Nber Working Paper Series the Diffusion of Microfinance

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. Abhijit Banerjee MIT Department of Economics E52-252d 50 Memorial Drive Cambridge, MA 02142-1347 and NBER [email protected] Arun G. Chandrasekhar MIT Department of Economics 50 Memorial Drive, E52 Cambridge, MA 02142 [email protected] Esther Duflo Department of Economics MIT, E52-252G 50 Memorial Drive Cambridge, MA 02142 and NBER [email protected] Matthew O. Jackson Department of Economics Stanford University Stanford, CA 94305-6072 and CIFAR and also external faculty of the Santa Fe Institute [email protected] THE DIFFUSION OF MICROFINANCE 2