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In India, the well-connected drive microloan success

STANFORD (US) — When it comes to spreading information through a social network, a microfinance project in India shows that it really is about who you know.

When representatives from Bharatha Swamukti Samsthe, a microfinance institution in India, want to get the word out about a new loan program, they contact a handful of people—teachers, shopkeepers and heads of local savings groups—and ask them to spread the news.

The village leaders, it’s assumed, will be most effective in informing friends and neighbors about the program and getting people to participate.

But does it really work that way?

To find out, economists looked at who the best people are to contact to spread information through a social network and whether their influence affects participation.

The researchers developed a new measure of social influence—“diffusion centrality”—a model that incorporates not only how many friends a person has but how well connected a person is to other people who are well connected.

Looking at the operations of BSS in 43 villages outside Bangalore, the researchers found that participation in the microfinance program varied from about 7 percent to 44 percent, depending on who was initially told.

“In villages where they contacted very central people, they ended up with high participation, while in villages where they contacted less central people they ended up with low participation,” says Matthew Jackson, professor of economics at Stanford University.

Further, the researchers found that participation in loan programs increases by about 11 percentage points when well-connected local residents are the first to gain access to the programs.

“This suggests that policymakers may have a lot to gain—or lose—by hitting the right people first,” says Arun Chandrasekhar, assistant professor of economics.

Jackson describes the research, published in the journal Science, as a unique opportunity to witness how social network structure affects human behavior.

Six months before the bank went into the villages to offer loans, researchers collected detailed information about the local residents: everything from who borrows kerosene and rice from whom, to who gives advice to whom, and who goes to temple with whom.

“We were able to see how the network structure affected the diffusion of the loan program through the villages,” Jackson says.

Among the findings, the researchers discovered that program participants are seven times more likely to pass along information about the program to other households compared to nonparticipants. However, information passed by nonparticipants still accounts for roughly one-third of eventual participation.

They also found that an informed individual is not more likely to participate if his or her informed friends participate.

“Instead they seem to make relatively independent decisions which can depend on their personal characteristics,” Chandrasekhar says.

Source: Stanford University

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