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The extreme hunger and deprivation that recurs every year in the lean season in northern Bangladesh, locally known as the Monga, is mainly due to the malfunctioning local labor and credit markets. Using data covering 5600 extreme poor households in the Monga-prone region, we investigate in detail the role of social capital in securing employment and obtaining informal loans. Correcting for the endogeneity of social capital by the heteroscedasticity-based method proposed by Klein and Vella (J Econom 154:154–164, 2010) and also by the standard IV method for a robustness check, we document that social capital plays an important role in obtaining both wage- and self-employment. We also document a weak negative effect of social capital on obtaining informal loans. We explain our results in terms of the role of horizontal and vertical components of our measures of social capital in influencing different outcomes.

The extreme hunger and deprivation that recurs every year in the lean season in northern Bangladesh, locally known as the Monga, is mainly due to the malfunctioning local labor and credit markets. Using data covering 5,600 extreme poor households in the Monga-prone region, we investigate in detail the role of social capital in securing employment and obtaining informal loans. Correcting for the endogeneity of social capital by the heteroscedasticity-based method proposed by Klein and Vella (2010) and also by the standard IV method for a robustness check, we document that social capital plays an important role in obtaining both wage- and self-employment. We also document a weak negative effect of social capital on obtaining informal loans. We explain our results in terms of the role of horizontal and vertical components of our measures of social capital in influencing different outcomes.