Mission Drift in microcredit and Microfinance Institution Incentives

Sara Biancini, David Ettinger () and Baptiste Venet
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David Ettinger: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres
Baptiste Venet: LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres

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Abstract: We analyze the relationship between Microfinance Institutions (MFIs) and external donors, withthe aim of contributing to the debate on "mission drift" in microfinance. We assume that boththe donor and the MFI are pro-poor, possibly at different extents. Borrowers can be (very) pooror wealthier (but still unbanked). Incentives have to be provided to the MFI to exert costly effortto identify the more valuable projects and to choose the right share of poorer borrowers (theoptimal level of poor outreach). We first concentrate on hidden action. We show thatasymmetric information can distort the share of very poor borrowers reached by loans, thusincreasing mission drift. We then concentrate on hidden types, assuming that MFIs arecharacterized by unobservable heterogeneity on the cost of effort. In this case, asymmetricinformation does not necessarily increase the mission drift. The incentive compatible contractspush efficient MFIs to serve a higher share of poorer borrowers, while less efficient onesdecrease their poor outreach.

Keywords: microfinance; donors; poverty; screening (search for similar items in EconPapers)
Date: 2019-09-23
New Economics Papers: this item is included in nep-agr, nep-ban, nep-mfd and nep-mic
Note: View the original document on HAL open archive server: https://hal.science/hal-02294739v1
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Related works:
Working Paper: Mission Drift in Microcredit and Microfinance Institution Incentives (2017)
Working Paper: Mission Drift in Microcredit and Microfinance Institution Incentives (2017)
Working Paper: Mission Drift in Microcredit and Microfinance Institution Incentives (2017)
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