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How to Reconcile Financial Incentives and Prosocial Motivation of Loan Officers in Microfinance?

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Listed author(s):
  • Julie De Pril
  • Cécile Godfroid
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    Abstract

    It has been widely recognized that the microfinance sector should pursue both social and financial objectives (double bottom line objective). However, with the growing success of microfinance, numerous microfinance institutions (MFIs) experience mission drift when they focus only on their financial mission at the expense of their social one. The mainstream incentive schemes set up by MFIs for their loan officers are one of the factors contributing to mission drift for several reasons. First, monetary rewards based on financial criteria may lead unscrupulous loan officers to push clients into overindebtedness. Second, financial incentives may have a negative effect on the prosocial motivation animating numerous microfinance loan officers. In this paper, we attempt to suggest, with a mathematical model, an optimal incentive scheme double bottom line on which MFIs could rely in order to preserve loan officers’ prosocial motivation while paying attention to their financial profit.

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    Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 17-011.

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    Length: 21 p.
    Date of creation: 17 Mar 2017
    Publication status: Published by:
    Handle: RePEc:sol:wpaper:2013/248473
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    Keywords: microfinance; financial incentive; loan officer; financial performance; prosocial motivation;

    Find related papers by JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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