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Peer-to-Peer Lending and Financial Inclusion with Altruistic Investors

Aleksander Berentsen and Marina Markheim ()

MPRA Paper from University Library of Munich, Germany

Abstract: Peer-to-peer lending platforms are increasingly important alternatives to traditional forms of credit intermediation for small value loans. There are high hopes that they improve financial inclusion and provide better terms for borrowers. To study these hopes, we introduce altruistic investors into a peer- to-peer model of credit intermediation. We find that altruistic investors do not improve financial inclusion but that the borrowing rates are lower than the ones obtained with self-interested investors. Furthermore, investors with strong altruistic preferences are willing to finance projects which generate an expected loss to them. For a certain range of parameters, the model's allocation is observationally equivalent to a model with self-interested investors with low bargaining power. Outside of this range, the model generates allocations that are not incentive feasible in a model with self-interested investors.

Keywords: altruistic preferences; financial intermediation; financial inclusion; peer-to-peer platforms (search for similar items in EconPapers)
JEL-codes: D11 D14 D2 D40 O1 O12 O16 (search for similar items in EconPapers)
Date: 2020-08-04
New Economics Papers: this item is included in nep-ban and nep-pay
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