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Peer‐to‐peer lending and financial inclusion with altruistic investors

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  • Aleksander Berentsen
  • Marina Markheim

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.

Suggested Citation

  • Aleksander Berentsen & Marina Markheim, 2021. "Peer‐to‐peer lending and financial inclusion with altruistic investors," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1407-1418, December.
    • Handle: RePEc:bla:irvfin:v:21:y:2021:i:4:p:1407-1418
    DOI: 10.1111/irfi.12333
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, vol. 107(1), pages 70-94, November.
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    5. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262014106, December.
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    7. Freedman, Seth & Jin, Ginger Zhe, 2017. "The information value of online social networks: Lessons from peer-to-peer lending," International Journal of Industrial Organization, Elsevier, vol. 51(C), pages 185-222.
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    9. Berentsen, Aleksander & Markheim, Marina, 2019. "Peer-to-Peer Lending, Joint Liability and Financial Inclusion with Altruistic Investors," MPRA Paper 94963, University Library of Munich, Germany, revised 02 Jul 2019.
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    Cited by:

    1. Ngaruko, Deus D., 2022. "Transaction Costs of Group Microfinancing Models and their Effects on Family-Owned Business Performance in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 10(4), September.

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D2 - Microeconomics - - Production and Organizations
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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