For compassion or money? The factors influencing the funding of micro loans

Aided by the Internet, microfinance institutions have found new ways to expand the reach of financing entrepreneurial projects on a small scale. Using a unique data set of individual loans posted to Kiva.org, we explore the determinants of lenders’ nonprofit lending choices in the growing microfinance industry. We find that lenders make choices in purposive ways even in the absence of market interest rates, especially with respect to the demographic characteristics of borrowers and the uses of proposed funds. Hence, the results provide valuable new information about consumer choice in charitable giving and investment.

► We examine the aspects of micro loans that increase their likelihood of funding. ► The research uses a unique and large dataset from Kiva.org. ► In the absence of interest rates, lenders choose loans to fund in systematic ways. ► Funding speed decreases with an increased burden of exchange rate and default risk. ► Loans to female borrowers and those from Sub-Saharan Africa are most popular.