Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana

Karlan, Dean S.; Kutsoati, Edward; McMillan, Margaret; Udry, Christopher

doi:10.1111/j.1539-6975.2010.01406.x

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Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana

Journal of Risk and Insurance, Vol. 78, No. 1, pp. 37-55, 2011

19 Pages Posted: 16 Mar 2011

See all articles by Dean S. Karlan

Dean S. Karlan

Yale University; Northwestern University - Kellogg School of Management; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Edward Kutsoati

Tufts University - Department of Economics

Margaret McMillan

Tufts University - Department of Economics; International Food Policy Research Institute (IFPRI); National Bureau of Economic Research (NBER)

Christopher Udry

Northwestern University

Abstract

Farmers face a particular set of risks that complicate the decision to borrow. We use a randomized experiment to investigate (1) the role of crop-price risk in reducing demand for credit among farmers and (2) how risk mitigation changes farmers investment decisions. In Ghana, we offer farmers loans with an indemnity component that forgives 50 percent of the loan if crop prices drop below a threshold price. A control group is offered a standard loan product at the same interest rate. Loan uptake is high among all farmers and the indemnity component has little impact on uptake or other outcomes of interest.

Suggested Citation: Suggested Citation

Karlan, Dean S. and Karlan, Dean S. and Kutsoati, Edward and McMillan, Margaret and Udry, Christopher, Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana. Journal of Risk and Insurance, Vol. 78, No. 1, pp. 37-55, 2011, Available at SSRN: https://ssrn.com/abstract=1784069 or http://dx.doi.org/10.1111/j.1539-6975.2010.01406.x