Social Networks as Information Conduits for Online Credit Supply and Demand

We study how intercommunity social networks influence loan demand and supply on 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 increases funding likelihood and is associated with better ex post loan performance. We establish causality with shift-share instrumental variables (SSIVs) obtained from natural disasters (demand side) and financial adviser misconduct (supply side). Social connectedness expands both loan demand and supply in disadvantaged communities without increasing delinquency rates. Intercommunity social networks raise awareness of alternative lending platforms and transmit hard-to-obtain information that mitigates community-level information asymmetry.

This paper has been accepted by Will Cong for the Virtual Special Issue on Digital Finance.

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.06050.