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Discrimination by Microcredit Officers: Theory and Evidence on Disability in Uganda

  • Marc Labie
  • Pierre-Guillaume Méon
  • Roy Mersland
  • Ariane Szafarz

This paper studies the relationship between a microfinance institution and its credit officers when the latter are biased against a subgroup of the clientele. Using survey data from Uganda, we provide evidence that credit officers are more biased against disabled borrowers than other employees. In line with the evidence, we then build an agency model of a non-profit MFI and a discriminatory credit officer. Since incentives are costly, and the MFI’s budget is limited, even a non discriminating welfare-maximizing MFI may prefer paying smaller incentives, and letting its credit officer discriminate to some extent.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/54003/1/RePEc_sol_wpaper_10-007.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 10-007.RS.

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Length: 29 p.
Date of creation: 2010
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:10-007
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  1. Marc Labie & Anaïs Périlleux, 2008. "Corporate governance in microfinance: credit unions," Working Papers CEB 08-003.RS, ULB -- Universite Libre de Bruxelles.
  2. Hartarska, Valentina M., 2005. "Governance and Performance of Microfinance Institutions in Central and Eastern Europe and the Newly Independent States," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24568, European Association of Agricultural Economists.
  3. Niels Hermes & Robert Lensink, . "The empirics of microfinance: what do we know?," ULB Institutional Repository 2013/14198, ULB -- Universite Libre de Bruxelles.
  4. Sajeda Amin & Ashok S. Rai & Giorgio Topa, 1999. "Does Microcredit Reach the Poor and Vulnerable? Evidence from Northern Bangladesh," CID Working Papers 28, Center for International Development at Harvard University.
  5. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
  6. Ken Cavalluzzo & John Wolken, 2002. "Small business loan turndowns, personal wealth and discrimination," Finance and Economics Discussion Series 2002-35, Board of Governors of the Federal Reserve System (U.S.).
  7. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
  8. Mersland, Roy & Øystein Strøm, R., 2009. "Performance and governance in microfinance institutions," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 662-669, April.
  9. Stephen L. Ross & John Yinger, 2002. "The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182289, June.
  10. Sumit Agarwal & Faye H. Wang, 2009. "Perverse incentives at the banks? Evidence from a natural experiment," Working Paper Series WP-09-08, Federal Reserve Bank of Chicago.
  11. D. Storey, 2004. "Racial and Gender Discrimination in the Micro Firms Credit Market?: Evidence from Trinidad and Tobago," Small Business Economics, Springer, vol. 23(5), pages 401-422, December.
  12. Hartarska, Valentina, 2005. "Governance and performance of microfinance institutions in Central and Eastern Europe and the Newly Independent States," World Development, Elsevier, vol. 33(10), pages 1627-1643, October.
  13. Armendáriz, Beatriz & Szafarz, Ariane, 2011. "On mission drift in microfinance institutions," MPRA Paper 31041, University Library of Munich, Germany, revised 2010.
  14. Mark Schreiner, 2001. "Credit Scoring for Microfinance: Can It Work?," Development and Comp Systems 0108003, EconWPA, revised 27 Dec 2001.
  15. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  16. Black, Harold & Schweitzer, Robert L & Mandell, Lewis, 1978. "Discrimination in Mortgage Lending," American Economic Review, American Economic Association, vol. 68(2), pages 186-91, May.
  17. Aubert, Cécile & de Janvry, Alain & Sadoulet, Elisabeth, 2009. "Designing credit agent incentives to prevent mission drift in pro-poor microfinance institutions," Journal of Development Economics, Elsevier, vol. 90(1), pages 153-162, September.
  18. Cavalluzzo, Ken S & Cavalluzzo, Linda C, 1998. "Market Structure and Discrimination: The Case of Small Businesses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 771-92, November.
  19. Kathleen Beegle & Wendy A. Stock, 2003. "The Labor Market Effects of Disability Discrimination Laws," Journal of Human Resources, University of Wisconsin Press, vol. 38(4).
  20. William G. Johnson & James Lambrinos, 1985. "Wage Discrimination against Handicapped Men and Women," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 264-277.
  21. Blanchard, Lloyd & Zhao, Bo & Yinger, John, 2008. "Do lenders discriminate against minority and woman entrepreneurs?," Journal of Urban Economics, Elsevier, vol. 63(2), pages 467-497, March.
  22. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
  23. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, June.
  24. Stephen L. Ross, 2005. "The Continuing Practice and Impact of Discrimination," Working papers 2005-19, University of Connecticut, Department of Economics, revised Jul 2006.
  25. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 2003. "Discrimination in the Small-Business Credit Market," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 930-943, November.
  26. Phelps, Edmund S, 1972. "The Statistical Theory of Racism and Sexism," American Economic Review, American Economic Association, vol. 62(4), pages 659-61, September.
  27. Banerjee, Biswajit & Knight, J. B., 1985. "Caste discrimination in the Indian urban labour market," Journal of Development Economics, Elsevier, vol. 17(3), pages 277-307, April.
  28. Schreiner, Mark & Graham, Douglas H. & Cortes-Fontcuberta, Manuel & Coetzee, Gerhard K. & Vink, Nick, 1997. "Racial Discrimination In Hire/Purchase Lending In Apartheid South Africa," 1997 Annual meeting, July 27-30, Toronto, Canada 21026, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  29. Matthew Warning & Elisabeth Sadoulet, 1998. "The performance of village intermediaries in rural credit delivery under changing penalty regimes: Evidence from Senegal," Journal of Development Studies, Taylor & Francis Journals, vol. 35(1), pages 115-138.
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