TY - UNPB
T1 - Crowdfunding Platforms and Financial Inclusion
T2 - Fulfilled Promise or Disillusion?
AU - Viotto, Jordana
AU - Fareed, Fozan
PY - 2024
Y1 - 2024
N2 - Pro-social crowdfunding platforms offer a promising path for financial inclusion in developing countries. They allow microfinance institutions (MFIs) in developing countries to reach out to a large pool of pro-socially motivated lenders, potentially allowing these MFIs to serve a larger number of borrowers and a more vulnerable population. The rich literature on crowdfunding lacks evidence of whether and to what extent pro-social crowdfunding platforms fulfill this promise. Employing different techniques to tackle endogeneity, we show that, while crowdfunding platforms expand access to capital to more borrowers, the service to more vulnerable borrowers does not improve. We contribute to the literature in three main ways. First, we measure the social performance of microfinance institutions (MFI) – or the extent to which their activity on crowdfunding platforms enables them to benefit borrowers in developing countries. Given the risk of mission drift – when microfinance institutions prioritize financial improvements at the expense of social objectives – the impact of crowdfunding on MFIs’ financial performance investigated in previous research may not translate into benefits to the local population. Second, we use a significantly expanded dataset in comparison to prior research. Third, we consider the volume of activities the MFIs perform on the platform. Our results allow us to provide recommendations to policymakers regarding the connection between digital technologies and financial inclusion.
AB - Pro-social crowdfunding platforms offer a promising path for financial inclusion in developing countries. They allow microfinance institutions (MFIs) in developing countries to reach out to a large pool of pro-socially motivated lenders, potentially allowing these MFIs to serve a larger number of borrowers and a more vulnerable population. The rich literature on crowdfunding lacks evidence of whether and to what extent pro-social crowdfunding platforms fulfill this promise. Employing different techniques to tackle endogeneity, we show that, while crowdfunding platforms expand access to capital to more borrowers, the service to more vulnerable borrowers does not improve. We contribute to the literature in three main ways. First, we measure the social performance of microfinance institutions (MFI) – or the extent to which their activity on crowdfunding platforms enables them to benefit borrowers in developing countries. Given the risk of mission drift – when microfinance institutions prioritize financial improvements at the expense of social objectives – the impact of crowdfunding on MFIs’ financial performance investigated in previous research may not translate into benefits to the local population. Second, we use a significantly expanded dataset in comparison to prior research. Third, we consider the volume of activities the MFIs perform on the platform. Our results allow us to provide recommendations to policymakers regarding the connection between digital technologies and financial inclusion.
M3 - Working paper
BT - Crowdfunding Platforms and Financial Inclusion
ER -