Mitigating Default Risks In Peer-To-Peer Lending Platforms: The Role Of Information Asymmetry In Indonesia

Abstract

The rapid growth of Peer-to-Peer (P2P) Lending platforms in Asia has sparked interest in understanding the factors influencing their viability and the implications of default rates. This study examines the extent and consequences of information asymmetry in P2P lending and explores the effectiveness of interest rate limits in addressing adverse selection and moral hazard issues. The research expands the empirical literature on the relationship between asymmetric information and default in the P2P lending market, particularly focusing on unsecured loans in credit markets. By overcoming the challenges of measuring asymmetric information when observable borrower risk characteristics are unavailable, this study contributes to the development of risk-based pricing frameworks to mitigate losses for lenders and prevent potential market crashes. The findings offer valuable insights into managing default risks in P2P lending platforms, thus fostering a more sustainable and efficient financial ecosystem in Asia.