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Information asymmetries and identification bias in P2P social microlending

Information asymmetries and identification bias in P2P social microlending The Internet has created new opportunities for peer-to-peer (P2P) social lending platforms, which have the potential to transform the way microfinance institutions raise and allocate funds used for poverty reduction. Depending upon where decision-making rights are allocated, there is the potential for identification bias whereby lenders may be motivated to give to specific projects with which they have an affinity without regard to whether it represents a sound financial investment. Using data collected from Kiva, we present empirical evidence that distant upstream lenders do not have adequate information about local business and loan conditions to make sound microfinance funding decisions, but instead make decisions based on identification biases. Furthermore, more information provided on the P2P lending site about the prospective loan does not improve the lender’s information about the loan conditions, but rather exacerbates the identification bias effect. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Information Technology for Development Taylor & Francis

Information asymmetries and identification bias in P2P social microlending

Information asymmetries and identification bias in P2P social microlending

Information Technology for Development , Volume 23 (1): 20 – Jan 2, 2017

Abstract

The Internet has created new opportunities for peer-to-peer (P2P) social lending platforms, which have the potential to transform the way microfinance institutions raise and allocate funds used for poverty reduction. Depending upon where decision-making rights are allocated, there is the potential for identification bias whereby lenders may be motivated to give to specific projects with which they have an affinity without regard to whether it represents a sound financial investment. Using data collected from Kiva, we present empirical evidence that distant upstream lenders do not have adequate information about local business and loan conditions to make sound microfinance funding decisions, but instead make decisions based on identification biases. Furthermore, more information provided on the P2P lending site about the prospective loan does not improve the lender’s information about the loan conditions, but rather exacerbates the identification bias effect.

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References (37)

Publisher
Taylor & Francis
Copyright
© 2017 Commonwealth Secretariat
ISSN
1554-0170
eISSN
0268-1102
DOI
10.1080/02681102.2016.1247345
Publisher site
See Article on Publisher Site

Abstract

The Internet has created new opportunities for peer-to-peer (P2P) social lending platforms, which have the potential to transform the way microfinance institutions raise and allocate funds used for poverty reduction. Depending upon where decision-making rights are allocated, there is the potential for identification bias whereby lenders may be motivated to give to specific projects with which they have an affinity without regard to whether it represents a sound financial investment. Using data collected from Kiva, we present empirical evidence that distant upstream lenders do not have adequate information about local business and loan conditions to make sound microfinance funding decisions, but instead make decisions based on identification biases. Furthermore, more information provided on the P2P lending site about the prospective loan does not improve the lender’s information about the loan conditions, but rather exacerbates the identification bias effect.

Journal

Information Technology for DevelopmentTaylor & Francis

Published: Jan 2, 2017

Keywords: Microfinance; Kiva; development; identification bias; information asymmetries; P2P social microlending

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