Social networks, phone money transfers, and rainfall shocks: evidence from Rwanda

Project Active from to Firms and Entrepreneurship

Social networks can help people deal with shocks. Much of the existing evidence focuses on risk sharing within small, local communities. When an entire community is affected by a massive shock, local social networks are often unable to cope. This research documents how a new technology is being used to share risk quickly over relatively long distances. Using detailed data obtained from Rwanda's main phone service provider, we study how peer-to-peer transfers of phone airtime responded to an earthquake that devastated the Lake Kivu region of Rwanda in February 2008. We show that in the days immediately following the quake an anomalously large amount of airtime was sent to people in the affected region. The effect is statistically significant and robust to alternative methodologies. The magnitude of the effect is non-negligible if scaled up to present day usage levels of mobile phones and peer-to-peer airtime transfers. We further investigate who is most likely to receive airtime. No particular socio-demographic group – e.g., men or women, rich or poor, old or young – is found significantly more likely to be sent airtime in the immediate aftermath of the quake. However, the structure of a person's social network has a large impact on received transfers. In particular, individuals with a large number of contacts living close by, but not so close as to have been directly affected by the earthquake themselves, are significantly more likely to receive airtime after the earthquake. These results suggest that the strength of social ties decreases with distance, and that strong local ties cannot insure against shocks affecting an entire neighbourhood. The airtime transfers we document were from private individuals. Only a small proportion of affected individuals benefitted from them. We therefore recommend setting up an emergency program whereby, in the immediate aftermath of a major disaster, a small amount of airtime or mobile money would be sent automatically to all phone numbers associated with cell towers in the affected area. For this to be possible, an emergency assistance system must be anticipatively set up in collaboration with phone providers. We make specific suggestions on how this can be achieved. Setting up this emergency program is of interest to all countries where phone owners rely on pay-as-you-go, and is thus particularly relevant for all developing countries, especially those affected by earthquakes or tsunamis. If adopted, the program is expected to save lives in a simple and cost effective way by enabling people to call for help if trapped under collapsed buildings or surrounded by water. It should assist emergency services function and locate individuals needing assistance. It can also help people overcome disruptions to local banks and cash dispensers by relying on mobile money or airtime transfers to pay for clean water, food, shelter, and medical assistance. The program palliates some of the worst effects of global warming, expected to trigger more extreme weather events such as hurricanes and floods.