Markets or networks: Households’ choice of financial intermediary in Western China

We argue that households’ choice of financial intermediary is conditioned by households’ social network structures and socioeconomic status. Analyses show that households’ social network size and network composition affect their choices by limiting the quality and quantity of information, resources, and social influence one can access through social ties. Moreover, we find that high-SES families favor formal intermediaries due not only to their richer financial knowledge, higher affordability, and greater capacity to repay loans, but also to their high demands and special types of financial needs that can hardly be satisfied by embedded resources.

► Network composition affects families’ choices between formal and informal channels.
► Families with high socioeconomic status (SES) favor formal channels.
► Such preferences cannot be fully explained by the nature of embedded resources.
► Such preferences are associated with the quantity and types of financial needs.