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

Julie De Pril and Cécile Godfroid

No 17-011, Working Papers CEB from ULB -- Universite Libre de Bruxelles

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.

Keywords: microfinance; financial incentive; loan officer; financial performance; prosocial motivation (search for similar items in EconPapers)
JEL-codes: G21 J30 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mfd
Date: 2017-03-17
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Handle: RePEc:sol:wpaper:2013/248473