The social welfare of marketplace lending: Evidence from natural disasters

Abstract

Using natural disasters as exogenous shocks to the peer-to-peer (P2P) loan market, we document a local increase in loan demand post-disaster. Interest rates and delinquencies from loans approved during this demand shock are similar to pre-event levels. Loans allocated prior to a disaster are more likely to suffer delinquency over the life of the loan, but loans granted a hardship accommodation delay of payment reduce the likelihood of future delinquency providing relief to borrowers and reduced delinquency costs to investors. Contrary to regulatory concerns that P2P lending is predatory, our results suggest they provide positive social welfare benefits.

Keywords: Marketplace lending, natural disasters, P2P lending, personal loans, financial technology

JEL Classification: G2, G21, G23, G28, G29