Information Frictions and Take-up of Government Credit Programs

Abstract

Most governments in developing countries offer subsidized credit programs to the agricultural sector. We document that farmers often lack information on how these programs work, their eligibility criteria and loan terms offered. We study the impact of information frictions on credit take-up by exploiting plausibly exogenous variation in the construction of new mobile phone towers in rural areas of India without previous mobile phone coverage. Areas receiving coverage experience higher take-up of agricultural credit. The effects are concentrated in short-term credit to small farms, which have been the target of a major government subsidized credit program, the Kisan credit cards.

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

JEL Classification: G21, Q16, E51