An Economic Choice Model for Micro-Loan Market

Abstract

Investing in micro-loan market has become one of the most famous instrument in alternative finance due to the fact that its rate of return is comparable to other risky financial instruments and it places investors in the position of philanthropists and induce “enjoyment”. In terms of financial instrument, it differentiates with other financial goods that the amount of investment which an investor can invest is bounded by the goal set by borrower and minimum amount of investment decided by micro-loan intermediator. In In this paper, we propose a model to study the asset allocation behavior of individual investors when micro-loan market is being considered. Our model reflect the fact that the amount of investment is bounded and it incurs the discontinuity of demand. By reflecting motivations for participating in micro-loan market, our model can examine the impact of borrower’s characteristics and investment characteristics on “enjoyment” of investment in crowdfunding and on an individual investor’s investment allocations.