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Can Warm Glow Alleviate Credit Market Failures? Evidence from Online Peer-to-Peer Lenders

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Author Info
Matthieu Chemin
Joost de Laat

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Abstract

This paper looks at an institutional innovation in which Western investors lend peer-to-peer to poor country enterprises. Using a unique dataset from an online lending platform called MyC4, we find that MyC4’s Western lenders grant lower interest rates to pro-poor, socially responsible (SR), and pro-female African projects, thus internalizing positive externalities. Using novel instrumental variables to account for interest rates’ endogeneity, we find that these lower interest rates substantially improve the repayment performance of borrowers, and do not reflect profit-maximizing behavior. This new way to organize finance improves credit market efficiency and the success rate of poorntry enterprises.

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File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2009/CIRPEE09-34.pdf
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Publisher Info
Paper provided by CIRPEE in its series Cahiers de recherche with number 0934.

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Date of creation: 2009
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Handle: RePEc:lvl:lacicr:0934

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Related research
Keywords: Credit markets imperfections; externalities; warm glow;

Find related papers by JEL classification:
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D62 - Microeconomics - - Welfare Economics - - - Externalities
D64 - Microeconomics - - Welfare Economics - - - Altruism

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This page was last updated on 2009-11-19.

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