Individual Preferences Over NGO Projects: Evidence from Microlending on Kiva

Abstract

Peer to peer (P2P) microfinance connects philanthropic citizens with poor entrepreneurs in the developing world. Although its popularity has grown exponentially with the creation of several competing online platforms, very little is known about how individual lenders behave and whether their priorities differ from those of traditional development practitioners. This paper presents evidence on how individual lenders choose between borrowers, and how lenders' preferences relate to the objectives of the microfinance sector. Using data from Kiva.org, we present estimates of the impact of publicly visible project characteristics on funding speed. Results suggest that Kiva lenders rationally consider indicators of the likelihood of repayment as well as borrowers' need. Smaller loans, groups and women get funded faster as do loans to sectors of activity with low entry costs. Meanwhile, loans requested to finance education and health projects or those advertised by NGOs with better risk ratings, and lower default and delinquency rates, fund faster. The results imply that policy makers and practitioners who seek to use microfinance as a poverty alleviation tool should invest in the P2P approach.