The Role of Social Capital in People-to-People Lending Marketplaces

The objective of this paper is to investigate the role of social capital in for-profit People-to-People (P2P) lending marketplaces such as Prosper, the largest P2P lending marketplace in the US. We examine whether marketplace members (lenders, borrowers) are able to capitalize on borrowers' accumulated social capital. From a borrower's perspective, we investigate the influence of social capital on borrowers' chances to obtain funding and better interest rates in general as well as by borrower groups and over time. From a lender's perspective, we investigate the influence of borrowers' social capital on loan payment. We use data over a time span of two and a half years from Prosper, and analyze more than 200,000 loan requests and 27,500 loans. Our results suggest that social capital does not provide equal benefits to all members of Prosper and that mechanisms to promote social capital should be carefully designed.