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Creating Incentives for Micro-Credit Agents to Lend to the Poor


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


Microfinance 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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  • Aubert, Cecile & de Janvry, Alain & Sadoulet, Elisabeth, 2004. "Creating Incentives for Micro-Credit Agents to Lend to the Poor," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4d340033, Department of Agricultural & Resource Economics, UC Berkeley.
  • Handle: RePEc:cdl:agrebk:qt4d340033

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    References listed on IDEAS

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    micro-credit; pro-poor objectives; incentives;


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