A study of informal finance finds that in East Africa, money moves in very different patterns depending on whether societies are structured around family units or age-based groups.
People around the globe often depend on informal financial arrangements, borrowing and lending money through social networks. Understanding this sheds light on local economies and helps fight poverty.
"We found there are major impacts in that social structure really does matter for how people form financial ties," says Jacob Moscona, an MIT economist and co-author of a newly published paper detailing the results. The paper,"Age Set versus Kin: Culture and Financial Ties in East Africa," is published in the September issue of the. The authors are Moscona, the 3M Career Development Assistant Professor of Economics in MIT's Department of Economics; and Awa Ambra Seck, an assistant professor at Harvard Business School.
To conduct the research, the scholars first analyzed the Kenyan government's Hunger Safety Net Program , a cash transfer project initiated in 2009 covering 48 locations in Northern Kenya. The program included both age-based and kin-based social groups, allowing for a comparison of its effects. Here again, the researchers found financial flows aligned to kin-based and age-based social ties. In particular, they show that the pension program had large positive effects on child nutrition in kin-based households, where ties across generations are strong; the team found zero evidence of these effects in age-based societies.
"It's telling us something about how the world works, that social structure is really important for shaping these relationships," Moscona says."But it also has a big potential impact on policy."
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