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Microfinance institutions and Peer-to-Peer lending: What does microfinance competition bring?

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  • Wang, Bo
  • Yu, Yunjun
  • Yang, Ziying
  • Zhang, Xiaomei

Abstract

This paper uses detailed data from a Chinese Peer-to-peer lending intermediary to investigate whether local MFIs expansion affects P2P lending. We confirm that increased MFIs coverage enhances loan availability in P2P lending while reducing loan cost. Microfinance competition's positive externalities strengthen the substitution effect between local MFIs and P2P lending by improving borrowers' bargaining power. Furthermore, with improved access to local MFIs, P2P lending weakens credit approval conditions, leading to increased default risk in P2P lending. Finally, we perceive that borrowers with low income, small loans, and females benefit more from microfinance competition, which is consistent with the inclusive finance nature of MFIs and P2P lending. These findings strengthen our understanding of the connection between MFIs and P2P lending. Besides, we should be aware of negative externalities brought by microfinance competition — credit risk accumulation.

Suggested Citation

  • Wang, Bo & Yu, Yunjun & Yang, Ziying & Zhang, Xiaomei, 2021. "Microfinance institutions and Peer-to-Peer lending: What does microfinance competition bring?," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000640
    DOI: 10.1016/j.pacfin.2021.101557
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    2. Li, Jianwen, 2023. "MSMEs meet FinTech: Chance or challenge?," Finance Research Letters, Elsevier, vol. 57(C).
    3. Tian, Geran & Wu, Weixing, 2023. "Big data pricing in marketplace lending and price discrimination against repeat borrowers: Evidence from China," China Economic Review, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Microfinance institutions; P2P lending; Inclusive finance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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