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

Berentsen, Aleksander and Markheim, Marina (2020): Peer-to-Peer Lending and Financial Inclusion with Altruistic Investors.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: altruistic preferences, financial intermediation, financial inclusion, peer-to-peer platforms
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; D - Microeconomics > D2 - Production and Organizations; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

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