Financing smallholder agriculture: an experiment with agent-intermediated microloans in India
Files
Accepted manuscript
Date
2017-07
Authors
Mookherjee, Dilip
Maitra, Pushkar
Mitra, Sandip
Motta, Alberto
Visaria, Sujata
Version
Accepted manuscript
OA Version
Citation
Dilip Mookherjee, Pushkar Maitra, Sandip Mitra, Alberto Motta, Sujata Visaria. 2017. "Financing Smallholder Agriculture: An Experiment with Agent-Intermediated Microloans in India." Journal of Development Economics, Volume 127, pp. 306 - 337. https://doi.org/10.1016/j.jdeveco.2017.03.001
Abstract
We explore the hypothesis that traditional joint-liability microfinance programs fail to increase borrower incomes in part because they cannot screen out unproductive borrowers. In randomly selected villages in West Bengal, India, we implemented trader-agent-intermediated lending (TRAIL), in which local trader-lender agents were incentivized through repayment-based commissions to select borrowers for individual liability loans. In other randomly selected villages, we organized a group-based lending (GBL) program in which individuals formed 5-member groups and received joint liability loans. TRAIL loans increased the production of the leading cash crop by 27% and farm incomes by 22%. GBL loans had insignificant effects. We develop and test a theoretical model of borrower selection and incentives. Farmers selected by the TRAIL agents were more able than those who self-selected into the GBL scheme; this pattern of selection explains at least 30–40% of the observed difference in income impacts.