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Designing credit agent incentives to prevent mission drift in pro-poor microfinance institutions

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  • Aubert, Cécile
  • de Janvry, Alain
  • Sadoulet, Elisabeth

Abstract

Credit agents in microfinance institutions (MFIs) must be given incentives to acquire information on potential borrowers and select them in accordance with the MFI's objectives. We show that while giving incentives has no cost in for-profit MFIs, it is costly in pro-poor MFIs: When repayment and wealth are positively correlated, a pro-poor MFI cannot obtain the selection of poor clients in the proportion it wishes with incentives based solely on repayment. It then becomes necessary to audit the share of very poor borrowers selected by an agent in order to provide the latter with adequate incentives. When audit costs are large, pro-poor MFIs may have to forego selection on wealth -- and use other targeting devices such as working in impoverished geographical locations. Driven by donor concerns with 'mission drift' away from the poor, audits on the wealth status of clients have been introduced at the level of MFIs. We show that introducing pro-poor incentives requires extending such audits to the level of credit agents.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 90 (2009)
Issue (Month): 1 (September)
Pages: 153-162

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Handle: RePEc:eee:deveco:v:90:y:2009:i:1:p:153-162

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Micro-credit Pro-poor objectives Incentives for agents;

References

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Citations

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Cited by:
  1. Salim, Mir M., 2013. "Revealed objective functions of Microfinance Institutions: Evidence from Bangladesh," Journal of Development Economics, Elsevier, vol. 104(C), pages 34-55.
  2. Koen Rossel-Cambier, 2011. "Is Combined Microfinance an Instrument to enhance Sustainable Pro-Poor Public Policy Outcomes?," Working Papers CEB 11-013, ULB -- Universite Libre de Bruxelles.
  3. Aree Cheamuangphan & Aree Wiboonpongse & Songsak Sriboonchitta, 2012. "Factors enhancing efficiency of microfinance performance in agricultural communities of upper Northern Thailand," The Empirical Econometrics and Quantitative Economics Letters, Faculty of Economics, Chiang Mai University, vol. 1(4), pages 1-20, December.
  4. Isabelle Agier & Ariane Szafarz, 2013. "Subjectivity in credit allocation to micro-entrepreneurs: evidence from Brazil," Small Business Economics, Springer, vol. 41(1), pages 263-275, June.
  5. Pierre-Guillaume Méon & Roy Mersland & Ariane Szafarz & Marc Labie, 2011. "Discrimination by Microcredit Officers:Theory and Evidence on Disability in Uganda," DULBEA Working Papers 11-06, ULB -- Universite Libre de Bruxelles.
  6. Mallick, Debdulal & Nabin, Munirul, 2010. "Where NGOs go and do not go?," MPRA Paper 27185, University Library of Munich, Germany.
  7. Brishti Guha & Prabal Roy Chowdhury, 2012. "Borrower Targeting under Micro-finance Competition with Motivated MFIs," Working Papers 05-2012, Singapore Management University, School of Economics.
  8. Morvant-Roux, Solène & Guérin, Isabelle & Roesch, Marc & Moisseron, Jean-Yves, 2014. "Adding Value to Randomization with Qualitative Analysis: The Case of Microcredit in Rural Morocco," World Development, Elsevier, vol. 56(C), pages 302-312.
  9. Sagamba, MoÏse & Shchetinin, Oleg & Yusupov, Nurmukhammad, 2013. "Do Microloan Officers Want to Lend to the Less Advantaged? Evidence from a Choice Experiment," World Development, Elsevier, vol. 42(C), pages 182-198.

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