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Mission Drift in microcredit and Microfinance Institution Incentives

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cesifo1_wp6332.pdf (208.4Kb)
Date
2017
Publisher city
Munich
Publisher
CESifo
Collection title
CESifo Working Paper
Collection Id
6332
Dewey
Croissance et développement économiques
Sujet
microfinance; donors; poverty; screening
JEL code
G.G2.G21; O.O1.O16; O.O1.O12
URI
https://basepub.dauphine.fr/handle/123456789/19898
Collections
  • LEDa : Publications
Metadata
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Author
Biancini, Sara
894 Centre de recherche en économie et management [CREM]
10592 Théorie économique, modélisation et applications [THEMA]
Ettinger, David
60 CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
163511 Laboratoire d'Economie de Dauphine [LEDa]
Venet, Baptiste
163511 Laboratoire d'Economie de Dauphine [LEDa]
Type
Document de travail / Working paper
Item number of pages
27
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.

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