The Role of Rating and Loan Characteristics in Online Microfunding Behaviors

In recent years, there has been a significant growth in the number of online microlending sites that connect individuals to small businesses led by low-income citizens. This type of social lending platforms allow individuals from all over the world to explore large online databases of businesses that require small loans to succeed; and citizens without access to formal banking systems to borrow the money they need to carry out their projects. Understanding lending and borrowing activity is critical to improve the way microfinance services work. However, although there exists an important body of work regarding traditional (offline) microfinance, the research in the area of online microlending is much more limited. Previous work in traditional microlending has covered various research questions including the relationship between gender and loan reimbursement [7] or the impact that MFI ratings have on total investments and growth [4, 11]. Nevertheless, there only exist a few studies that focus on the analysis of online microlending platforms [6, 2]. However, many aspects that have been typically addressed in traditional microlending studies such as the role that MFI ratings or teams play in the lending process, have not been fully analyzed online.