Staff incentives in microfinance institutions

Principal Researchers: Prof. Shawn Cole (Harvard Business School)
Partner Organizations: Multiple MFIs
CMF Intern: Iris Korovesi
Timeline: May 2006 - October 2007

MFIs balance competing goals: they seek to grow quickly, serving as many poor clients as possible, while maintaining very high repayment rates. Because loan officers take decisions about large amounts of money, it is imperative to provide them with incentives that align their behavior with the mission of their organization.

The first goal of this project is to understand the staff incentive systems used by MFIs in India.  The researchers conducted a broad survey of the compensation arrangements used by MFIs in India, with particular attention paid to staff incentives, incentives for teamwork, and staff retention. CMF also contacted a dozen of MFIs and interviewed CEOs, human resource directors, and loan officers. These personal interviews were complemented with a mail survey sent to all leading Indian MFIs.

The second goal is to gain a more precise understanding of the efficacy of the different schemes. Using a database of loan histories from an Indian MFI that has experimented with several remuneration schemes, the study seeks to measure how responsive officers are to incentives, which are usually based on the number of clients, the volume of credit, and the share of delinquent loans.

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