The Diffusion of Microfinance

Title The Diffusion of Microfinance
Author Name Abhijit Banerjee, Arun G. Chandrasekhar, Esther Duflo and Matthew O. Jackson

The authors study the impact of the choice of injection points in the diffusion of a new product in a society, by developing a model of word-of-mouth diffusion and then applying it to data on social networks and participation in a newly available microfinance loan program in 43 Indian villages. The model estimates suggest that participants are seven times as likely to pass information compared to informed nonparticipants, but information passed by nonparticipants still accounts for roughly one-third of eventual participation. An informed household is not more likely to participate if its informed friends participate. Two new measures of how effective a given household would be as an injection point are proposed. The centrality of the injection points according to these measures constitutes a strong and significant predictor of eventual village-level participation.

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