Mis-targeting by the Grameen Bank - A possible explanation

There has been an increased emphasis on the targeting efficiency of micro-c redit programmes. In general, recent studies find a much higher incidence o f mis-targeting (around 25-30 per cent) than previous studies (3-5 per cent ). Household survey data from four villages in Madhupur Thana is used to te st the hypothesis that rapid progressive lending in the study area since 19 92 has affected the selection and participation incentives and worsened bot h the incidence and severity of mis-targeting. The implication of this find ing, if found to hold across other settings, is that loan size and the pace of progressive lending can be used as an indirect targeting instrument. In broader terms, experiments with contract design and service diversificatio n could be useful in covering and benefiting a broader spectrum of the poor .