Delegated monitoring in crowdfunded microfinance: Evidence from Kiva

Berns, John P. ; Shahriar, Abu Zafar M. ; Unda, Luisa A.

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Document Type: Article
Year of publication Online: 2021
The title of a journal, publication series: Journal of Corporate Finance
Volume: 66
Issue number: Article 101864
Place of publication: Amsterdam [u.a.]
Publishing house: Elsevier
ISSN: 0929-1199
Publication language: English
Institution: Business School > ABWL u. Corporate Finance (Maug)
Subject: 330 Economics
Abstract: We study the role of delegated monitoring in crowdfunded microfinance. We use data from Kiva, a crowdfunding platform, where crowds lend to borrowers through microfinance institutions (MFIs) instead of lending directly. These MFIs monitor debt contracts on behalf of crowds. We find that borrowers who are more intensely monitored by MFIs are more likely to repay crowdfunded loans on time. Monitoring is particularly important in reducing repayment problems of individual loans rather than group-based loans. Monitoring has a stronger impact in less competitive lending markets. We also find that when lending to borrowers, crowds are attentive to the loan-administering MFI's ability to monitor loans.

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