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

62 Pages Posted: 19 May 2015

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: March 1, 2015

Abstract

Recent evaluations of traditional microloans have not found significant impacts on borrower production or incomes. We examine whether this can be remedied by delegating selection of borrowers for individual liability loans to local trader-lender agents incentivized by repayment-based commissions. In a field experiment in West Bengal this design (called TRAIL) was offered in randomly selected villages. In remaining villages five-member groups self-formed and applied for joint liability loans (called GBL) with otherwise similar terms. TRAIL loans increased production of potato (a leading cash crop) and farm incomes by 27-37%, whereas GBL loans had insignificant and highly dispersed effects. Both schemes achieved equally high repayment rates, while TRAIL loans had higher take-up rates and lower administrative costs. We argue the results can be partly explained by differences in selection patterns with respect to borrower risk and productivity characteristics.

Keywords: agricultural finance, agent based lending, group lending, selection, repayment

JEL Classification: D82, O16

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 (March 1, 2015). HKUST IEMS Working Paper No. 2015-23, Available at SSRN: https://ssrn.com/abstract=2607790 or http://dx.doi.org/10.2139/ssrn.2607790

Pushkar Maitra

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

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 )

High Street
Sydney, NSW 2052
Australia

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

Sujata Visaria (Contact Author)

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

Clearwater Bay
Kowloon, 999999
Hong Kong

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