Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155574
Authors: 
Biancini, Sara
Ettinger, David
Venet, Baptiste
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6332
Abstract: 
We analyze the relationship between Microfinance Institutions (MFIs) and external donors, with the aim of contributing to the debate on “mission drift” in microfinance. We assume that both the donor and the MFI are pro-poor, possibly at different extents. Borrowers can be (very) poor or wealthier (but still unbanked). Incentives have to be provided to the MFI to exert costly effort to identify the more valuable projects and to choose the right share of poorer borrowers (the optimal level of poor outreach). We first concentrate on hidden action. We show that asymmetric information can distort the share of very poor borrowers reached by loans, thus increasing mission drift. We then concentrate on hidden types, assuming that MFIs are characterized by unobservable heterogeneity on the cost of effort. In this case, asymmetric information does not necessarily increase the mission drift. The incentive compatible contracts push efficient MFIs to serve a higher share of poorer borrowers, while less efficient ones decrease their poor outreach.
Subjects: 
microfinance
donors
poverty
screening
JEL: 
O12
O16
G21
Document Type: 
Working Paper

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