Fraying of the Ties that Bind: Community-level Financial Institutions and HIV/AIDS with Evidence from KwaZulu-Natal, South Africa

This article provides a theoretical and empirical investigation of the effect of the HIV/AIDS pandemic on community-level informal financial institutions such as rotating savings and credit associations. Our theoretical model illustrates that the mortality risk implied by such a mortality shock limits the scope of informal contracts, leading to more exclusive institutions. Using panel data from the high-prevalence area of KwaZulu-Natal, South Africa, we find that mortality at the community level substantially reduces the propensity to participate in informal financial institutions in ways that are consistent with the predictions of our theoretical model.