How do lenders evaluate borrowers in peer-to-peer lending in China?

Abstract

We examine how lenders incorporate borrowers’ demographic characteristics and behaviors into their decisions in peer-to-peer (P2P) lending in China. Using the Renrendai online platform from 2013 to 2015, we find that the P2P market correctly uses the education level of borrowers (but not age, gender, and marital status) to evaluate their creditworthiness and anticipated loan performance. Borrowers with higher education levels have greater success in attracting funding and a lower probability of default, and those who extend funding to them can expect to receive higher returns. Younger female borrowers are less likely to be funded, even though they have a lower probability of default. Some borrowers may use more positive emotional appeals to persuade lenders to extend funding; however, lenders respond adversely to such appeals.