The role of social identity in online microfinancing

This project is an interdisciplinary research effort investigating the effects of social identity on lender behavior in an online microfinance community ( and the selection of social identities. Social identity research in economics predicts that a noticeable group identity and group competition increases individual contribution to public goods.

Start date: 7/1/2012
End date: 6/30/2017

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Most people are familiar with loaning money to a friend or relative, but what motivates someone to loan money to a complete stranger in a foreign country? That’s the subject of research by Professor Yan Chen and Assistant Professor Qiaozhu Mei, who are studying “Social Identity in Online Microfinance and Public Goods Provision” with a grant from the National Science Foundation.

Microfinance is the practice of making small loans of as little as $25 to the self-employed and entrepreneurs in developing countries. These loans allow individuals to purchase goods for resale, materials or machinery to produce goods to sell, or farming necessities such as seeds and fertilizer. More than one billion people globally live in poverty, and these low-income families are generally shut out of the formal banking sector and forced to pay exorbitantly high interest rates from private moneylenders, if they can obtain loans at all. To help alleviate poverty, microfinance programs have emerged in many parts of the world to provide small loans and other financial services to the poor.

One such program is, the first peer-to-peer micro-lending site. Kiva matches citizen lenders with low-income entrepreneurs in developing countries. To date, most of the studies of microfinance have focused on the borrowers. Kiva allows researchers to study the motivations of the lenders, who are able to indicate their reasons for giving when making a loan.

The researchers will be looking at the role social identity plays in lender behavior in the online microfinance community Kiva. The hypotheses they will test are: whether joining a team increases an individual’s lending activity and the amount of their loan, whether people join teams based on the team’s motivations, and whether people choose teams based on the group’s perceived success.

The results will assist non-profit microfinance organizations such as Kiva, and other online communities that contribute to the public good, to increase their effectiveness by better understanding the motivations of their lenders and suggesting additional strategies for them to employ. 

Get Yan Chen’s synopsis of the project from her YouTube interview here


Social Identity in Online Microfinance and Public Goods Provision, National Science Foundation: $500,000


The National Science Foundation is an independent federal agency created by Congress in 1950 "to promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense…"