Online Financial Inclusion and its Implications for Borrowers : Evidence from Peer-Topeer Lending

This paper investigates the extent to which the regional credit market structure, in terms of the presence and lending capacity of traditional banks, shapes the growth and local outreach of online lending marketplaces using peer-to-peer lending data. Using an instrumental variables (IV) approach, our study reveals that financially underserved areas by the traditional banking system experience higher growth of peer-to-peer lending. The growth of peer-to-peer lending is more pronounced in areas with a lower presence of small banks. Furthermore, we show that peer-to-peer lending's local growth is associated with a lower risk of borrower default. Our findings show that online marketplaces benefit borrowers by improving their credit scores