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Mission Drift in Microcredit: A Contract Theory Approach

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MFIs-and-Donors-2018-Oct.pdf (454.3Kb)
Date
2018
Publisher
Document de travail du LEDa
Publishing date
2018
Collection title
Document de travail du LEDa
Dewey
Croissance et développement économiques
Sujet
Microfinance; Funding Institutions; Mission Drift; Contract Theory
JEL code
O.O1.O12; O.O1.O16; G.G2.G21
URI
https://basepub.dauphine.fr/handle/123456789/19987
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]
12772 Développement, institutions et analyses de long terme [DIAL]
11609 Institut de Recherche pour le Développement (IRD)
Type
Document de travail / Working paper
Item number of pages
30
Abstract (EN)
We analyze the relationship between Microfinance Institutions (MFIs) and external funding institutions, with the aim of contributing to the debate on “mission drift” (the tendencyfor MFIs to lend money to wealthier borrower rather than to the very poor). We suggestthat funding institutions build incentives for MFIs to choose the adequate share of poorerborrowers and to exert effort to increase the quality of the funded projects. We show thatasymmetric information on both the effort level and its cost may increase the share of richerborrowers. However the unobservability of the cost of effort has an ambiguous effect. Itpushes efficient MFIs to serve a higher share of poorer borrowers, while less efficient onesdecrease their poor outreach.

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