Microfinance meeting in Tzaneen, South Africa, February 2010, courtesy The Small Enterprise Foundation, Wikicommons

In a paper in Science, SFI External Professor Matthew Jackson and collaborators at Stanford and MIT show that microloan programs in India were more successful when well-connected people helped spread the word.

The researchers set out to test the assumption that contacting a handful of influential people – teachers, shopkeepers, and heads of local savings groups – was a more successful way of increasing participation than other methods.

They developed a new measure of social influence they call "diffusion centrality." The model 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 a program 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," Jackson says.

Participation in loan programs increases by about 11 percentage points on average when well-connected local residents are the first to gain access to the programs.

Jackson described the research as a unique opportunity to witness how social network structure affects human behavior.

Read the paper in Science (July 26, 2013)

Read the Stanford University news release (July 31, 2013)

Read the article in MIT News (July 25, 2013)