Do Microloan Officers Want to Lend to the Less Advantaged? Evidence from a Choice Experiment

This paper presents findings of a study which conducts a choice experiment with microloan officers in Burundi to determine which clients are preferred for microloan allocation and whether the less advantaged are indeed targeted.

The mission of microfinance is generally perceived as compensation for the failure of the mainstream financial institutions to deliver access to finance to the poor. Microloan officers have significant influence on microloans allocation as they contact loan applicants and process information inside MFIs.

The study incorporates characteristics of the potential borrowers and their projects. Findings indicate that:

• There is little difference between preferences of microloan officers employed by nonprofit and profit-seeking MFIs;
• The poorest applicants have lower chances of being granted a microloan irrespective of MFI type;
• The more mature applicants under the age of 40 are more likely to get a loan, but those older than have lower chances;
• Provision of incentives for microloan officers alters their preferences and influences microloan allocation;
• Perceived mission drift can emerge due to organizational problems within the MFI, but can be reduced if microloan officers are intrinsically motivated to lend to the poorest applicants.