Social capital, phone call activities and borrower default in mobile micro-lending

This study examines how the social capital of borrowers affects loan defaults in the burgeoning mobile micro-lending market. We analyze the individual-level transaction data provided by one of the world's largest mobile lending platforms. Focusing on identifying behavior-based predictors of financial transactions, we propose that mobile phone calling activities constitute a valuable measure of social capital. Drawing on the theoretical foundation of social capital theory, we identify and study two types of calling activities: incoming calls and outgoing calls, strong ties and weak ties. Our analysis shows that the more incoming calls a borrower usually receives, the less likely he or she is to default on a loan. However, the more outgoing calls a borrower makes, the more likely default will occur. We further find that calling activities associated with stronger social ties have greater predictive power for loan defaults than those associated with weaker ties. These findings demonstrate the relevance of phone call activities in consumers' financial decisions. They provide micro-lending companies with valuable alternatives for assessing borrower creditworthiness beyond “hard information”, such as credit scores and income, and further help them make more effective loan decisions.