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Mission Drift in microcredit and Microfinance Institution Incentives

Biancini, Sara; Ettinger, David; Venet, Baptiste (2017), Mission Drift in microcredit and Microfinance Institution Incentives. https://basepub.dauphine.fr/handle/123456789/19898

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cesifo1_wp6332.pdf (208.4Kb)
Type
Document de travail / Working paper
Date
2017
Publisher
CESifo
Series title
CESifo Working Paper
Series number
6332
Published in
Munich
Pages
27
Metadata
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Author(s)
Biancini, Sara
Centre de recherche en économie et management [CREM]
Théorie économique, modélisation et applications [THEMA]
Ettinger, David
CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
Laboratoire d'Economie de Dauphine [LEDa]
Venet, Baptiste
Laboratoire d'Economie de Dauphine [LEDa]
Abstract (EN)
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.
Subjects / Keywords
microfinance; donors; poverty; screening
JEL
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O12 - Microeconomic Analyses of Economic Development

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