Can Warm Glow Alleviate Credit Market Failures? Evidence from Online Peer-to-Peer Lenders

The article focuses on the existence of a different phenomenon that may increase outreach: lenders' warm glow. If lenders add to their utility by the mere fact of giving a loan to a project that may potentially reduce poverty or child mortality, promote gender equality, or generate education or health spillovers for the community, they should then be willing to decrease interest rates for these pro-poor, socially responsible, and profemale projects, thus increasing the outreach of credit markets. Multiple investors can provide financing to one loan, with the final interest rate a weighted average of the successful bids, which are determined through a competitive Dutch auction bidding process. Investors must decide carefully how to allocate their loan portfolio: in the case of default, MYC4 clearly states that investors may lose their investments. In addition, each business description contains information on a number of direct and subtle indicators that may be valued by investors.