In this paper, we investigate the real effects of peer-to-peer (P2P) lending and possible channels through which they might operate. To isolate the treatment effect of P2P lending, the empirical design exploits local variation in regulatory restrictions on P2P lending and natural disasters affecting local economic conditions. In difference-in-differences tests, we find that the availability of P2P lending mitigates the adverse effects of natural disasters on local GDP, income, business establishments, and employment. The effects operate through direct credit provision by P2P lenders and through the response of banks to credit demand when facing competition from P2P lenders in local credit markets.

Keywords: Fintech, P2P lending, Natural disasters, Credit markets, Competition