Social Networks as Information Conduits for Online Credit Supply and Demand
Authors:
Linda Allen, Zicklin School of Business, Baruch College; Lin Peng, Zicklin School of Business, Baruch College; Yu Shan, Whitman School of Management, Syracuse University
Journal:
Management Science (2026)
Summary:
Intercommunity social networks act as information conduits that expand both the demand for and supply of fintech credit, especially in disadvantaged communities, while improving screening and credit allocation without increasing delinquency.
Research Questions:
1. Do social networks influence borrowers’ demand for fintech credit?2. Do social networks affect the supply and allocation of fintech credit?
3. Do social networks improve credit allocation by transmitting valuable information, particularly for disadvantaged communities?
What we know:
Before this paper, social networks have been shown to shape financial decisions by transmitting information, while fintech lenders can expand credit access for consumers and small businesses. At the same time, fintech lending markets face substantial information asymmetries that can hinder screening and efficient credit allocation. What remains less understood is whether broad, community level social networks can overcome these informational frictions and jointly influence both credit demand and credit supply in digital lending markets.
Novel Findings:
The paper provides the first causal evidence that broad intercommunity social networks shape both sides of the fintech credit market. On the demand side, borrowing activity in socially connected communities increases awareness and adoption of online lending among potential borrowers. On the supply side, stronger social connections to funding rich communities increase the likelihood that borrowers receive credit and improve lenders’ ability to screen borrower risk. Importantly, these effects are not simply driven by familiarity or preferential lending, as greater social connectedness is associated with better ex post loan performance. The benefits are especially meaningful for disadvantaged and traditionally underserved communities. Overall, the paper shows that community level social networks can mitigate information asymmetry and improve the efficiency and inclusiveness of credit allocation in digital lending markets.
Novel Methodology:
The paper develops a novel empirical framework that combines Facebook’s Social Connectedness Index with granular LendingClub data to measure how intercommunity social networks affect both credit demand and credit supply. To establish causality, the analysis employs two distinct shift share instrumental variable strategies. On the demand side, natural disasters in geographically distant but socially connected areas generate exogenous variation in peer borrowing activity. On the supply side, disclosures of financial adviser misconduct in socially connected areas generate exogenous variation in local deposits and, consequently, in borrowers’ social proximity to funding sources. By excluding same state and nearby peer areas and controlling for geographic proximity, the methodology isolates social network effects from common local shocks and spatial spillovers. This dual identification approach allows the paper to study both sides of the credit market within a unified causal framework.
Implications for Practice:
The findings have important implications for fintech platforms and lenders. Fintech platforms can leverage social networks to increase awareness and adoption of alternative credit, particularly in communities with limited access to traditional banking. For lenders, social connections can provide valuable community level information that improves borrower screening and helps direct credit toward borrowers who might otherwise be rationed.
Implications for Policy:
For policymakers, the results suggest that strengthening digital connectivity and information flows across communities can improve financial inclusion without necessarily compromising credit quality.
Implications for Society:
Social networks can help reduce informational barriers that limit access to credit. By spreading awareness of alternative lending options and transmitting valuable information about local credit conditions, intercommunity social connections can broaden financial access and improve the allocation of credit. More broadly, the findings suggest that digital social connectivity can complement formal financial institutions and help make credit markets more inclusive and efficient.
Implications for Research:
This research highlights community level social networks as an important mechanism shaping credit demand, credit supply, and information transmission. Future research can examine whether similar effects arise in other financial markets and how digital connectivity interacts with traditional financial intermediaries to reduce information asymmetry and improve financial inclusion.
Full Citation:
Allen, Linda, Lin Peng, and Yu Shan, Social Networks as Information Conduits for Online Credit Supply and Demand, Management Science (forthcoming)
Abstract:
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 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.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3537714