Micro-Bias: If You Want a Kiva Loan, It Helps to Be Pretty and Light-Skinned

Micro-lending sites like Kiva are an important development tool, but bias is affecting lending choices. Here's how to fix it.

Want to cash in on the surge in online peer-to-peer lending? As with many things in life, it helps to have a pretty smile. Sadly, it also helps to have lighter skin.

People who lend on tend to favor attractive, light-skinned females, according to an analysis set to be released by researchers at Nanyang Technological University in Singapore. To receive a loan online, it’s better to be pretty than ugly, female than male, skinny than fat and, yes, light-skinned than dark-skinned, the researchers found. “So, basically if you have any of these characteristics, you will get your money more quickly on,” says Walter Theseira, the lead author of the study.

Kiva allows internet users to browse candidates for charitable microloans around the world, sort by country or type of project, and then—while viewing a picture of the potential borrower—click a few buttons to lend to a microfinance agency supporting that individual. Kiva recently launched a pilot that allows users to lend directly to borrowers without the middleman, but the study focused exclusively on the main Kiva site.

Theseira conducted the study with Christina Jenq at the University of Chicago’s Booth School of Business and Jessica Pan at the National University of Singapore. The researchers used a skin color scale used in research on bias against new immigrants and found conclusively that lighter-skinned borrowers got loans faster. Being attractive was even more helpful.

“This is why [NGOs] spend so much time choosing just the right photographs to illicit donations,” Theseira says. People respond more, and with donations, to pretty, smiling faces. But “as for why people do that... it’s a bit hard to say,” he cautions. “Our hypothesis is this is probably more a form of implicit discrimination than people acting on explicit bias.”

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Could a Banking Revolution Start with Neighbors Lending to Each Other? Peer-to-Peer Lenders Take Banks Out of the Credit Equation

Prosper wants to shake up the banking industry, and who profits from it, by helping you borrow from and lend to your neighbors.

With demonstrators occupying Wall Street to demand financial sector reform, community-minded entrepreneurs working to take banks out of the lending equation see an opportunity: After years of obscurity and regulatory setbacks, peer-to-peer lending may be ready to step into the credit void. Where crowdfunding is the banking alternative for startups, this take on direct lending is more personal.

When Greg Dawson wanted to turn his photography hobby into a business, he knew it would require cash he didn’t have. “I was in the infancy of my marketing career in Chicago. I didn’t have the capital means to go out and buy my equipment”—a new camera, expensive lenses, a computer and editing software.

"I went to the bank first. Bank of America, where I was banking for five or six years,” Dawson says. “I was told, ‘not a chance’, because I didn’t have any assets. I didn’t own a house." He also had student loan debt, so despite a good credit score, his income to asset ratio didn’t meet BofA’s standards.

“So I took to the internet,” he says. “I think I was funded for about $4,000 in about 48 hours.” Four years later, he's the proud owner of a thriving small business. Dawson is one of several hundred thousand people who’ve gotten a loan through, a peer-to-peer lending website, and he says that the ability to put a human face on the loan was a big reason he succeeded.

“I was able to tell my story in the actual loan process,” Dawson recalls. "I was able to explain how I got into photography, how I was practicing it.” He was also able explain to prospective vendors that his debt resulted from student loans, not business failures or spending extravagance.

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