Abstract
Most loan evaluation methods in peer-to-peer (P2P) lending mainly exploit the borrowers’ credit information. However, the present study presents the maturity-based lender composition score, which exploits the investment capability of a group of lenders who fund the same loan, to enhance the P2P loan evaluation. More specifically, we extract lenders’ profiles in terms of performance, risk, and experience by quantifying their investment history and develop our loan evaluation indicator by aggregating the profiles of lenders in the composition. To measure the ability of a lender for continuous improvement in P2P investment, we introduce lender maturity to capture this evolvement and incorporate it into the aggregation process. Our empirical study demonstrates that the maturity-based lender composition score can serve as an effective indicator for identifying loan quality and be included in other commonly used loan evaluation models for accuracy improvement.
Highlights
With the exciting developments in information technology, peer-to-peer (P2P) lending, which has emerged as a new way of financing and investing, has undergone rapid growth in recent years
The results show that our maturity-based lender composition score could serve as an effective indicator for identifying loan quality and be incorporated into other commonly used loan evaluation models for performance improvement, including logistic regression (LR), support vector machine (SVM), and random forests (RFs)
Lender composition for loan evaluation In this subsection, we study the quantitative evaluation of loans based upon their lender composition, considering lender maturity to improve the superiority of the loan evaluation model
Summary
With the exciting developments in information technology, peer-to-peer (P2P) lending, which has emerged as a new way of financing and investing, has undergone rapid growth in recent years. P2P lending platforms are internet-based lending intermediaries among individual users who may participate as borrowers or lenders. In this marketplace, borrowers submit applications for loans, referred to as listings, by providing many details about the loan request, such as the purpose and the total amount of funds needed. Lenders are allowed to partially fund these loan requests by specifying their respective investment amounts. If the requested total dollar amount of the listing is fulfilled within a prespecified time, the transaction proceeds and the listing becomes a loan. Tremendous efforts have been made in both practice and academic research to better understand this economic phenomenon and trading system (Wang et al 2015a; Liu et al 2020; Du et al 2020)
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