Crowdfunded Microfinance

Abstract

Abstract We study how partnering with a non-profit crowdfunding platform, Kiva, affects the operation and financial inclusion of microfinance institutions (MFIs) worldwide. The partnered MFIs intermediate crowdfunded debt capital that targets necessity entrepreneurs, i.e., individuals in developing countries who start small enterprises out of necessity. Kiva lenders demand zero monetary return and tend to focus on female entrepreneurs. In our triple-difference framework, we show that the MFIs that crowdfund a large share of their assets have more non-performing loans, lower asset utilization rates, and higher labor costs than low take-up counterparts. These findings are consistent with a costly financial inclusion owing to additional tasks of MFIs’ staff after the partnership. In line with Kiva lenders’ preference, the gender gap in financial inclusion narrows, primarily from less inclusive MFIs. In four regions that report below-average female borrower shares, the percentage of female borrowers increases by ten percentage points, approaching the level of female borrower shares in the other two regions (South Asia and East Asia). We rationalize the costly inclusion result with a stylized model in which inclusive projects have worse cash flows but are socially desired. Hence, they are left behind by the banks but picked up by the Kiva lenders. 

Keywords: Financial inclusion, Microfinance, Financial technology (Fin-Tech), Household Finance, R51, Crowdfunding

JEL Classification: D64, G21, G51, L31, N30, O16, O35, O57, R51