Monitoring Repayment in Online Peer-to-peer Lending

Abstract

Recent years have seen an explosion in the use of Peer-to-Peer (P2P) lending, in which websites such as Kiva and Microplace offer individuals the ability to make loans to microfinance borrowers across the developing world. Such sites offer a fascinating new example of a two-tiered monitoring device in which micro-finance institutions (MFIs) maintain dynamic relationships with borrowers and P2P lenders maintain dynamic relationships with MFIs. This chapter examines the credibility issues that arise in this new network of NGOs, linking individuals across countries in the absence of any public regulator. The P2P microfinance lending system is a successful example of an NGO creating a robust set of private standards to which other NGOs voluntarily subject themselves, but complex questions remain as to the causal claims that can be made by these institutions on humanitarian grounds, and how the public should evaluate their credibility. 1 The author is grateful to Bryan Diaz and Summer Starr for their excellent research assistance on this project.

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