NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Diffusion of Microfinance

Abhijit Banerjee, Arun G. Chandrasekhar, Esther Duflo, Matthew O. Jackson

NBER Working Paper No. 17743
Issued in January 2012
NBER Program(s):   TWP

We examine how participation in a microfinance program diffuses through social networks. We collected detailed demographic and social network data in 43 villages in South India before microfinance was introduced in those villages and then tracked eventual participation. We exploit exogenous variation in the importance (in a network sense) of the people who were first informed about the program, "the injection points". Microfinance participation is higher when the injection points have higher eigenvector centrality. We estimate structural models of diffusion that allow us to (i) determine the relative roles of basic information transmission versus other forms of peer influence, and (ii) distinguish information passing by participants and non-participants. We find that participants are significantly more likely to pass information on to friends and acquaintances than informed non-participants, but that information passing by non-participants is still substantial and significant, accounting for roughly a third of informedness and participation. We also find that, conditioned on being informed, an individual's decision is not significantly affected by the participation of her acquaintances.

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Document Object Identifier (DOI): 10.3386/w17743

Published: “The Diffusion of Microfinance” (with Esther Duflo, Arun G. Chandrasekhar, Matthew O. Jackson), Science Magazine, Vol. 341, no. 6144, July 2013.

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