Weaving Straw into Gold: Rule Bending, Localism, and Managing Inconsistencies in Organizational Rules

Abstract

This article explores how microfinance institutions (MFIs) resolve tensions between the creation and the enactment of organizational rules. The study complements rich ethnography with detailed loan data to show that some loan officers frequently bend rules to better address client needs, while others enforce the rules strictly. Differences in enforcement styles are analyzed to explain the structural conditions that generate them. The article shows that officers exercise discretion productively to help clients and improve company policies. Yet, their effectiveness is contingent on being held in check by rule enforcing peers. This is because the same conditions that generate officer discretion also create a fuzzy professional identity. Thus, branch-level interactions between similar loan officers result in “localist” identities decoupled from the firm; while branches with diverse enforcement styles generate professional identities that are integrated with the firm, create amplified learning, and increase the legitimacy of discretion in rule enactment.