Inside the Branch: Productivity, Pro-Sociality, and the Delivery of Microfinance Lending to the Poor

Researchers: Casey Ichniowski (Columbia) and Bruce Kogut (Columbia)

Location: Maharashtra, Tamil Nadu, Kerala, West Bengal, Uttar Pradesh, Madhya Pradesh, Uttarakhand

Project Status: On-going

Professor Casey Ichniowski and Bruce Kogut from Columbia University are leading a study to learn more about the MFI Management Practices in the branch. Through surveys, field work observations and interviews with employees of 20 Indian MFIs, the project aims to study and join two questions that are largely under-researched: what are the sources and best practices for high productivity for microfinance lending institutions and what are the performance outcomes from the social services (if any), e.g. educational and health, that these institutions provide in addition to financial services. These questions are critical to improving the efficiency of institutions financing the poor and to proposing a re-orientation in our thinking about socio-economic impact in this domain. The research is a collaborative effort between IFMR Centre for Micro Finance in India and Columbia University School of Management.

Microfinance is a banking service that provides loans to very low-income clients; it mostly utilizes peer incentives to lower monitoring and collection costs. Microfinance institutions (MFIs) may be for-profit or non-profit in their governance structure, and even within a structure, there is variance not only in management practices but also in the financial and social motivations of investors and employees. MFIs may also seek to achieve broader social objectives through the impact of their lending activities and sometimes through social programs.

The study will utilize an ‘insider econometric’ design, coupling rich observational data on the businesses and their employees with rigorous econometric estimation of treatment effects of different management practices. We will ask for financial, loan performance, wage/incentive data, and loan portfolio data that provides financial performance data at the branch level over time in order to measure productivity.

In addition to collecting financial performance data at the branch level, this study will also administer a survey to assess the orientation and attitudes of branch and field officers concerning HR practices of the company. This includes questions that deal with interviewing, hiring, training, evaluations, their willingness to collaborate in teamwork, the degree of relational versus transactional banking with clients, and assessment of pro-sociality through measuring contributions in a public goods game framework. Additional field observations through focus-group discussions with the clients will be used to identify management practices and operations across branches.

The study will measure a dependent variable of efficiency/profitability, and analyse the effect of independent measures on incentives, selection/training, exogenous demographics, capital expenditures, and client relations (e.g. size of the group, frequency of meetings), plus service diversification and pro-social attitudes (e.g within company interactions), on performance. The econometric models will likely be specified to estimate the ‘treatment of the treated’ effects, and the rich observational data through field work and interviews will aid in the interpretation of estimated effects of different management practices on measures of efficiency.