The Commercialization of the Microfinance Industry: Is There a ‘Personal Mission Drift’ Among Credit Officers?

Abstract

Recent research suggests that many microfinance institutions increasingly focus on financial performance at the expense of the social component of their dual objectives. Existing studies typically assume that capital providers and managers mainly drive this so-called 'mission drift'. In this study, we investigate whether 'personal mission drift' at the credit officer level can further explain the reduced emphasis on poorer clients among microfinance institutions. We present both qualitative and quantitative evidence that more experienced credit officers tend to serve fewer vulnerable clients. Specifically, we show that all else being equal, credit officer experience is negatively correlated with the provision of small loans, loans to young clients, and loans to clients with disabilities. Our qualitative analysis suggests that perceived client risk and preferences for increased time efficiency mainly drive more experienced credit officers' relative neglect of more vulnerable clients. This drift appears to be reinforced by the industry's incentive schemes. Therefore, credit officer incentives and training should be designed to prevent this mission drift, which is observed at the microfinance institution level but is actually initiated at the credit officer level.

The interaction effect of gender and ethnicity in loan approval: A Bayesian estimation with data from a laboratory field experiment

“…The results of discrimination in the study are also similar to those found by Agier and Szafarz (2013b), Labie et al (2015), Jenq, Pan, and Theseira (2015), and Beisland, D'Espallier, and Mersland (2017). Agier and Szafarz (2013b) found that loan officer's subjectivity creates a gender gap in loan size in Brazil, while in turn Labie et al (2015) found loan discrimination against disabled borrowers, performed by credit officers of a microfinance institution in Uganda.…”

Modeling customer satisfaction in microfinance sector: A fuzzy Bayesian networks approach

“…The study findings fit well with other existing research. Beisland et al 44 and Iruguthu 45 assert that training programs and incentives need to be well designed to avoid the microfinance mission drift. We have highlighted that MFIs need to focus more on staff training and coaching and to improve their customer relationship management system.…”

The challenges of social investment through the lens of microfinance

“…Conning and Morduch (2011) investigate similar tensions, also in the context of asymmetric information between lenders and borrowers. Beisland et al (2017) find evidence that loan officers make investments to identify poorer borrowers, but they make fewer loans to these riskier customers over time. Hossain and Mullally (2018) find similar evidence in Bangladesh.…”