Intermediaries vs Peer-to-Peer: A Study of Lenders' Incentive on a Donation-based Crowdfunding Platform

Donation-based crowdfunding platform Kiva seems to hold the promise of peer-to-peer lending with zero interest rate to help the poor. However, it is actually intermediated by microfinance institutions, which raise funds from Kiva lenders, disburse the funds to borrowers and collect high interest. Later Kiva launched another platform Kiva Zip that implements interest-free loans directly from lenders to borrowers. This unique setup enables us to examine how lenders choose between Kiva and Kiva Zip, i.e. a platform with intermediaries and a real P2P platform. We develop a theoretical model and explicate that the lenders trade-off is between the sustainability of her donation money and the welfare of individual borrowers. We also provide initial empirical evidence that only highly altruistic lenders select Zip and they tend to shift their loans from Kiva to Zip after Zip’s introduction.