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

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  • Julie De Pril
  • Cécile Godfroid

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.

Suggested Citation

  • Julie De Pril & Cécile Godfroid, 2017. "How to Reconcile Financial Incentives and Prosocial Motivation of Loan Officers in Microfinance?," Working Papers CEB 17-011, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/248473
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    More about this item

    Keywords

    microfinance; financial incentive; loan officer; financial performance; prosocial motivation;
    All these keywords.

    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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