The effect of the social bonus on the empowerment index, constructed by taking an equally weighted mean of the four outcomes in Columns 1-4 of Table 5, is positive by 13.1 percentage points and suggests a 72.0 percent improvement compared to the control mean. It is also statistically significant at the 10 percent level. In comparison, the effect of credit bonus on this index is about half in magnitude (6.7 percentage points) and not statistically significantly different from zero. The difference in impact between the social and credit bonus is significant at conventional levels (p-value is 0.128).

Finally, we examine whether the incentive scheme might have had an effect on supervisory effort and management quality by using the data from the supervisor survey. Our measure of supervisor effort is the absolute difference between the actual performance of FAs during the month of the survey and that reported by the supervisor on two credit outcomes (number of active loans and repayment) and one social outcome (savings).<sup>18</sup> Appendix Table E.3 reports the results. On both credit and social outcomes, the estimated effects of credit and social bonuses are close to zero and not statistically significantly different from zero at conventional levels. In other words, the introduction of the bonus does not influence the supervisors’ ability to correctly report their FA’s true performance on incentivized and non-incentivized outcomes.

Overall, these results suggest that while the credit bonus improved the NRSP’s microcredit program, albeit only for outcomes directly incentivized, it also worsened the quality of COs thus undermining NRSP’s goal of empowering communities through social mobilization. In comparison, the social bonus increased CO formation without worsening the objective measures of CO quality and without adversely affecting microcredit outcomes. It also improved subjective measures of CO quality and client empowerment: COs managed by Soc-FAs are more cohesive and more likely to work collectively on economic and social activities.

The negative and significant impact of the credit bonus on social outcomes and the non-negative impact of the social bonus on credit outcomes is consistent with Case 2 of the model described in Section 3 where task 1 refers to credit-related activities and task 2 to social-related activities. In this case, γ1 > 0 suggests that outcome 1, or a healthy credit portfolio, is more easily achieved when FAs work hard on organizing new COs or ensuring that existing COs are cohesive while γ2 ≤ 0 suggests that enforcing repayment discipline may discourage borrowers, perhaps those in arrears, from attending CO meetings thus undermining the social goal. With γ2 ≤ 0, the expression for<sup><u>∂y</u></sup> ∂b12 will tend to be negative, for example, if the technology term γ1 > 0 is small and C12<sup>′′> 0.19</sup>

> 18Out of 162 study-sample FAs, we have supervisor cross-reports for 98 FAs (and for 55 FAs out of 132 FAs who also show up in the verified MPRs sample). We do not find evidence for a differential selection of FAs into the two restricted samples by treatment assignment.

> 19This refers to the case presented in Panel B (C12′′<sup>> 0),row2(γ1> 0andγ2≤0)ofTable2.</sup>

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