| This study investigated the relationships between pay-for-performance incentive programs and loan officer productivity in microfinance institutions (MFIs). Loan officers' performance is measured by five key performance indicators: new borrowers, portfolio value, average loan size, arrear rate, and default rate. First, the study examined the similarities and differences of productivity levels of loan officers of MFIs with incentives versus MFIs without incentives. Second, this research assessed the impact of the size of the incentive program (i.e., the amount of variable salary that could be earned) on loan officers' performance.; Seven hundred and eighty-five MFIs from five continents were invited to participate in the survey, and the final samples consisted of 112 loan officer supervisors and 95 loan officers. Results indicated that (a) MFIs with larger incentive programs had loan officers with a smaller number of new borrowers, (b) that the arrear rate for loan officers with an incentive program is lower than for those without an incentive program, (c) larger incentives and the use of a computer to calculate the variable portion of the salary were associated with more new borrowers, (d) loan officers who worked at MFIs with larger incentives and where the default rate was used as one of the performance benchmarks tended to have larger average loan sizes, (e) loan officers who placed a high importance on promotion tended to have lower arrear rates than loan officers who placed less importance on promotion, and (f) when the average loan size was used as a benchmark, and when a loan officer considered promotion to be very important, they tended to have a lower default rate. Microfinance institutions may utilize the results of this research to stimulate productivity among loan officers. |
