The wisdom of the diverse crowd(funders)

Crowdfunding platforms aim to democratize entrepreneurial finance by creating ecosystems that elicit the ‘wisdom of crowds’—aggregating the judgments of individual and often amateur funders. However, there is limited evidence on whether crowds can effectively apply their collective wisdom on these platforms. We address this gap by analyzing MyC4, a crowdlending platform that connects Western lenders with borrowers in developing countries. We examine whether lenders effectively screen borrowers, identify platform attributes that influence lenders' screening accuracy, and uncover the underlying mechanisms driving these effects. Empirically, we leverage platform-initiated ‘top-up’ funding by MyC4 administrators, which allows us to observe the counterfactual repayment performance of loans that would otherwise have remained unfunded, enabling us to evaluate lenders' screening ability against an otherwise unobservable benchmark. Our results indicate that crowdlenders can effectively screen creditworthy borrowers, but only when financial information about borrowers is made available. Lenders' screening effectiveness diminishes substantially for prosocial loans, as many funders converge on similar, socially motivated decisions. These findings provide novel evidence on crowdlenders' performance, highlighting key trade-offs for crowdfunding platforms and offering actionable insights for their administrators.