Social networks and borrowing decisions: evidence from Indian older households

Purpose The challenge of access to borrowing from formal sources persists in developing economies, disproportionately affecting vulnerable groups such as older adults, women and the poor. In this context, the paper examines the role of social networks in determining access to borrowing from formal sources among older households in India. Design/methodology/approach This study analyzes data from the Longitudinal Aging Study in India (LASI) 2017–18, a nationally representative survey of older households (at least one member aged 45 and above), to examine the relationship between social networks and borrowing decisions. The study uses a Heckman sample selection model for the analysis to account for the problem of sample selection bias in estimates. Findings We find that households with stronger social networks are more likely to borrow from formal sources than households with weaker social networks. The joint estimation of bonding (ties with friends) and bridging networks (participation in social activities) suggests that bridging networks, characterized by connections that span diverse demographics, occupational and socioeconomic boundaries, appear to be more relevant for the diffusion of financial information as compared to more homogeneous bonding networks, which are formed through close relationships. Moreover, the relationship between social networks and borrowing from formal sources varies by geographical location and caste groups. Social networks increase the likelihood of borrowing from formal sources among rural households and those belonging to historically disadvantaged caste groups, particularly the scheduled castes, who have faced discrimination in accessing social and economic opportunities. Originality/value First, it extends research on social networks and financial decisions by examining borrowing decisions in a developing country context, whereas existing studies have focused on this relationship in developed economies. Second, it utilizes a unique survey of adults aged 45 and above to explore how social networks relate to the borrowing decisions of older households. Third, it distinguishes between bonding and bridging networks to show how their distinct characteristics result in different forms of information exchange relevant to borrowing decisions.