Member Publication: The Challenges of Supporting Necessity Entrepreneurs: Understanding Loan Officer Exit in Microfinance

Check out this recent article by OOW members Laura Doering and Tyler Wry:

CITATION: Doering, Laura, and Tyler Wry. “The Challenges of Supporting Necessity Entrepreneurs: Understanding Loan Officer Exit in Microfinance.” Journal of Business Venturing 37, no. 2 (March 2022): 106189.

ABSTRACT: Necessity entrepreneurship can serve as a pathway out of poverty for low-income individuals, with microfinance often providing important financial support. Yet the relational lending stra-
tegies common among microfinance institutions may influence loan officer turnover and, in turn,
compromise entrepreneurs’ access to credit. While there is some reason to suspect that relational
lending with poor entrepreneurs will increase retention, we propose that serving the poor may
make loan officers more likely to quit: loan officers in commercial microfinance institutions are
unlikely to have strong commitments to poverty alleviation and may be taxed by the challenging
fieldwork associated with lending in poor areas. Qualitative and quantitative data from a
microfinance bank in Latin America support our expectations, showing that exit becomes more
likely when loan officers’ work involves more poor clients and that the effect is strongest when
such work demands intensive fieldwork in low-income areas. Supplementary analyses of trends
across the global microfinance industry demonstrate that poor clients have a stronger impact on
exit in for-profits than non-profits, suggesting that prosocial motives among non-profit employees
may have a buffering effect. Overall, our study reveals how providing services to necessity en-
trepreneurs can have negative, unexpected consequences for frontline employees

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