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Incentives and Performance of Agents in a Microfinance Bank

Author

Listed:
  • Surajeet Chakravarty

    (University of Exeter)

  • Sumedh Dalwai

    (University of Exeter)

  • Pradeep Kumar

    (University of Exeter)

Abstract

An important aspect of providing credit to the poor is the mechanism adopted by the credit institutions to do so. Most microfinance banks use field agents to acquire new borrowers, manage the account and collect repayments. How does the supply of credit change with a change in incentives provided to such field agents? Mann Deshi Bank, a microfinance bank in India, changed its remuneration scheme from a pure commission based to a mixed scheme with a combination of a base salary and other incentives. This paper examines the effect it had on the effort and the performance of the agents by using a rich panel data on the bankÕs joint liability lending product. The results show that the change in the contract form with a large flat wage and reduced incentives improved performance of the agents in terms of the quantity (increase in the number of borrowers acquired) and quality (the borrowers acquired had fewer delays in repayments). We find evidence of mixed contract agents exerting significantly more effort than the pure commission agents to ascertain borrower quality.

Suggested Citation

  • Surajeet Chakravarty & Sumedh Dalwai & Pradeep Kumar, 2020. "Incentives and Performance of Agents in a Microfinance Bank," Discussion Papers 2002, University of Exeter, Department of Economics.
  • Handle: RePEc:exe:wpaper:2002
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    References listed on IDEAS

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    More about this item

    Keywords

    Micro-finance institutions; joint liability loans; labor contracts; moral hazard;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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