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Financial reward schemes in microfinance
Initial registration date
September 19, 2019
September 19, 2019 11:51 AM EDT
Ben-Gurion University of the Negev
Other Primary Investigator(s)
Kellogg School of Management, Northwestern University
Additional Trial Information
We evaluate the effect of incentive schemes (bonuses) on the performance of credit officers working for a large microfinance institution. Specifically, we compare between a bonus scheme based on individual performance and a bonus scheme based on team performance.
Individual behavior is largely driven by incentives, yet those faced by employers and employees are often misaligned - the classic principal-agent problem. A large theoretical literature is concerned with the design of contracts that provide solutions to the agency problem. One commonly proposed tool for addressing agency problems is the provision of financial reward schemes, or bonuses. In organizations with a social mission, or where agents are expected to perform on both measurable and non-measurable tasks, such schemes may perform worse because only certain tasks can be rewarded in this way, and these tend to be the non-social tasks (Holmström and Milgrom, 1991, Holmström and Milgrom, 1994). Earlier research findings also suggest that financial rewards risk to crowd out employees’ intrinsic motivation to “do good”. Such motivation is of particular relevance to the public sector and in organizations with a social mission, including those in the microfinance sector. Despite these potential risks, financial reward schemes are pervasive in organizations, and only a number of recent experiments from developing countries have evaluated such schemes. This study adds to the literature on financial reward schemes in organizations. The microfinance setting is an interesting one in which to evaluate bonus schemes as credit officers are in frequent contact with the borrowers and social factors can affect their decisions regarding loan granting and the repayment collection. When individual reward schemes are introduced, a credit officer may need to trade off monetary rewards against social expectations and rewards. Bonuses based on individual effort, as compared to team based bonuses, reduces free riding and may thus incentivize certain credit officers to work harder. At the same time, key aspects of the job require teamwork between credit officers, and a monetary incentive based on the individual level performance might negatively affect effort on these components.
The study is carried out in collaboration with BRAC Uganda, currently one of the largest development organizations and micro finance institutions in the country with more than 200,000 active borrowers (see www.brac.net/uganda). We collaborate with BRAC to evaluate the effects of a move from a reward scheme for credit officers based on team performance to a scheme based on individual performance. We use a randomized control methodology with randomization at the branch level, and ask how individual level as compared to team level bonus contracts affect outcomes such as credit officer effort, measures of team work, staff well-being and borrower pool characteristics. Registration Citation
We collaborate with BRAC Uganda Microfinance to evaluate the effects of a move from a reward scheme for credit officers based on team performance to a scheme based on individual performance. We randomize branch offices to either
(a) treatment (individual performance based bonus) or (b) control (team performance based bonus) and ask how individual level as compared to team level bonus contracts affect outcomes such as: credit officer effort, loan quantity and quality, measures of team work, staff and borrower well-being and borrower pool characteristics.
Intervention Start Date
Intervention End Date
Primary Outcomes (end points)
Loan quantity, size and quality (repayment performance), staff turnover, borrower satisfaction with credit officer.
Primary Outcomes (explanation)
Outcome data related to loan quality and quantity and data on staff turnover will be based on administrative data.
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
In October 2018, BRAC Uganda Microfinance transitioned from a system with staff bonuses based on team performance to a system in which staff bonuses were based on performance of the individual credit officer. The researchers collaborated with BRAC in this process and randomly assigned 2/3 (106) of the branches to the individual incentive scheme (treatment), while the remaining 1/3 (53) of branches remained with the old, team incentive setup (control group), with small changes made to make the two incentive schemes as comparable as possible.
The randomization was stratified on area (branches are grouped in areas with 4-5 branches in each), and on the following branch level variables: repayment performance in the past year, number of staff and rural/urban status of the branch.
Experimental Design Details
The randomization was conducted by the researchers on a computer. The randomization was stratified (Bruhn and McKenzie, 2009) by Area (Branch offices are grouped into Areas with 4-5 Branches in each), and on the following Branch level variables: repayment performance in the past year, number of staff and rural/urban status of the branch.
Branch office (Local office). 159 branches are included in the experiment.
Was the treatment clustered?
Sample size: planned number of clusters
Sample size: planned number of observations
159 branches, and data on 700 Credit officers and between 200,000 - 300,000 borrowers with active loans during the experiment period.
Sample size (or number of clusters) by treatment arms
The 159 branches are divided as follows between treatment and control:
Individual incentive (treatment): 106 branches
Team incentive (control): 53 branches
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
INSTITUTIONAL REVIEW BOARDS (IRBs)
Uganda National Council for Science and Technology (UNCST)
IRB Approval Date
IRB Approval Number
Human Subjects Research Committee of Ben-Gurion University
IRB Approval Date
IRB Approval Number
Post Trial Information
Is the intervention completed?
Is data collection complete?