Over the last 40 years, microfinance has been perceived as a fundamental social, economic and financial mechanism for providing the impoverished who are considered as unbankable by the formal financial sector with access to credit. The highly acclaimed innovation of microfinance mechanism is its community-based group lending model. Unlike the conventional banks requiring the physical collateral as the premise for people to seek for loans, by adopting the group lending model, microfinance uses the peer pressure as the monitor to assure the repayment. Within this framework, microfinance institutions have become increasingly prominent in the field of international development for helping the impoverished start to engage in the income-generating activities. Success in assuring a high rate of repayment through the so-called peer pressure, which leads me to ponder the essence of peer pressure. The so-called peer pressure virtually is in consistent with Putnam's definitions of social capital. Social capital in its nature referring to social trust, social norms and social networks, functions as the monitor forcing borrowers to keep up their obligations. After carefully examining the principles of veteran members selecting would-be participants to form the self-help groups to request loans from microfinance institutions, I found out that reputation is the primary principle. The data collected from the survey indicate that almost no member ever introduced unknown people to the self-help group. And the core social norm embedded in self-help groups helping overcome the opportunism is repaying your loan on time, otherwise you will be ostracized from the socioeconomic system in the community. After using the microfinance institutions as the focus to have a comprehensive understanding of the nature of social capital, I go further to explore the correlations between social capital and the performance of microfinance institutions. This is closely linked to the prominent argument that social capital like any other conventional capital is able to produce economic effects. In this research, I draw on Collier's argument in terms of how social capital generating economic effects arising from a non-market interactions. Within this framework, this research attempts to verify how the social capital embedded in microfinance institutions facilitates the flow of information, provides knowledge of reliability of members and minimize the default risk. These results do have some implications for the international development, since both microfinance mechanism and social capital are all associated to poverty reduction. I hope through this research to have a better understanding of how the academic theory of social capital is linked to concrete microfinance institutions in the real- world setting generating economic benefits to the rural poor.