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Collaborative Research: Social Networks and Microfinance
Title: Collaborative Research: Social Networks and Microfinance
Principal Investigator: Matthew Jackson
Dates: May 1, 2012 - April 30, 2015
Sponsor: National Science Foundation
Intellectual Merit
The proposed research builds and expands on a previous NSF grant by the same set of PIs. Under that grant, we collected detailed network and demographic data on individuals across 75 villages in South India and matched those data with data on the diffusion of microfinance in 43 of the villages. The data were used as the basis for 5 working papers and one publication, all related to social networks and economic behavior. The current proposal expands on the project in several directions: (1) collecting a second round of data on the social networks in the 75 original villages to form a unique panel data set. Among other things, this will allow us to test several hypotheses regarding how social networks, including informal borrowing and lending, as well as other non-financial relationships, are altered by the availability of outside (micro-) financing. (2) running two randomized controlled experiments in some of the 75 villages: In the first, introducing a simple lottery that villagers can participate in with random "injection points" (first-informed villagers), and tracing the diffusion of information and advice about the lottery. In the second experiment individuals will chose a savings goal and will subsequently be paired with a monitor who will be given the responsibility to monitor the participant's progress towards their savings goal. We will investigate the impact of the network characteristics of the monitor, the monitored, and their interactions (e.g., social proximity) on the savings behavior of the participants. (3) Collecting a third round of data on households in Hyderabad, India, where microfinance institutions had to brutally stop their operations in the fall of 2010, prompting widespread default. We will investigate the role of peer networks in default decisions and in mitigating the consequences of the loss of access to microfinance.
Broader Impacts
The project has several broader impacts:
1. Data generation: The project is generating rich data that provide an extensive description of a large number of networks, both across many villages and including many types of relationships. These data are unique, and to our knowledge, there are none comparable for developing countries. We have made the first wave of data available for public use and we will make the rest of the data available as well.
2. Education: The first project was conducted in very close collaboration with Arun Chandrasekar, a graduate student at MIT, who was involved in every step of the data collection since his first year at MIT. He was a co-author on the main paper coming out of this project and authored 4 other papers with the data with other students. The project has also included other graduate students from Stanford as co-authors, and spawned an undergraduate honors thesis. We are committed to continued support of students through close involvement in the project.
3. Policy Implications: Worldwide, microfinance is at a key juncture. It was previously asserted that, partly through the strength of social networks, it had found a new solution to ensure high repayment rates without coercion. Now microfinance is under attack, and social networks have facilitated collective default. Understanding the role social networks have played and what stronger role they can play to facilitate poor people's access to financial service, can play an important role in designing new products.
Intellectual Merit
The proposed research builds and expands on a previous NSF grant by the same set of PIs. Under that grant, we collected detailed network and demographic data on individuals across 75 villages in South India and matched those data with data on the diffusion of microfinance in 43 of the villages. The data were used as the basis for 5 working papers and one publication, all related to social networks and economic behavior. The current proposal expands on the project in several directions: (1) collecting a second round of data on the social networks in the 75 original villages to form a unique panel data set. Among other things, this will allow us to test several hypotheses regarding how social networks, including informal borrowing and lending, as well as other non-financial relationships, are altered by the availability of outside (micro-) financing. (2) running two randomized controlled experiments in some of the 75 villages: In the first, introducing a simple lottery that villagers can participate in with random "injection points" (first-informed villagers), and tracing the diffusion of information and advice about the lottery. In the second experiment individuals will chose a savings goal and will subsequently be paired with a monitor who will be given the responsibility to monitor the participant's progress towards their savings goal. We will investigate the impact of the network characteristics of the monitor, the monitored, and their interactions (e.g., social proximity) on the savings behavior of the participants. (3) Collecting a third round of data on households in Hyderabad, India, where microfinance institutions had to brutally stop their operations in the fall of 2010, prompting widespread default. We will investigate the role of peer networks in default decisions and in mitigating the consequences of the loss of access to microfinance.
Broader Impacts
The project has several broader impacts:
1. Data generation: The project is generating rich data that provide an extensive description of a large number of networks, both across many villages and including many types of relationships. These data are unique, and to our knowledge, there are none comparable for developing countries. We have made the first wave of data available for public use and we will make the rest of the data available as well.
2. Education: The first project was conducted in very close collaboration with Arun Chandrasekar, a graduate student at MIT, who was involved in every step of the data collection since his first year at MIT. He was a co-author on the main paper coming out of this project and authored 4 other papers with the data with other students. The project has also included other graduate students from Stanford as co-authors, and spawned an undergraduate honors thesis. We are committed to continued support of students through close involvement in the project.
3. Policy Implications: Worldwide, microfinance is at a key juncture. It was previously asserted that, partly through the strength of social networks, it had found a new solution to ensure high repayment rates without coercion. Now microfinance is under attack, and social networks have facilitated collective default. Understanding the role social networks have played and what stronger role they can play to facilitate poor people's access to financial service, can play an important role in designing new products.