Social Networks as Information Conduits for Online Credit Supply and Demand
Abstract
We study how intercommunity social networks influence demand and supply dynamics in fintech lending platforms. Demand for online loans rises following increases in online borrowing activity in geographically distant but socially connected areas. On the supply side, borrower-area social proximity to deposit-rich regions enhances funding likelihood and is associated with better ex-post loan performance. We establish causality with instrumental variables obtained from natural disasters (demand-side) and financial adviser misconduct (supply-side). We further show that social connectedness is particularly effective in expanding both loan demand and supply in disadvantaged communities, without increasing delinquency rates. These results are consistent with intercommunity social networks raising awareness of alternative lending platforms and transmitting otherwise hard-to-obtain information that mitigates community-level information asymmetry. Although our findings suggest that social networks improve capital allocation and expand credit access for underserved communities, the welfare benefits are muted for low FICO score individuals.