Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/232490
Authors: 
Biancini, Sara
Ettinger, David
Venet, Baptiste
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8893
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
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 and agree on the optimal proportion of funds to be granted to the poorer borrower. 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.
Subjects: 
microfinance
mission drift
moral hazard
JEL: 
O12
O16
G21
Document Type: 
Working Paper

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