As microcredit institutions, Self-Help Groups (SHGs) have become a prominent channel for the implementation of poverty alleviation programmes in Indian rural areas. A recent initiative for extending rural SHG concepts to urban areas in the Greater Hyderabad Area forms the background that has motivated this study. This study analyses how differences in the attributes of social capital of rural and urban societies matter in the formation of collective action in group-based microcredit. My research framework borrows from theories of social capital and collective action and distinguishes between structural and cognitive analytical dimensions. I apply a mixed-methods approach, contrasting results of a general survey with those from framed field experiments. From a mixed-methods approach, I conclude that field experiments may be a more accurate way to measure cognitive indicators compared to survey methods. Trust and solidarity, as important attributes of social capital formation, played a greater role in rural SHGs as compared to urban. Though rural and urban SHGs have been praised for their relative stability and were found to function similarly, these differences in their attributes concerning social capital may play out differently in the future. The concept of SHGs within the defined boundaries of microcredit fits appropriately in both rural and urban environments. However, differences beg the question of threshold levels for the functioning of these groups within which this statement may be true. Policy makers as well as practitioners in the field may consider this when pushing for the next generation SHGs in a rapidly urbanizing India.
