Participating in Transfer Networks: The Family versus the Community

Una Okonkwo Osili, Indiana University
Cagla Okten, Louisiana State University

Families and community organizations can play an important role in providing credit, insurance and access to services, particularly where formal markets are less developed. In this paper, we investigate the determinants of participation in family-based and community networks using data from Indonesia. To our knowledge, this paper represents a first attempt to formally examine this relationship. From our results, community organizations have a weak ability to displace family-based networks. However, we also uncover important complementarities between the two networks. Particularly interesting are results on family variables: Family network size and the frequency of intra-family interactions have a positive effect on participation and access to credit with the community network. One potential explanation for this finding is that family networks may enhance the benefits (or lower the costs) associated with participating in the community network. In particular, family networks can provide screening, monitoring and enforcement advantages to community credit institutions.