Information Frictions and Take-up of Government Credit Programs

Abstract

Governments in most developing countries offer subsidized credit programs to the agricultural sector, yet farmers often lack information on these programs. We study the impact of information frictions on credit take-up by exploiting the construction of mobile phone towers in previously unconnected areas of India. Areas receiving towers experience an increase in farmers’ calls to call-centers for agricultural advice and higher take-up of agricultural loans. Loan uptake rises particularly for government credit programs that farmers inquire about. New loans are mostly used for consumption in times of adverse weather shocks. Higher credit participation does not lead to higher default rates.

Keywords: Mobile phones, India, Shared Mobile Infrastructure Scheme (SMIS), Kisan credit cards, Kisan call centers.

JEL Classification: G21, Q16, E51