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Mission Drift in Microcredit: A Contract Theory Approach

Biancini, Sara; Ettinger, David; Venet, Baptiste (2018), Mission Drift in Microcredit: A Contract Theory Approach. https://basepub.dauphine.fr/handle/123456789/19987

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MFIs-and-Donors-2018-Oct.pdf (454.3Kb)
Type
Document de travail / Working paper
Date
2018
Publisher
Document de travail du LEDa
Series title
Document de travail du LEDa
Pages
30
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]
Développement, institutions et analyses de long terme [DIAL]
Institut de Recherche pour le Développement (IRD)
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.
Subjects / Keywords
Microfinance; Funding Institutions; Mission Drift; Contract Theory
JEL
O12 - Microeconomic Analyses of Economic Development
O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages

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