The Effect of Virtuous and Entrepreneurial Orientations on Microfinance Lending and Repayment: A Signaling Theory Perspective

TLDR

Microfinancing platforms such as Kiva have expanded capital availability for microenterprises, yet lenders face information asymmetry about borrowers’ characteristics and intentions. This study extends signaling theory to propose that microenterprise narratives on such platforms serve as signals of valuable traits and behavioral intentions to lenders. The authors analyze how these narratives function as signals within a signaling‑theoretic framework to influence lending decisions. Microenterprises emphasizing autonomy, competitive aggressiveness, and risk‑taking receive funding more readily and quickly, whereas those highlighting conscientiousness, courage, empathy, and warmth are less likely to be funded, and rhetorical signals of proactiveness, conscientiousness, courage, warmth, or zeal are negatively linked to loan repayment.

Abstract

The availability of capital for microenterprises has grown rapidly due to microfinancing platforms such as Kiva. The investment decisions of microlenders are challenged due to the limited information about the microenterprises’ characteristics and behavioral intentions. Extending signaling theory, we suggest that microenterprises’ narratives on microfinancing platforms are an important means to signal valuable characteristics and behavioral intentions to prospective lenders. Results indicate that microenterprises, which signal autonomy, competitive aggressiveness, and risk–taking, are more likely to receive funding, and to receive it more quickly. Microenterprises that signal conscientiousness, courage, empathy, and warmth are less likely to get funded. Rhetorical signaling proactiveness, conscientiousness, courage, warmth, or zeal is negatively associated with loan repayment.