Facing the crowd : an assessment of credit quality in crowdlending platform portfolios

Abstract

Crowdlending is a new form of lending, where platforms act as intermediaries between borrowers and lenders. The industry is gaining traction across Europe and the US. However, there has been little research into this field. The purpose of this paper is to analyze the credit quality of crowdlending borrowers. This is done by applying four internationally recognized credit scoring models on a sample of crowdlending- and bank borrowers. We analyze differences between crowdlending- and regular borrowers across these models and the 14 credit ratios they rely upon. We conclude that crowdlending borrowers have lower credit scores than regular borrowers. Furthermore, crowdlending platforms seem quite good at avoiding the lowest quality borrowers. Thus, it can be suggested that they deliberately target a segment of the SME financing market which has been left underbanked, due to credit rationing and –tightening. The study also give insight into several topics worth investigating further, as more data becomes available.