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

Marc Labie, Pierre-Guillaume Méon, Roy Mersland and Ariane Szafarz

The Quarterly Review of Economics and Finance, 2015, vol. 58, issue C, 44-55

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 non-discriminatory 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: Microcredit; Micro-entrepreneurs; Discrimination; Loan officers; Incentives; Disability (search for similar items in EconPapers)
JEL-codes: G21 J33 L3 O16 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Discrimination by Microcredit Officers: Theory and Evidence on Disability in Uganda (2015)
Working Paper: Discrimination by Microcredit Officers:Theory and Evidence on Disability in Uganda (2011)
Working Paper: Discrimination by Microcredit Officers: Theory and Evidence on Disability in Uganda (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:58:y:2015:i:c:p:44-55

DOI: 10.1016/j.qref.2015.05.002

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