Incentive scheme and productivity in microfinance institutions in Benin

ACCLASSATO HOUENSOU, Denis and SENOU, Melain Modeste (2019): Incentive scheme and productivity in microfinance institutions in Benin.

Abstract

This article aims to analyze the productive effects of financial and non-financial incentive in microfinance institutions in Benin. We estimate a Cobb-Douglas production function augmented by the Incentive Scheme on an unbalanced panel of 14 registered MFIs over the period 2007-2017. The findings of this study show that non-financial incentives positively impact the outreach whereas the financial incentives have a negative effect on outreach. They further suggest that a well-designed incentive scheme is a powerful tool to overcome free riding and other asymmetric information problems in a costly monitoring environment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial incentive, Non-Financial Incentive, Productivity, MFI, Benin
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

References

Accion (2013). Incentives in Microfinance: Lessons Learned on Effective Incentive System Design. Briefs. No. 2.

Akerlof, G.A. (1982). “Labor contract as partial gift exchange. Quarterly journal of Economic 97(4), pp. 543-569

Al-Qudah, H. S. S. (2016). Impact of Moral & Material Incentives on Employee’s Performance; An Empirical Study in Private Hospitals at Capital Amman. International Business Research, 9(11), 222-234.

Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. The American economic review, 62(5), 777-795.

Akben-Selcuk, E. (2016). Factors affecting firm competitiveness: Evidence from an emerging market. International Journal of Financial Studies, 4(2), 9.

Amuli, D., Balemba, E., & Bugandwa, D. (2013). Evaluation comparative de la satisfaction des clients des IMF à Bukavu. Bukavu Journal of Economics and Social Sciences, 1(1), 57-79.

Ariely, D., Bracha, A., & Meier, S. (2009). Doing good or doing well? Image motivation and monetary incentives in behaving prosocially. American Economic Review, 99(1), 544-55.

Armendariz, B. & Morduch, J. (2007). The Economics of Microfinance, MIT Press, Cambridge, MA.

Armendariz B, Morduch J (2010). The Economics of microfinance. Boston: MIT Press.

Aubert C., de Janvry A. & Sadoulet E. (2009). Designing credit agent incentives to prevent mission drift in pro-poor microfinance institutions; Journal of Development Economics 90(2009) 153–162

Babatoundé, L. A. (2014), Dualisme Financier et Canaux de Transmission Monétaire: Essais Théoriques et Evidences Empiriques dans l’UEMOA, PhD Dissertation, Université d’Abomey Calavi.

Balemba, K.E. (2015).Satisfaction des employés, satisfaction et rétention des clients et performance perçue : Etudes empiriques sur les IMFs du Kivu en RD Congo. Thèse de Doctorat en sciences économiques.

Balkenhol, B.; Hudon, M. (2011). Efficiency in Armendariz, B. and Labie, M. (eds).The handbook of Microfinance. Scientific work/London –Singapore, pp383-397.

Bénabou, R. & Tirole, J. (2006). “Incentives and Prosocial Behavior.” American Economic Review, 96(5): 1652–78.

Bental, B. & Demougin D. (2006). Incentive contract and total Factor productivity. International Economic Review, Vol. 47, No. 3, pp. 1033-1055.

Besley, T., Ghatak M (2005). Competition and Incentives with Motivated Agents, the American Economic Review, Vol. 95, No. 3 (Jun., 2005), pp. 616-636.

Bhargava, S. (1994). Profit Sharing and the Financial Performance of Companies: Evidence from U.K. Panel Data, the Economic Journal, Vol. 104, No. 426, pp. 1044-1056.

Biancini, S., Ettinger D. & Venet B. (2017). Mission Drift in Microcredit and Microfinance Institution Incentives, CESIFO WORKING PAPER NO. 6332.

Cahuc, P. & Zylberberg, (2001). Economie du travail, De Boeck & Larcier., Bruxelles, 608 p.

Clark, A, Masclet, D. & Villeval, M.C. (2006). Effort, revenu et rang : Une étude expérimentale. Revue économique N 57, pp635-643.

Delfgaauw, J., Dur R. & Souverijn, M. (2017). Team Incentives, Task Assignment, and Performance: A Field Experiment; IZA DP No. 11228.

Diamond, D. (1984). Financial Intermediation and Delegated Monitoring, Review of Economic Studies, Vol. 51, pp. 393-414.

Drolet, S., Lanoie P. & Shearer B. (1999). Analyse de l’impact productif des pratiques de rémunération incitative pour une entreprise de services : Application à une coopérative financière québécoise, CIRANO, 41p.

Dumontier, P. & Raffournier B. (1998). Why Firms comply voluntary with IAS: An Empirical Analysis with Swiss Data. Journal of International Financial Management and Accounting, Vol 9:216-245, DOI.10.1111/1467-646X.00038.

Englmaie, F., Grimm S., Schindler D., Schudy S. (2018). The Effect of Incentives in Non- Routine Analytical Team Tasks – Evidence from a Field Experiment. CESifo Working Paper, No. 6903, Center for Economic Studies and Ifo Institute (CESifo), Munich

Ennasri, A., Willinger, M. (2014). Incentives and managerial effort under competitive pressure: An experiment. Research in Economics 68 (2014) 324–337

Ekpudu, J. E. & Okafor, L. I (2012). Quality practice and Customer Satisfaction in the Nigerian Downstream Oil Sector. Salem Journal of Management Science. Vol.1.No.1 Pp 213-222. Grant, A., and Sigh, J. (2011).

Etro, F., Cella, M., (2013). Equilibrium principal-agent contracts: competition and R&D incentives. J. Econ. Manag. Strategy 22 (3), 488–512

Falola, H.O, Ibidunni A.S, & Olokundun, M. (2014). Incentives Packages and Employees’ Attitudes to Work: A Study of Selected Government Parastatals in Ogun State, Southwest Nigeria. International Journal of Research in Business and Social Science 3(1) 63 – 74

Founanou M. & Ratsimalahelo Z. (2016). Regulation of Microfinance Institutions in Developing countries: an incentives theory approach; CRESE, Working paper N 3, 2016, 18p

Friebel, G., Heinz, M., Krüger, M., & Zubanov, N. (2017), Team incentives and performance: Evidence from a retail chain, American Economic Review, 107(8), 2168-2203.

Friebel G. Heinz M. Krüger M. & Zubanov N. (2015). Team Incentives and Performance: Evidence from a Retail Chain, IZA.

Gerhart, B. and Fang, M. (2015). Pay, intrinsic motivation, extrinsic motivation, performance, and creativity in the workplace: Revisiting long-held beliefs. Annual Review of Organizational Psychology and Organizational Behavior, 2:489–521.

Gibbs, M., Neckermann, S., and Siemroth, C. (2017). A field experiment in motivating employee ideas. Review of Economics and Statistics, forthcoming.

Giné, X., Mansuri, G., & Shrestha, S. A. (2017). Profits and Mission: Performance Incentives in a Multi-goal Development Organization. Working paper.

Gonzalez, A. (2007). Efficiency drivers of microfinance institutions (MFIs): The case of operating costs. Microbanking bulletin, (15).

Gramlich, E. M. (1976). Impact of minimum wages on other wages, employment, and family incomes Smokings Papers on Economic Activity, N° 2, pp.409-451.

Groves, T., Hong, Y., McMillan, J., & Naughton, B. (1994). Autonomy and incentives in Chinese state enterprises. The Quarterly Journal of Economics, 109(1), 183-209.

Guha, B. & Roy Chowdhury, P. (2013). Micro-finance competition: Motivated micro-lenders,Double-dipping and default, Journal of Development Economics, 105, 86–102.

Guiteras R. P. & B. Jack B.K. (2017). Productivity in piece-rate labor markets: Evidence from rural Malawi. Journal of Development Economics 131 (2017) 42–61

Jaffee, D. & Russell T. (1976). Imperfect information, uncertainty, and credit rationing Quarterly Journal of Economics.; 90, 4: 651-666.

Jehanzeb K., Rasheed M.F, Rasheed A & Aamir A. (2012). Impact of Rewards and Motivation on Job Satisfaction in Banking Sector of Saudi Arabia; International Journal of Business and Social Science Vol. 3 No. 21

Hart, O. & Holmstrom, B. (1987). The theory of contracts. Econometric Society Cambridge University Press, Cambridge, pp 71–155.

Holmstrom, B & P Milgrom (1991). Multitask principal-agent analyses: Incentive contracts, asset ownership and job design. Journal of Law, Economics and Organization, 7, pp24–52.

Honlonkou, A. N., Acclassato, D.H. & Quenum C.V., (2006). Déterminants de la performance de remboursement dans les institutions de microfinance au Bénin Annals of Public and Cooperative Economics 77:1 2006 pp. 53–81

Kandel, E. & Lazear, E. 1992. Peer Pressure and Partnerships. Journal of Political Economy, 100(4), pp. 801-817.

Kian, T S., Wan Yusoff W F (2015). Intrinsic-Extrinsic Motivation Revisited: Exploring their Definitions. International Journal of Management Sciences Vol. 6, No. 3, 2015, 136-140

Kraft, K., (1991). The incentive effects of dismissals, efficiency wages, piece-rates and profit-sharing, Review of Economics and Statistics 73, 451-459.

Kraft, K., & M. Ugarkovic, (2006). Profit sharing and the financial performance of firms: Evidence from Germany, Economics Letters 92, 333-338.

Kruse, D. L. (1992). Profit sharing and productivity: Microeconomic evidence from the United States. The Economic Journal, 102(410), 24-36.

Labie, M, PG Meon, R Mersland & Szafarz A. (2010). Discrimination by Microcredit Officers: Theory and Evidence on Disability in Uganda. WP–CEB: No. 10-007, ULB.

Laffont, J. J., & Martimort, D. (2009). The theory of incentives: the principal-agent model. Princeton university press.

Lanha, M. (2006). Dynamiques de l’Architecture Financière: Vers l’Approfondissement Financier Microéconomique dans L’UEMOA, Thèse de doctorat, Orléans.

Lazear, E. P. (2000). Performance pay and productivity. American Economic Review, 90(5), 1346-1361.

Lee, L. F., (1986). Specification test for Poisson regression models, International Economic Review, pp. 689-706

Leibenstein, H. (1957). Economic Backwardness and Economic Growth», American Economic Review, Vol 48.

Maltarich, M., Nyberg, A., Reilly, G., Abdulsalam, D., & Martin, M. 2017. Pay-for-performance, sometimes: An interdisciplinary approach to integrating economic rationality with psychological emotion to predict individual performance. Academy of Management Journal, 60: pp1-20.

McCormack, J., & Weiker, J. (2010). Rethinking “Strength of Incentives” for Executives of Financial Institutions. Journal of Applied Corporate Finance, 22(3), 65-72.

McIntosh, C. & Wydick, B., (2005). Competition and microfinance. Journal of Development .Economics, 78, 271-298

Milgram, P. & Roberts, J. (1990). The Economics of Modern Manufacturing: Technology, Strategy, and Organization. American Economic Review, June, 80(3), pp.511-28.

Mkhabela, T. (2018). Dual moral hazard and adverse selection in South African agribusiness: it takes two to tango. International Food and Agribusiness Management Review, 21(3), 391-406.

Mugaa, L. G. (2017) Employee Perception of Incentive Schemes: The Case of Staff at Co-operative Bank of Kenya, International Journal of Science and Research (IJSR),vol6, 8p.

Nosa & Ose, (2010). Capital Structure and Corporate Performance in Nigeria: An Empirical Investigation, Journal of Management Sciences, 1(1):43-52

Nabi, N., Islam, M., Dip, T. M., & Hassain, A. A. (2017). Impact of motivation on employee performances: a case study of Karmasangsthan bank Limited, Bangladesh. International Journal of Business and Management, 5(4), 57-78.

Nyberg A. J., Maltarich M.A., Abdulsalam D., Essman S. M. & Cragun O. (2018).Collective pay for Performance: A Cross Disciplinary Review and Meta-Analysis. Journal of Management Vol. 44 No. 6, 2433–2472 DOI: 10.1177/0149206318770732

Obembe, O. B., Olajide, D., & Olaniyi, C. O. (2016). Product market competition and CEO pay among Nigerian listed non-financial firms. International Journal of Business Competition and Growth, 5(4), 156-172.

OCDE. (2005). La rémunération liée aux performances dansl’administration. Paris: Résumé du Rapport, 6p

Omollo, P. (2015). Effect of motivation on employee productivity of commercial banks in Kenya, International Journal of Human Resource Studies, 5(2), pp 1-10.

Aubert, P., & Crépon, B. (2003). La productivité des salariés âgés: une tentative d'estimation. Économie et statistique, 368(1), 95-119.

Périlleux, A. & Nyssens, M. (2017). Understanding Cooperative Finance as a New Common Annals of Public and Cooperative Economics, 88(2), 155-177.

Perilleux, A., Vanroose, A. & D’Espallier, B. (2016). Are financial cooperatives crowded out by commercial banks in the process of financial sector development? Kyklos, 69(1), 108-134.

Perileux A., Hudon, M. & Bloy, E. (2012). Surplus distribution in Microfinance: Differences among cooperatives, Nonprofit and shareholder Forms of Ownership. Nonprofit and Voluntary Sector quarterly, 41(3), 386-404.

Prescott, E. C. (1998). Lawrence R. Klein lecture 1997: Needed: A theory of total factor productivity. International economic review, 525-551.

PwC (2017). Refining the balance of incentives for PR19.141p Oloke, O. C., Oni, A. S., Babalola, D. O., & Ojelabi, R. A. (2017). Incentive Package, Employee’s Productivity and Performance of Real Estate Firms in Nigeria. European Scientific Journal, 13(11), 246-260.

Solow, R. (1979). Another possible source of wage stickiness. Journal of Macroeconomics p 79-82.

Takahashi, H., Shen, J., & Ogawa, K. (2016). An experimental examination of compensation schemes and level of effort in differentiated tasks. Journal of Behavioral and Experimental Economics, 61, 12-19.

Tian G.Y. & Yang F. (2014). CEO Incentive Compensation in U.S. Financial Institutions. International Review of Financial Analysis; doi: 10.1016/j.irfa.2014.05.008

Tortia, E. C. (2018). The firm as a common. Non-divided Capital Ownership, Patrimonial Stability and Longevity of Co-operative enterprises.