Financing Smallholder Agriculture: An Experiment with Agent-Intermediated Microloans in India
62 Pages Posted: 19 May 2015
Date Written: March 1, 2015
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: Suggested Citation