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

Marc Labie (), Pierre-Guillaume Méon (), Roy Mersland () and Ariane Szafarz ()
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Roy Mersland: UIA - University of Agder

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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.

Keywords: O16; J33; L3; Microcredit; micro-entrepreneurs; discrimination; loan officers; incentives; disability G21; Microcredit micro-entrepreneurs discrimination loan officers incentives disability G21 (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-05220876v1
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Published in Quarterly Review of Economics and Finance, 2015, 58 (4), pp.44-55. ⟨10.1016/j.qref.2015.05.002⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05220876

DOI: 10.1016/j.qref.2015.05.002

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