The Digital Credit Divide: Marketplace Lending and Entrepreneurship

Abstract We conjecture that marketplace lending provokes an increase in the quantity of entrepreneurship, particularly more regionally disadvantaged areas, albeit at lower average quality. Using a fuzzy regression discontinuity design exploits exogenous variation borrowers’ access to loans along U.S. state borders, we estimate 10% causes 0.44% business establishments per capita. The effects are pronounced for less experienced entrepreneurs, small and profitable firms, firms dependent upon external finance, industries with sunk costs entry, low-income regions inferior financial institutions.