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

Author

Listed:
  • Marc Labie

  • Pierre-Guillaume Méon

  • Roy Mersland

    (UIA - University of Agder)

  • Ariane Szafarz

Abstract

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 nondiscriminatory 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.

Suggested Citation

  • Marc Labie & Pierre-Guillaume Méon & Roy Mersland & Ariane Szafarz, 2015. "Discrimination by microcredit officers: Theory and evidence on disability in Uganda," Post-Print hal-05220876, HAL.
    • Handle: RePEc:hal:journl:hal-05220876
    DOI: 10.1016/j.qref.2015.05.002
    Note: View the original document on HAL open archive server: https://hal.science/hal-05220876v1
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    Keywords

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    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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