SOTA Review

Online Peer-to-Peer lending – what do we know, and where are the gaps? SOTA NO39.

In this review we examine the existing literature to highlight what we do (and what we do not) know about online peer-to-peer (P2P) lending and borrowers. Firstly, extensive studies relate different personal attributes to the outcomes of loan application, differences in interest rates, and probability of default. Secondly, information asymmetry is found to be the core issue in P2P lending. Therefore, a growing body of literature addresses financial innovations of P2P platforms, fundamentally new ways of producing and transmitting information. The third important strand of literature attempts to answer if P2P lending is a substitute or a complement of traditional bank lending. While consumer P2P lending attracted much of attention of researchers, P2P business lending is yet understudied. To date, we know little about small businesses who raise funds on P2P platforms, especially what motivates them to choose this particular source of finance, what are the antecedents of their relationship with traditional finance, and what are the outcomes of P2P loans? Overall, there is a need to understand the impact of P2P lending on the SME funding gap and more broadly on financial inclusion.

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