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When pro-poor microcredit institutions favour richer borrowers: A moral hazard story

Author

Listed:
  • Sara Biancini

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

  • David Ettinger

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Baptiste Venet

    (DIAL - Développement, institutions et analyses de long terme, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We suggest an explanation for the existence of "mission drift," the tendency for Microfinance Institutions (MFIs) to lend money to wealthier borrowers rather than to the very poor. We focus on the relationship between MFIs and external funding institutions. We assume that both the MFIs and the funding institutions are pro-poor. However, asymmetric information on the effort chosen by the MFI to identify higher-quality projects may increase the share of loans attributed to wealthier borrowers. This occurs because funding institutions have to build incentives for MFIs, creating a trade-off between the quality of the funded projects and the attribution of loans to poorer borrowers.

Suggested Citation

  • Sara Biancini & David Ettinger & Baptiste Venet, 2023. "When pro-poor microcredit institutions favour richer borrowers: A moral hazard story," Post-Print hal-04442586, HAL.
    • Handle: RePEc:hal:journl:hal-04442586
    DOI: 10.1111/caje.12694
    Note: View the original document on HAL open archive server: https://hal.science/hal-04442586v1
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    Keywords

    loans; Microcredit; Institutions;
    All these keywords.

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