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aims to improve our understanding of the social mechanisms that link financial legitimacy and institutional change. As Max Weber and Karl Polanyi have argued, economic activity is rooted in social relations and collective understandings.

a.j.broome@bham.ac.uk

the industry is starting to revive, with regulators in a far more central role. Microlenders are attracting capital again. Grameen Capital India, a social-investment bank, says $144m of equity has been injected into microfinance groups in the past 12 months, more than double the amount in the preceding year. The International Finance Corporation, a multilateral lender, invested $18m in Equitas, a mid-sized group in the southern state of Tamil Nadu. SKS, whose loan book is now worth just $325m, raised $47.5m by issuing shares last year.

Microlenders’ annual interest rates are now capped at 10-12 percentage points above their own borrowing costs, leaving most charging 23-27%.

microfinance firms are looking beyond small, unsecured loans, which the central bank caps at 50,000 rupees ($910) a pop. Equitas last year set up a subsidiary that sells mortgages to poorer customers. Bandhan has similar plans. P.N. Vasudevan, the managing director of Equitas, says his housing loans, starting at 100,000 rupees, involve lower operating costs, in part because mortgage payments often get transferred via banks and do not require collection.

a basic form of banking called a village savings and loans association. This is based on savings rather than debt and managed by members of the community rather than professionals.

savings groups now have 4.6m members in 54 countries.

returns on savings are extremely high—generally 20-30% a year. Borrowers typically pay interest rates of 5-10% a month on loans that usually have to be repaid within three months. The rates may seem usurious but they are set by people who are in effect lending to themselves and saving the interest that they charge. A village savings scheme typically involves a small group (perhaps 15-30 people) who pool their savings. Each buys a share in a fund from which they can all borrow. All must also contribute a small sum to a social fund, which acts as micro-insurance. If a member suffers a sudden misfortune, she will receive a payout. Members select leaders and draft a constitution. The rules spell out how often the group will meet, what interest rates it will charge and what loans may be used for. At the end of a cycle (usually about one year), all the money accumulated through savings and interest is shared out according to members' contributions, and a new cycle starts. Once members have mastered the system, the groups they have formed can take on additional tasks such as providing training in agriculture, health, leadership and business.