The research addresses the missing link between social capitaland analyses of household welfare and poverty. First the relationshipbetween social capital and household welfare is analysed using a socialcapital index and a heterogeneity index. The social capital index iscalculated using different dimensions: density of membership, attendanceat meetings, cash and kind contributions and decision making in localorganisations/associations. Heterogeneity index is based on differencesin incomes, ethnicity, education and political affiliations in thecomposition of organisations. Endogeneity of social capital withhousehold expenditure is tested through an Instrumental Variableapproach. The relationship between social capital and probability ofbeing poor is analysed through a logit model. The analysis uses datacollected form 1050 households in and around the cities of Karachi,Lahore and Quetta. The main results indicate that social capital(however measured) has a positive impact on the welfare of thehousehold. The study concludes that social capital and human capitalhave the same returns. A powerful result of the research is thathouseholds with social capital at their disposal are likely to be lesspoor and that poverty is less when households share risks thoughbuilding associations and through collective action. The research hassome policy implications which can be useful in building up socialcapital in the country.