Discrimination by Microcredit Officers: Theory and Evidence on Disability in Uganda

Posted: 25 May 2016

See all articles by Marc Labie

Marc Labie

Université de Mons-Hainaut

Pierre-Guillaume Meon

Université Libre de Bruxelles (ULB); Université Robert Schuman Strasbourg III

Roy Mersland

University of Agder

Ariane Szafarz

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi

Multiple version iconThere are 2 versions of this paper

Date Written: November 2015

Abstract

This paper studies the relationship between a microfinance institution (MFI) and its loan officers when officers discriminate against a particular group of micro-entrepreneurs. Using survey data from Uganda, we provide evidence that loan officers are more biased than other employees against disabled micro-entrepreneurs. In line with the evidence, we build an agency model of a non-profit MFI and a biased loan officer in charge of granting loans. Since incentive schemes are costly and the MFI's budget is limited, the MFI faces a trade-off between combating discrimination and granting loans. We show that the optimal incentive premium is a non-decreasing function of the MFI's budget. Moreover, even a non-discriminatory welfare-maximizing MFI may let its loan officer discriminate, because eradicating discrimination would come at the cost of too many loans. Observing an MFI's loan allocation biased against a minority group therefore does not imply that the institution is biased against this group.

Keywords: Microcredit, Micro-entrepreneurs, Discrimination, Loan officers, Incentives, Disability

JEL Classification: G21, O16, J33, L3

Suggested Citation

Labie, Marc and Meon, Pierre-Guillaume and Mersland, Roy and Szafarz, Ariane, Discrimination by Microcredit Officers: Theory and Evidence on Disability in Uganda (November 2015). Quarterly Review of Economics and Finance, Vol. 58, 44-55, 2015, Available at SSRN: https://ssrn.com/abstract=2784205

Marc Labie

Université de Mons-Hainaut ( email )

20 Place du Parc
B - 7000 - Mons, B7000
Belgium

Pierre-Guillaume Meon

Université Libre de Bruxelles (ULB) ( email )

CP 132 Av FD Roosevelt 50
Brussels, Brussels 1050
Belgium

Université Robert Schuman Strasbourg III ( email )

47, Avenue de la Foret-Noire
Institut d'Etudes Politiques
67082 Strasbourg Cedex
France
33 3 88 41 77 21 (Phone)
33 3 88 41 77 78 (Fax)

Roy Mersland

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

HOME PAGE: http://www.uia.no/microfinance

Ariane Szafarz (Contact Author)

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

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