Creating Incentives for Micro-Credit Agents to Lend to the Poor
AbstractMicrofinance institutions (MFIs) have introduced incentive pay schemes for their credit agents to induce information acquisition on borrowers. Bonuses linked to repayment are efficient for profit-oriented MFIs but insufficient for non-profit MFIs trying to reach very poor borrowers, when repayment and wealth are positively correlated. We show that no incentive scheme is consistent with this (non-verifiable) objective: Random audits on the share of very poor borrowers selected by the agent become necessary. Under the optimal contract, non-profit MFIs generally maximize the number of poor borrowers it services by cross-subsidization between very poor and less poor borrowers.
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Bibliographic InfoPaper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt4d340033.
Date of creation: 01 Jun 2004
Date of revision:
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micro-credit; pro-poor objectives; incentives;
Other versions of this item:
- Aubert, Cecile & de Janvry, Alain & Sadoulet, Elisabeth, 2004. "Creating incentives for micro-credit agents to lend to the poor," CUDARE Working Paper Series 0988, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
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