Crowd-sourced Financial Support: Kiva lender networks

Gaurav Paruthi, Youyang Hou, Carrie Xu

Microfinance is of critical value as a source of financial services for entrepreneurs and small businesses lacking access to banking and related services. Created in October 2005 as the first peer-to-peer microlending site, www.kiva.org(Kiva) is a platform for low-income entrepreneurs in developing countries to fundraise for their business from other individuals. Through Kiva, anyone can make an interest-free loan of at least $25. As of Nov. 2013, Kiva was able to raise about $1 million every three days.

Here is how Kiva works. After the initial screening, a potential borrower will build an online profile on the Kiva website. A lender will the pick a business and make a loan using their credit card. Then Kiva transfers the loan to the local partners, and partners disburse the loan to local borrowers. Partners will then collect the revenues from borrowers and pay the loans back to the lenders again through Kiva. Previous researchers have investigated how the characteristics of borrowers and lenders influence funding behaviors. For instance, Meer & Rigbi (2013) found that whether to fund a loan or not depends on the language barriers and social distance.  

In August 2008, Kiva created “Lending Teams”. Kiva lenders can voluntarily  join and organize their own teams. Kiva teams cover a broad range of themes and interests. Team members can communicate through team messages in team forums (Figure 1). Each loan made by the members is counted towards team contribution to Kiva borrowers. Teams are ranked according to the team contribution. The team feature makes Kiva lenders more motivated to participate in lending activities because of the team identity. The team ranking also may foster competitions among different Kiva teams.          

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Fig 1. Snapshot of a Kiva team page

Research shows that the team features has an impact on funding behaviors. For instance, Liu et al. (2012) found that one makes more loans after joining a team. Chen et al. (2012) further explored the causal effects of team forum messages on nudging team members’ lending decisions. By manipulating the message contents in Kiva team board, they found that forum messages increase lending from team members. Messages with social information about coordination and competition encouraged more team lending.

Drawing on the previous literature about the effects of Kiva teams on lending behaviors and outcomes, this study looks at how the lender network of Kiva based on the team membership correlates with the fulfillment of loans and the outcomes of the fulfilled loans. In particular, we are interested in how lender network structures correlates with (1) how soon a loan is funded, as well as (2) whether the loan gets funded by the deadline.        

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