Profitability Enhancement through Social Capital Formation: A Study on Group Farming by Joint Liability Groups

Abstract

The study examines the role of social capital in influencing the economic performance of group farming initiatives. In recent years, group-based farming arrangements such as JLGs have been promoted as an institutional mechanism to improve smallholder farmers’ access to credit, resources, and collective action, particularly in regions characterized by fragmented landholdings and limited individual capacity. Within this context, the study analyses how social capital formation within JLGs contributes to profitability in group farming. A total of 170 Joint Liability Groups were selected through multi-stage stratified sampling, considering crop diversification and area under cultivation. The study broadly follows the methodology of Woolcock and Narayanan for measuring social capital. The components of social capital—bonding, bridging, and linking—were derived separately for each JLG, and an aggregate social capital index was constructed. Separate indices were also developed for each component. The findings reveal that the overall level of social capital formation among the selected JLGs is relatively high, constituting 69 per cent of the maximum achievable value. Based on the level of social capital, the groups were classified into four categories: poor, medium, good, and excellent. The results indicate a positive relationship between social capital and profitability, with a statistically significant difference in profit levels across the categories of JLGs. Groups with higher levels of social capital tend to achieve greater profitability. The findings highlight the importance of strengthening social capital within farmer groups to enhance the effectiveness and profitability of JLG-based group farming and support sustainable collective farming among smallholder farmers.