Financing Smallholder Agriculture: An Experiment with Agent-Intermediated Microloans in India

63 Pages Posted: 1 Dec 2014

See all articles by Pushkar Maitra

Pushkar Maitra

Monash University - Department of Economics

Sandip Mitra

Indian Statistical Institute, New Delhi

Dilip Mookherjee

Boston University - Department of Economics

Alberto Motta

UNSW Australia Business School, School of Economics

Sujata Visaria

Hong Kong University of Science & Technology (HKUST)

Date Written: November 2014

Abstract

Recent evaluations of traditional microfinance loans have found no significant impacts on borrower incomes or productive activities. We examine whether this can be remedied by (a) modifying loan features to facilitate financing of working capital needs of farmers, and (b) delegating selection of borrowers for individual liability loans to local trader-lender agents incentivized by repayment-based commissions. We conduct a field experiment in West Bengal where this design (called TRAIL) was offered in randomly selected villages. In remaining villages a more traditional design (called GBL) was offered, wherein five-member groups applied for joint liability loans with terms otherwise similar to TRAIL loans. TRAIL loans increased cultivation of potatoes (the major cash crop in the region) and farm incomes by 17–21%, whereas GBL loans had insignificant and highly dispersed effects. We argue this was because TRAIL agents selected borrowers that were low-risk and highly productive, whereas the GBL scheme attracted farmers that were riskier on average and highly heterogeneous in terms of productivity. TRAIL loans also achieved higher repayment and take-up rates, and lower administrative costs.

Suggested Citation

Maitra, Pushkar and Mitra, Sandip and Mookherjee, Dilip and Motta, Alberto and Visaria, Sujata, Financing Smallholder Agriculture: An Experiment with Agent-Intermediated Microloans in India (November 2014). NBER Working Paper No. w20709, Available at SSRN: https://ssrn.com/abstract=2532290

Pushkar Maitra (Contact Author)

Monash University - Department of Economics ( email )

Wellington Road
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Australia
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61 3 9905 5476 (Fax)

Sandip Mitra

Indian Statistical Institute, New Delhi ( email )

7, S.J.S. Sansanwal Marg
New Delhi
India

Dilip Mookherjee

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4392 (Phone)
617-353-4143 (Fax)

Alberto Motta

UNSW Australia Business School, School of Economics ( email )

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Sydney, NSW 2052
Australia

HOME PAGE: http://https://sites.google.com/site/albertomottaeconomics/

Sujata Visaria

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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