sawhill, ―Defining and Measuring the Underclass,‖ Journal of Policy Analysis and
Management 7 (1988): 316–325. As quoted in Stegman and Turner 1996.
45. Stegman and Turner, 159–162.
46. David Osborne, ―Bootstrap Banking,‖ Inc. (August 1987): 72.
47. Ronald Grzywinski, ―The New Old-Fashioned Banking,‖ Harvard Business Review (May–June 1991): 89.
48. Ibid.
49. Ibid.
50. Ibid., 88.
51. Shorebank Corporation, ―The Business of Restoration: Uncovering Labor Markets,‖ 1995 Annual Report: 4.
52. Christine C. Remey, ―Shorebank Corporation,‖ Harvard Business School, 9–393–096, 27 (April 1994): 2.
53. Ibid., 3.
54. Ibid., 4.
55. Mary Houghton, Lessons about Economic Development Interventions, Shorebank Corporation, Revised Draft #4,
28 February 1997, 1.
56. See, for example, Gryzwinski 1991; Shorebank Corporation, 1996.
57. The bank originally concentrated efforts in a mile-by-mile and one-half zone surrounding the bank.
58. Grzywinski 1991, 96; Houghton, 1995, 10.
59. Lemann,1996.
60. Shorebank Corporation, 8.
61. Remey, 6.
62. Benjamin C. Esty, ―South Shore Bank: Is It The Model of Success for Community Development Banks?‖ Journal
of Psychology and Marketing 12 (8) December 1995: 793.
63. Grzywinski, 66.
64. The study by Benjamin Esty tried to evaluate the impact the bank has had on the South Shore community, but the
methodology followed may have produced flawed results. Instead of measuring impacts at the block group and tract level,
he used community area data that is compiled by the city of Chicago. Community areas are compilations of several tracts
that represent historical neighborhoods in Chicago. At this level of abstraction, the study was not able to match the service
area served by the South Shore Bank, therefore the results do not reflect an accurate picture of the development impact on
the area.
65. Esty, 790.
67. Ibid., 12.
68. Esty, 793–3.
70. Mary Houghton, 8.

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