Emergence of Financial Intermediaries in Electronic Markets: The Case of Online P2P Lending

We analyze the role of intermediaries in electronic markets using detailed data of more than 14,000 originated loans on an electronic P2P (peer-to-peer) lending platform. In such an electronic credit market, lenders bid to supply a private loan. Screening of potential borrowers and the monitoring of loan repayment can be delegated to designated group leaders. We find that these market participants act as financial intermediaries and significantly improve borrowers' credit conditions by reducing information asymmetries, predominantly for borrowers with less attractive risk characteristics. Our findings may be surprising given the replacement of a bank by an electronic marketplace.

A manifesto for an e-lending limitation in copyright

In the European Union, lending is an exclusive right for copyright and related rights, but Member States can transform public lending to a right of remuneration and even exempt some establishments from any payment. The making available of works online is not covered by the public lending right regime of the Rental and Lending Directive but is considered as an act of making available governed by the InfoSoc Directive. As a consequence, libraries are currently not allowed to digitally transmit works to their patrons as lending, but have entered into licenses with publishers to develop an offer of lending of e-books, also called e-lending, with the intermediation of dedicated platforms operated by commercial actors. Compared to physical lending, e-lending is not based on ownership of the book by libraries but on its provision by this intermediary. This paper discusses how the objective of enabling libraries to engage in e-lending should be achieved, and what is the proper dividing line between a market-based solution, as developing today, and a limitation to exclusive rights. The impact of an extension of the public lending right to e-lending should be assessed, but not based on a criterion of direct substitution of a book on loan at the library to a book bought at a retailer. By definition, libraries are substitutes to normal trade. Instead, the overall effect of lending to the commercialisation of books and other works should be verified. Particular conditions for a limitation in favour of lending are also addressed, and notably the modalities of lending (a limited duration, one simultaneous user per title, …), not to make e-lending through libraries easier and preferable to the normal acquisition of an e-book. This paper argues in favour of some and controlled extension of the public lending right to cover the lending of e-books and other digital content. For the role of libraries is essential in providing access to works and culture to readers who would or could not rely only on normal acquisition of books or other items on the market, to works that are not provided by the market, and to material for research. Libraries are a third sector providing access to works, aside the market and non-market exchanges between individuals. This role should not lose its relevance in the digital context, or it would culturally impoverish future generations of readers.

Mortgage Lending in Chicago and Los Angeles: A Paired Testing Study of the Pre-Application Process

This paper analyzes data from a recently completed study of discrimination against African-American and Hispanic homebuyers when they visit mortgage lending institutions in two major metropolitan markets to make pre-application inquiries. It represents the first application of paired testing to rigorously measure discrimination in the mortgage lending process. The paired tests isolated significant levels of differential treatment on the basis of race and ethnicity in Chicago with African Americans and Hispanics receiving less information and assistance than comparable whites. Adverse treatment of African-Americans and Hispanics is also observed in Los Angeles for specific treatments, but the overall pattern of treatment observed did not differ statistically from equal treatment. Multivariate analyses for Chicago indicate that large lenders treat minorities more favorably than small lenders and that lenders with substantial numbers of applications from African-Americans treat African Americans more favorably than lenders with predominantly white application pools.

Other Things Being Equal: A Paired Testing Study of Discrimination in Mortgage Lending

This article summarizes a recently completed study, funded by the U.S. Department of Housing and Urban Development (HUD) and conducted by the Urban Institute, of discrimination against black and Hispanic homebuyers when they visit mortgage lending institutions in two major metropolitan markets to make pre-application inquiries. It represents the first application of paired testing to rigorously measure discrimination in the mortgage lending process. The paired tests disclosed significant levels of adverse treatment on the basis of race and ethnicity, with African Americans and Hispanics receiving less information and assistance than comparable whites, even at this very early stage in the application process.

Is Group Lending A Good Enforcement Scheme for Achieving High Repayment Rates?: Evidence from Field Experiments in Vietnam

Microfinance institutions employ various kinds of incentive schemes but estimating the effect of each scheme is not easy due to endogeneity bias. We conducted field experiments in Vietnam to capture the role of joint liability, monitoring, cross-reporting, social sanctions, communication and group formation in borrowers’ repayment behavior. We find that joint liability contracts cause serious free-riding problems, inducing strategic default and lowering repayment rates. When group members observe each others’ investment returns, participants are more likely to choose strategic default. Even after introducing a cross-reporting system and/or penalties among borrowers, the default rates and the ratios of participants who chose strategic default under joint liability are still higher than those under individual lending. We also find that joint liability lending often failed to induce mutual insurance among borrowers. Those who had been helped or who had repaid a little in the previous round were more likely to default strategically and repay a little again in the current round and those who paid large amounts were always the same individuals.

Related Lending and Bank Performance: Evidence from Indonesia

After the Asian financial crisis of 1997, it was confirmed that banks lend to their related parties in many countries. The question examined in this article is whether related lending functions to alleviate the problems of asymmetric information or transfers profits from depositors and minority shareholders to related parties. The effects of related lending on the profitability and risk of banks in Indonesia are examined using panel data from 1994 to 2007 comprising a total of 74 Indonesian banks. The effects on return on asset (ROA) varied at different periods. Before and right after the crisis, a higher credit allocation to related parties increased ROA. In middle of the crisis, it turned to negative; and this has also been the case in the most recent period as the Indonesian economy has normalized. Effects of related lending on bank risk measured by the Z-score and non-performing loan is not clear. After undergoing bank restructuring, related lending has decreased and the profit structure of banks has changed.