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Subjectivity in Credit Allocation to Micro-Entrepreneurs: Evidence from Brazil

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  • Isabelle Agier
  • Ariane Szafarz

Abstract

This paper estimates the impact of loan officers' subjectivity on microcredit granting by exploiting an exceptionally detailed database from a Brazilian microfinance institution. Loan officers collect field data, meet with applicants, and make recommendations to the credit committee that in turn has the final say on both loan approval and loan size. The loan officers' subjectivity is captured through the lens of disparate treatment based on gender. Indeed, our estimations show that an unfair gender gap is observed in loan size, and that this gap is almost exclusively attributable to the loan officers. We interpret this finding as evidence that, despite monitoring and wage incentivization, microcredit officers keep letting their subjective preferences interfere with loan granting. We conclude by suggesting alternative means to curb subjectivity in credit allocation to micro-entrepreneurs.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 11-016.

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Length: 18 p.
Date of creation: May 2011
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/86108

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Keywords: Subjectivity Loan Size; Microcredit; Gender; Loan Officer; Entrepreneurs;

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References

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  1. Stephen L. Ross & John Yinger, 2002. "The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182289, January.
  2. 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.
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  4. Conning, Jonathan, 1999. "Outreach, sustainability and leverage in monitored and peer-monitored lending," Journal of Development Economics, Elsevier, vol. 60(1), pages 51-77, October.
  5. Mersland, Roy & Strøm, R. Øystein, 2010. "Microfinance Mission Drift?," World Development, Elsevier, vol. 38(1), pages 28-36, January.
  6. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
  7. Bellucci, Andrea & Borisov, Alexander & Zazzaro, Alberto, 2010. "Does gender matter in bank-firm relationships? Evidence from small business lending," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2968-2984, December.
  8. Timothy Bates & William Bradford, 2009. "The impact of institutional sources of capital upon the minority-oriented venture capital industry," Small Business Economics, Springer, vol. 33(4), pages 485-496, December.
  9. Thi Thu Tra Pham & Robert Lensink, 2007. "Lending policies of informal, formal and semiformal lenders," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(2), pages 181-209, 04.
  10. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 1998. "Discrimination in the Small Business Credit Market," NBER Working Papers 6840, National Bureau of Economic Research, Inc.
  11. Alberto F. Alesina & Francesca Lotti & Paolo Emilio Mistrulli, 2008. "Do Women Pay More for Credit? Evidence from Italy," NBER Working Papers 14202, National Bureau of Economic Research, Inc.
  12. Suman Ghosh & Eric Van Tassel, 2008. "A Model of Mission Drift in Microfinance Institutions," Working Papers 08003, Department of Economics, College of Business, Florida Atlantic University.
  13. Alain de Janvry & Craig McIntosh & Elisabeth Sadoulet, 2006. "The supply and demand side impacts of credit market information," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  14. Aubert, Cécile & de Janvry, Alain & Sadoulet, Elisabeth, 2009. "Designing credit agent incentives to prevent mission drift in pro-poor microfinance institutions," Journal of Development Economics, Elsevier, vol. 90(1), pages 153-162, September.
  15. Pierre-Guillaume Méon & Ariane Szafarz, 2011. "The Modern Corporation as a Safe Haven for Taste-Based Discrimination: An Agency Model of Hiring Decisions," ULB Institutional Repository 2013/88635, ULB -- Universite Libre de Bruxelles.
  16. Marc Labie & Anaïs Périlleux, 2008. "Corporate governance in microfinance: credit unions," Working Papers CEB 08-003.RS, ULB -- Universite Libre de Bruxelles.
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Cited by:
  1. Shchetinin, Oleg & Wollbrant, Conny, 2013. "The intermediary role of microloan officers: Evidence from Ethiopia," Working Papers in Economics 581, University of Gothenburg, Department of Economics.
  2. Anastasia Cozarenco & Ariane Szafarz, 2013. "Female Access to Credit in France: How Microfinance Institutions Import Disparate Treatment from Banks," Working Papers halshs-00874448, HAL.
  3. Amélie Artis & Simon Cornée, 2013. "Transformation informationnelle, certification et intermédiation financière : le cas de la banque solidaire," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201326, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  4. Jessica Schicks, 2012. "Over-Indebtedness in Microfinance – An Empirical Analysis of Related Factors on the Borrower Level," Working Papers CEB 12-017, ULB -- Universite Libre de Bruxelles.
  5. Simon Cornée & Ariane Szafarz, 2013. "Vive la Différence: Social Banks and Reciprocity in the Credit Market," Post-Print halshs-00874615, HAL.
  6. Simon Cornée, 2012. "The Relevance of Soft Information for Predicting Small Business Credit Default: Evidence from a Social Bank," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201226, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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