Abstract
In this study we seek to understand the extent to which incentive structures within a microfinance organization may hinder opportunities for clients to graduate to better loan products. In the first stage, we began by looking at the incentives structures in place that we suspected could affect whether loan officers recommended their borrowers for the individual loan product. In this context, recommendations enable group loan borrowers to be eligible for the individual loan product, which allows higher loan amounts and encourages high return investments, and without a recommendation it is highly unlikely that a client can receive an individual loan. Therefore, in order to understand the effects of incentives, we collected recommendations and studied any effects on the number and quality of recommendations after changing loan office incentive structures. We first implemented a new structure meant to mitigate identified disincentives. The second modification involved rewards for recommendations that led to loans with good repayment behavior.
In the second stage we will pool subjects who were recommended with those that were not and randomize who receives an individual loan. We will then study the impact of this loan on business indicators and compare the results between those in the recommended group and those not in order to assess the quality of recommendations made and, moreover, the value of the recommendation itself.