Abstract
P2P lending is a new method of informal finance that uses the internet to directly connect borrowers with on-line communities. With a unique dataset provided by Prestadero, the largest on-line lending platform with national presence in Mexico, this research explores the effect of credit scores and other variables related to loan and borrower´s traits, in determining default behavior in P2P lending. Moreover, using a logistic regression model, it tested whether investors might benefit from screening loan applicants by gender after controlling for loan quality. The results showed that information provided by the platform is relevant for analyzing credit risk, yet not conclusive. In congruence with the literature, on a scale going from the safest to the riskiest, loan quality is positively associated with default behavior. Other determinants for increasing the odds of default are the payment-to-income ratio and refinancing on the same platform. On the contrary loan purpose and being a female applicant reduce such odds. No categorical evidence for differential default behavior was found for gender´s case-discrimination, under equal credit conditions. However it was found that controlling for loan quality, women have longer loan survival times than men. This is one of the first studies about debt crowdfunding in Latin America and Mexico. Implications for lenders, researchers and policy-makers are also discussed.
Highlights
New means of project sourcing have flourished with the advent of the Web 2.0 and the upcoming popularity of online communities (ITURBIDE; CANFIELD, 2015)
Regarding gender and consequent with the results found by Miller (2015), being a female applicant in the context of the Mexican P2P ecosystem, is relevant in positively determining loan default only in credit scores C and F, there is no conclusive evidence that lenders might benefit by screening default behavior based on gender, at equal loan characteristics in this sample
This research has investigated the effect of variables related to loan and borrowers characteristics in addition to credit scores in determining default behavior in P2P lending in Mexico
Summary
New means of project sourcing have flourished with the advent of the Web 2.0 and the upcoming popularity of online communities (ITURBIDE; CANFIELD, 2015). On-line financing and the development of crowdfunding platforms (CF) that evolved from the Fintech ecosystem constitute an example of a disruptive business model innovation (MARKIDES, 2006). With limited participation of financial intermediaries, online peer-to-peer (P2P) or market-place lending becomes a new model for unsecured loan origination (GALLOWAY, 2009), where anonymous backers parcel the amount loaned. P2P lending constitutes a good alternative for the financing community. Borrowers receive better credit conditions than in traditional finance; Creditors take advantage of an investment model where risk is coupled to the credit rating of the funded loans (BACHMANN, et al, 2011) and lending websites benefit by raising fees for successfully realized transactions. The loan approval rate for these platforms is less than 5%, a common figure for this type of financial product (HAND; HENLEY, 1997)
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