Science of Giving: Identifying biases in microfinance


Science of GivingBrittany Shoots-Reinhard has a PhD in social psychology with a specialization in attitudes and persuasion, and judgment and decision making. She is also Foundation Beyond Belief’s Beyond Belief Network coordinator. allows people to make small loans to impoverished people all over the world. It works for the applicants, too, who can make decisions about what they need to lift themselves out of poverty. In the fight against global poverty, microfinance is one of a number of tools that can improve lives. In Q4 2013, Foundation Beyond Belief is funding a microfinance account via Kiva—the FBB account will fund loans $25 at a time, primarily via secular microfinance institutions as identified by the Kiva Atheists, Agnostics, Skeptics, Freethinkers, Secular Humanists and the Non-Religious (AASFSHNR) team. FBB’s Kiva account will be part of the AASFAHNR team, which is one of the largest teams on Kiva in terms of donations. One of the advantages of donating to the FBB Kiva program is that the money is generally repaid, allowing for money to be continually reinvested. And unlike joining Kiva directly, donations through FBB are tax-deductible. Additionally, our staff will monitor the program and make an effort to avoid the biases that have been observed in research conducted using data from Kiva donors (keep reading to learn more about those biases).

Kiva.orgOne of the unintentional benefits of crowd-sourced microfinance is that it provides social scientists with publicly available data for field study to confirm that behavioral tendencies observed in the lab transfer to less controlled, real-world situations. For example, researchers have observed a preference for individual borrowers over groups of borrowers (e.g., Cryder & Loewenstein, 2010; Galak, Small, & Stephen, 2011), which is consistent with the identifiable victim effect. Another finding from this research (Galak et al., 2011) is that people are more likely to help people similar to themselves (i.e., gender, occupation, and first initial).

Another finding using Kiva takes advantage of the “thermometer” tracking the percentage and amount left before a loan is fully funded. Researchers (e.g.,Cryder, Loewenstein, & Seltman, 2013) have found that people are more likely to lend as the loan approaches “fully funded” status. This is an example of the goal gradient effect, the tendency for increased effort (or motivation) as an organism approaches a goal (e.g., Hull, 1932). In addition to being shown with helping and microfinancing behavior, it is also found in general consumer behavior (Kivetz, Urminsky, & Zheng, 2006). In the case of the helping behavior (Cryder et al., 2013), the effect seems to be driven by perceived impact (i.e., the satisfaction derived from being the person to fully fund the loan).

Researchers have even examined donations to Kiva specifically, and found that geography and gender of the borrower and the intended use of the loan also influence the funding of loans (e.g., Heller & Badding, 2012). Loans originating from sub-Saharan Africa are funded significantly faster than any other region, followed by West Africa. Borrowers from Central Asia and the Middle East wait quite a bit longer than other regions to receive funding, all else being equal. The purpose of the loan matters quite a bit; loans to fund educational and sustainability/environmental projects are most popular; loans for housing and personal use are the least popular, perhaps because of perceived need or legitimacy. In that vein, women’s loans are granted more quickly than men’s. The research by Heller & Badding (2012) did not examine potential causes for their findings, but we can speculate that donors attempt to compensate for lack of equality or access to resources. So women are favored over men, areas known for poverty are favored over other areas, and loans that are perceived to improve lives or the region in the long term (e.g., education, sustainability projects) are favored over those that seem unnecessary (e.g., personal use, improvements to living quarters). Future experiments by scientists who specialize in the reasons behind behavior (i.e., psychologists) will shed light on the observations made by these economists and underscore the usefulness of Kiva’s especially successful approach to crowd-sourced microfinance.

Cryder, C. & Loewenstein, G. (2010). The critical link between tangibility and generosity. In The Science of Giving: Experimental Approaches to the Study of Charity, eds. Daniel M. Oppenheimer and Christopher Y. Olivola, New York: Taylor and Francis, 237-51.

Cryder, C. E., Loewenstein, G., & Seltman, H. (2013). Goal gradient in helping behavior. Journal of Experimental Social Psychology, 49(6), 1078-1083.

Galak, J., Small, D., & Stephen, A. T. (2011). Microfinance Decision Making: A Field Study of Prosocial Lending. Journal of Marketing Research, 48, S130-S137.

Heller, L. R., & Badding, K. D. (2012). For compassion or money? The factors influencing the funding of micro loans. The Journal of Socio-Economics, 41(6), 831-835.

Hull, C. L. (1932). The goal-gradient hypothesis and maze learning. Psychological Review, 39(1), 25-43.

Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The goal-gradient hypothesis resurrected: Purchase acceleration, illusionary goal progress, and customer retention. Journal of Marketing Research, 43(1), 39-58.