This project studies the effect of implementing staff rotation in a large microfinance institution. Specifically, we compare between offices randomly assigned to regularly rotate their loan officers between borrowers (portfolios) to offices randomly assigned to freeze rotation.
The incentives faced by employers and employees are often misaligned - the classic principal-agent problem. Our project will study this phenomenon in the context of managerial practices in the financial sector, and in particular, in relation to policies pertaining to staff rotation. In developing counties, a large share of loans is extended by microfinance institutions, where personal and frequent contact between borrowers and lenders is a necessary norm. This makes microfinance a particularly relevant context for the study of staff rotation – a management practice that directly impacts the scope for personal relationships to form between loan officers and borrowers.
The study will examine the effect of loan officer rotation on portfolio quality, as well as staff and borrower behavior, types and welfare. It is carried out in partnership with BRAC Microfinance in Uganda. For a study period of 12 months, 53 randomly selected branches (local offices) rotate groups between the loan officers every six months, following a schedule prepared by the research team together with BRAC, while 53 control branches will freeze rotation. Detailed administrative and survey data is collected on both staff and borrowers, before, during and after the study period.
Whereas the related empirical literature has utilized endogenous organizational policies for loan officer rotation to document features of loan officer behavior and draw conclusions about their incentives (see e.g. Herzberg, Liberti and Paravisini, 2010; Bhowal , Subramanian and Tantri 2014; Drexler and Schoar, 2014 and Fisman, Paravisini and Vig, 2017), we propose to implement a randomized experiment to study the causal effect of implementing a rotation policy. Our experiment introduces exogenous variation in within branch rotation. While the related previous papers study variation in rotation at the individual level, we randomize rotation at the branch level, which allows us to study organizational responses to and group level effects of rotation, such as its impact on team work at the branch level.