An investigation on discrimination by different parties on the microfinance platform : MYC4.com

• Main Authors: Yeo, Hui Qi, Pang, Janica Yanxi, Ong, Justin Hsien Ming
• Other Authors: Walter Edgar Theseira
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Social sciences::Economic development::Africa
• Online Access: http://hdl.handle.net/10356/48612
• Institution: Nanyang Technological University

Online peer-to-peer lending platforms, otherwise known as microfinance, have been growing rapidly. It will be interesting to find out if international investors and local microfinance officers have differing interests in the sustainable development of microfinance. In this paper, we make use of rich, individual loan-level data from www.myc4.com, an internet website that facilitates philanthropic cash transfers from individual donors to specific microfinance loan recipients, to examine whether, and what patterns of, discrimination exists based on the choices made by these donors. We exploit detailed information provided on each borrower though objective loan information, pictures and textual descriptions to investigate the determinants of individual charitable giving. Across the specifications, the maximum interest rate that the borrower is willing to accept (“wanted interest rate”) is a crucial consideration for interest rates chargeable. Having classified the characteristics into physical and subjective, we find out that physical characteristics such as physique influences the interest rate paid to investors to increase and darker tone of borrowers‟ skin colour plays a role in the higher interest rates being charged by the providers and administrators. These effects are statistically and quantitatively significant and robust across a variety of specifications. We also investigate on the probability of loan default and if it was affected by the loan characteristics. We find that ultimately, the higher the funded amount, the higher the probability of loan default. Interestingly, borrowers who were assessed more creditworthy have higher probability of loan default.