Title: Loan Officers Impede Graduation from Microcredit: Strategic Communication in a Large Microfinance Institution (coauthored with Natalia Rigol)
Abstract: Graduating borrowers from microcredit to larger loans represents an important opportunity for increasing livelihoods. We demonstrate that loan officers impede borrower graduation due to common features of their compensation. We implement an experiment with 243 loan officers in which we change compensation and find that it causes loan officers to endorse more borrowers for graduation. Relative to those endorsed before the change, borrowers endorsed afterwards exhibit better repayment in graduation loans and their businesses grow more upon receiving graduation loans. Utilizing existing and novel survey data on the organizational practices of microfinance institutions around the world, we find that about half of all microfinance institutions have internal graduation programs and of these between 31% and 54% employ the same compensation practices as our partner lender. This suggests that loan officer incentives may be a significant deterrent to borrower graduation worldwide.