The Role of Incentive Mix to Prevent Mission Drift in Microfinance: A Sequential Explanatory Study
Proceedings of International Conference on Innovative Research in Science, Technology and Management 2018 (p. 28), Singapore; ISBN: 978-81-93426-4-3
Posted: 25 Oct 2018
Date Written: September 2018
Microfinance institutions are often considered hybrid organizations with ‘double bottom line’ as they integrate both social and commercial aims in the organizational core. This joint pursuit of social impact and financial sustainability not only creates tensions and dilemmas at the institutional level, but also introduces the possibilities of mission drift — forsaking social mission to achieve profitability. A number of microfinance organizations have shifted to prioritize their business venture over social welfare in search of increased revenues. Hence, sustaining commitments to both objectives and countering pressure to compromise on social mission constitute a key management challenge. Microfinance managers need to simultaneously demonstrate both social and economic competence. In addition, the constant involvement and commitment of employees, particularly loan officers, need to be ensured through appropriate motivation mechanisms. Managers must adequately maintain and reinforce the motivated workforce through an enriched incentive mix. In the microfinance sector, the incentive systems set up for employees can potentially contribute to mission drift. Monetary incentives based on financial criteria may lead employees to grant excessive loans and push clients into over-indebtedness. Moreover, prosocial motivation of loan officers can be crowded-out by financial incentives. The size of the incentives can also have an impact as the crowding-out effect has been found when the financial incentive is large, and in some cases, when it is small. However, discarding the financial incentives altogether is not an option as it would not only make the job less attractive but may also put the growth and sustainability of the organization at risk. Therefore, a right mix among different categories of incentives, along with a proper balance between extrinsic and intrinsic incentives, is crucial in order to prevent the risk of mission drift. This empirical study, which is designed as a sequential explanatory research, is undertaken to critically examine the incentive schemes management use to motivate microfinance employees to deal with the social-financial dilemma. Besides practical significance, the research may potentially contribute to literatures of both microfinance and employee motivation.
Keywords: Microfinance, Hybrid Organizations, Mission Drift, Incentive Mix
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