Can Warm Glow Alleviate Credit Market Failures? Evidence from Online Peer-to-Peer Lenders

Matthieu Chemin () and Joost de Laat

Economic Development and Cultural Change, 2013, vol. 61, issue 4, 825 - 858

Abstract: This article looks at an institutional innovation in which Western investors lend peer-to-peer to poor country enterprises. Using a unique data set from an online lending platform called MYC4, we find that MYC4's Western lenders grant lower interest rates to pro-poor, socially responsible, and pro-female African projects. Using a novel instrumental variable to account for interest rates' endogeneity, we find that these lower interest rates substantially improve the repayment performance of borrowers and do not reflect profit-maximizing behavior. This new way to organize finance improves credit market efficiency and the success rate of poor country enterprises.

Date: 2013
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Working Paper: Can Warm Glow Alleviate Credit Market Failures? Evidence from Online Peer-to-Peer Lenders (2009)
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