We exploit random variation in the meeting frequency of microfinance groups during their first loan cycle to show that more frequent meeting is associated with long-run increases in social interaction and lower default. Relative to clients who met on a monthly basis during their first loan, those who met weekly are three and a half times less likely to default on their subsequent loan. Experimental and survey evidence suggests that the decline is driven by improvements in informal risk-sharing that result from more frequent social interaction outside of meetings.

These findings constitute the first experimental evidence on the economic returns to social interaction, and provide evidence on an alternative theory for the success of the classic group lending model in reducing default risk.