Abstract
The paper examined the mediating role of social networks in the relationship between financial intermediation and financial inclusion of poor households in rural Uganda. The paper used SPSS (statis...
Highlights
Based on the argument that financial intermediation is premised on mitigating risks that arise due to lack of perfect information and knowledge in financial markets (Boyd & Prescott, 1986; Ramakrishnan & Thakor, 1984), social networks act as a conduit for information flow and sharing among actors, especially the deficit units who borrow from financial intermediaries
Floro and Yotopolous (1991) observe that social ties and the resulting potential for sanctions between poor households help to mitigate adverse selection and moral hazard problems in joint liability lending contract, especially when borrowers enjoy a social leverage with one another that extends beyond the lending contract
The study examined the mediating role of social networks in the relationship between financial intermediation and financial inclusion in rural Uganda
Summary
Based on the argument that financial intermediation is premised on mitigating risks that arise due to lack of perfect information and knowledge in financial markets (Boyd & Prescott, 1986; Ramakrishnan & Thakor, 1984), social networks act as a conduit for information flow and sharing among actors, especially the deficit units who borrow from financial intermediaries.From the theoretical perspective, social network helps in solving the problem of information asymmetry (Akerlof, 1970), which is rampant in financial markets. Based on the argument that financial intermediation is premised on mitigating risks that arise due to lack of perfect information and knowledge in financial markets (Boyd & Prescott, 1986; Ramakrishnan & Thakor, 1984), social networks act as a conduit for information flow and sharing among actors, especially the deficit units who borrow from financial intermediaries. Social networks in forms of strong and weak ties act as conduits for information flow and sharing (Granovetter, 1973, 2004). Strong & weak ties and structural holes in social networks enrich information flow between different clusters of poor households, resulting into increased access to resources, markets, and new opportunities as information overlap is minimized (Burt, 2001). Social networks premised on relations, ties and interdependence among actors can result into information flow and sharing about scarce resources Social networks premised on relations, ties and interdependence among actors can result into information flow and sharing about scarce resources (see for e.g. Gretzel, 2001; Wasserman & Faust, 1994)
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