Fixed or Flexible: How Crowdfunding Model Choices Affect Borrowers

Why It Matters

Letting borrowers choose between fixed and flexible crowdfunding models might seem empowering, but it can lead to smaller loans and fewer resources. In microfinance, even small shifts in platform rules can have large and unexpected effects on who gets funded.

 

Key Takeaways

• Allowing borrowers to choose between fixed (all-or-nothing) and flexible (keep-it-all) funding models led to lower target and actual funding amounts overall.

• Flexible models performed worse than fixed models for consumption-related loans, but not for business-related ones.

• Borrowers with urgent financial needs were more likely to choose flexible funding, even if it resulted in lower funding totals. 

 

Why Crowdfunding Model Design Matters in Microfinance

Crowdfunding platforms have become a vital tool in global microfinance, offering small loans to borrowers who are often excluded from traditional banking systems. However, the way these platforms are structured, particularly the rules around how funds are disbursed, can significantly influence the behaviour of both borrowers and lenders. Traditionally, many platforms have used a fixed funding model in which borrowers receive funds only if the full target amount is raised. In contrast, flexible models allow borrowers to receive the pledged amount regardless of whether the funding goal is met. Although flexibility may appear more inclusive, especially for borrowers with urgent needs, this study shows that the choice between fixed and flexible models has meaningful effects on both the amounts requested and the amounts ultimately raised. Platform design plays an active role in shaping funding outcomes and should not be treated as a neutral background feature.

What Changed After Kiva’s Model Shift

In August 2019, Kiva allowed its users to choose between fixed and flexible funding models. This policy change created a natural experiment that revealed unexpected behavioural shifts. On average, both the target amount borrowers requested, and the actual amount raised declined after the change. This effect was particularly evident among consumption-related loans, such as those intended for basic needs or personal expenses. Borrowers seeking these types of loans were more likely to choose the flexible model, but they tended to receive less funding compared to those who chose the fixed model. In contrast, business-related loans showed little difference in outcomes between the two models, suggesting that the impact of funding structure depends on the purpose of the loan. While flexibility appealed to borrowers with immediate financial pressures, it also involved a trade-off in the amount of support they ultimately received.

Design Implications for Platforms and Policymakers

The findings carry important implications for crowdfunding platforms, especially those operating in development or philanthropic spaces. Giving users more choice is not inherently beneficial if it leads to lower funding success, particularly for vulnerable borrowers. Platform designers must consider how users interpret model features and how those interpretations influence decision-making and outcomes. Policymakers and aid organisations should also be aware that subtle design changes in fundraising systems can amplify inequality in access. For example, borrowers seeking funds for urgent consumption needs may unintentionally signal lower quality when choosing the flexible model, which could discourage lenders. To enhance both efficiency and equity, future platform features should be tested not only for functionality but for their behavioural impact on all stakeholders.

Business Implications

For Platforms: Simply offering more choices doesn’t always lead to better outcomes. Design choices in crowdfunding interfaces can shape borrower behaviour and influence funding efficiency.

For Borrowers: Choosing the right model is critical. Borrowers in urgent need might prioritise flexibility, but must consider potential trade-offs in total funds raised.

For Policymakers: The funding model matters. Programmes that aim to maximise impact should consider how platform design interacts with behavioural incentives and lender perceptions.

 

Authors & Sources

Authors: Jenny Jeongeun Yoo (Nanyang Technological University) and Songman Kang (Sungkyunkwan University)

Original Article: The Singapore Economic Review

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