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A Model of Mission Drift in Microfinance Institutions

  • Suman Ghosh


    (Department of Economics, College of Business, Florida Atlantic University)

  • Eric Van Tassel


    (Department of Economics, College of Business, Florida Atlantic University)

In this paper we offer a theoretical examination of the phenomenon known as mission drift. In recent years there have been claims that the entry of large donors with deep pockets have led to a mission drift phenomenon, whereby microfinance institutions who were previously catering to the poorest agents have drifted towards catering to the less poor. We offer an explanation for how the change in the lending portfolio of a poverty minimizing microfinance institution might be linked to the phenomenon of increasing commercialization through the advent of these large profit oriented donors. The degree to which lending portfolios change turns out to be a function of both the supply of donor funds and the strategic interaction between heterogeneous microfinance institutions.

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Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 08003.

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Length: 23 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:fal:wpaper:08003
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  1. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large Fixed Costs," Econometrica, Econometric Society, vol. 56(3), pages 549-69, May.
  2. Maskin, Eric & Tirole, Jean, 1987. "A theory of dynamic oligopoly, III : Cournot competition," European Economic Review, Elsevier, vol. 31(4), pages 947-968, June.
  3. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, June.
  4. Amin, S. & Rai, A.S. & Topa, G., 1999. "Does Microcredit Reach the Poor and Vulnerable? Evidence from Northern Bangldesh," Working Papers 99-06, C.V. Starr Center for Applied Economics, New York University.
  5. P. Mosley, 2001. "Microfinance and Poverty in Bolivia," Journal of Development Studies, Taylor & Francis Journals, vol. 37(4), pages 101-132.
  6. J. Copestake & P. Dawson & J.-P. Fanning & A. McKay & K. Wright-Revolledo, 2005. "Monitoring the Diversity of the Poverty Outreach and Impact of Microfinance: A Comparison of Methods Using Data from Peru," Development Policy Review, Overseas Development Institute, vol. 23(6), pages 703-723, November.
  7. Morduch, J., 1998. "The Microfinance Schism," Papers 626, Harvard - Institute for International Development.
  8. Shahidur R. Khandker, 2005. "Microfinance and Poverty: Evidence Using Panel Data from Bangladesh," World Bank Economic Review, World Bank Group, vol. 19(2), pages 263-286.
  9. Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2006. "Financial performance and outreach : a global analysis of leading microbanks," Policy Research Working Paper Series 3827, The World Bank.
  10. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-59, March.
  11. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
  12. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, vol. 60(1), pages 105-141, October.
  13. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
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