Online crowdfunding holds the promise of empowering entrepreneurs and small businesses as an innovative alternative financing channel. However, doubts have been expressed as to whether online crowdfunding can deliver its promise because of the lack of empirical evidence regarding its effects. In this study, we investigate the effects that prosocial crowdfunding has on traditional microfinance institutions (MFIs). Combining multiple data sources, including data from Kiva.org and the Microfinance Information Exchange Market (MIX Market), we examine how access to crowdfunding influences MFIs’ sustainability and interest rates. We find that after joining Kiva, MFIs’ sustainability improves and interest rates decrease. Further investigation suggests that the changes mainly result from efficiency improvement, rather than increased supply of low-cost funds. We propose that joining an online crowdfunding platform induces greater transparency and crowd monitoring, which motivates and empowers MFIs to improve operations and become more efficient.

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Background: Prosocial crowdfunding helps the underprivileged obtain non-profit seeking loans from multitudinous lenders. Some platforms introduce team competition to motivate member participation and may thus induce team rivalry. Methods: We investigate how team rivalry affects lending decisions using data from Kiva.org. We argue that a rivalry relationship may engage teams to compete directly against rivals by lending to the same project or prevent them from doing so because they intend not to cooperate. Result: We find that a team is less likely to lend to a project that has received funding from its rival team, suggesting that rival teams tend to avoid cooperation. Conclusions: We discuss the implications of our findings for crowdfunding and competition-based motivation mechanisms in general.