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Discrimination by microcredit officers: Theory and evidence on disability in Uganda

Listed author(s):
  • Labie, Marc
  • Méon, Pierre-Guillaume
  • Mersland, Roy
  • Szafarz, Ariane

This paper studies the relationship between a microfinance institution (MFI) and its loan officers when officers discriminate against a particular group of micro-entrepreneurs. Using survey data from Uganda, we provide evidence that loan officers are more biased than other employees against disabled micro-entrepreneurs. In line with the evidence, we build an agency model of a non-profit MFI and a biased loan officer in charge of granting loans. Since incentive schemes are costly and the MFI's budget is limited, the MFI faces a trade-off between combating discrimination and granting loans. We show that the optimal incentive premium is a non-decreasing function of the MFI's budget. Moreover, even a non-discriminatory welfare-maximizing MFI may let its loan officer discriminate, because eradicating discrimination would come at the cost of too many loans. Observing an MFI's loan allocation biased against a minority group therefore does not imply that the institution is biased against this group.

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File URL: http://www.sciencedirect.com/science/article/pii/S1062976915000587
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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 58 (2015)
Issue (Month): C ()
Pages: 44-55

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Handle: RePEc:eee:quaeco:v:58:y:2015:i:c:p:44-55
DOI: 10.1016/j.qref.2015.05.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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