Social purpose increases direct-to-borrower microfinance investments by reducing physiologic arousal.

Abstract

Websites offering microfinance loans have become an increasingly popular form of investment. However, it is unclear why some projects offered on sites such as Kiva.org, Microplace.com, and Lendforpeace.org are more successful at meeting funding goals than others. The present article reports the results of an experiment to test if communicating social purpose enhances investment appeal and the neurophysiological mechanism through which this effect occurs. By connecting physiological and behavioral responses to microfinance requests for 101 participants, we found that investments with a social purpose, compared with those that were self-focused, received 25% more loans. Social purpose requests were associated with a significant reduction in two measures of physiologic arousal, resulted in greater empathic concern, and produced stronger negative affect compared with self-focused requests. These factors were largely driven by responses by women, who invested 90% more money to requests overall and 97% more to social purpose requests than did men. Our findings indicate that communicating social purpose is an effective way to attract more investment to entrepreneurs in developing countries.

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