Peer‐to‐peer lending and financial inclusion with altruistic investors

• Published date: 01 December 2021
• Author: Aleksander Berentsen,Marina Markheim
• Date: 01 December 2021
• DOI: http://doi.org/10.1111/irfi.12333

ORIGINAL ARTICLE

Peer-to-peer lending and financial inclusion with

altruistic investors

Aleksander Berentsen

1

| Marina Markheim

1,2

1

Faculty of Business and Economics,

University of Basel, Basel, Switzerland

2

Faculty of Business, Economics and

Management Information Systems, University

of Regensburg, Regensburg, Germany

Correspondence

Aleksander Berentsen, University of Basel,

Faculty of Business and Economics, Peter

Merian-Weg 6, 4002 Basel, Switzerland.

Email: aleksander.berentsen@unibas.ch

Abstract

Peer-to-peer lending platforms are increasingly important

alternatives to traditional forms of credit intermediation for

small value loans. There are high hopes that they improve

financial inclusion and provide better terms for borrowers.

To study these hopes, we introduce altruistic investors into

a peer-to-peer model of credit intermediation. We find that

altruistic investors do not improve financial inclusion but

that the borrowing rates are lower than the ones obtained

with self-interested investors. Furthermore, investors with

strong altruistic preferences are willing to finance projects

which generate an expected loss to them. For a certain

range of parameters, the model's allocation is observation-

ally equivalent to a model with self-interested investors

with low bargaining power. Outside of this range, the model

generates allocations that are not incentive feasible in a

model with self-interested investors.

KEYWORDS

altruistic preferences, financial inclusion, financial intermediation,

peer-to-peer platforms

JEL CLASSIFICATION

C7; D0; D3; D190; O3; G0; G5

1|INTRODUCTION

Borrowing peer-to-peer from friends and family is still highly relevant today. According to a report by the World

Bank “globally in 2017, 47 percent of adults reported having borrowed money in the past 12 months [and] that

Received: 2 July 2019 Revised: 4 August 2020 Accepted: 10 August 2020

DOI: 10.1111/irfi.12333

© 2020 International Review of Finance Ltd. 2020

International Review of Finance. 2021;21:1407–1418. wileyonlinelibrary.com/journal/irfi 1407