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Crop price indemnified loans for farmers

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Author Info

  • Karlan, Dean
  • Kutsoati, Ed
  • McMillan, Margaret
  • Udry, Chris

Abstract

Farmers face a particular set of risks that complicate the decision to borrow. We use a randomized experiment to investigate (1) the role of crop-price risk in reducing demand for credit among famers and (2) how risk mitigation changes farmers’ investment decisions. In rural Ghana, we offer farmers loans with an indemnity component that forgives 50 percent of the loan if crop prices drop below a threshold price. A control group is offered a standard loan product at the same interest rate. We find similar rates of loan uptake among all farmers and little significant impact of the indemnity component on uptake or other outcomes of interest, with the exception of higher likelihoods of garden egg cultivation and sales to market traders rather than at farmgate among recipients of indemnified loans.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 1021.

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Date of creation: 2010
Date of revision:
Handle: RePEc:fpr:ifprid:1021

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Related research

Keywords: agricultural credit; clustered randomized control trial; crop price insurance; crop prices; Impact evaluation; underinvestment;

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References

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  1. Marianne Bertrand & Dean Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2010. "What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 263-305, February.
  2. Stephen R. Boucher & Michael R. Carter & Catherine Guirkinger, 2008. "Risk Rationing and Wealth Effects in Credit Markets: Theory and Implications for Agricultural Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 409-423.
  3. Varangis, Panos & Larson, Don, 1996. "Dealing with commodity price uncertainty," Policy Research Working Paper Series 1667, The World Bank.
  4. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
  5. GlennW. Harrison & StevenJ. Humphrey & Arjan Verschoor, 2010. "Choice under Uncertainty: Evidence from Ethiopia, India and Uganda," Economic Journal, Royal Economic Society, vol. 120(543), pages 80-104, 03.
  6. C. W. Morgan & A. J. Rayner & C. Vaillant, 1999. "Agricultural futures markets in LDCs: a policy response to price volatility?," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(6), pages 893-910.
  7. Gine, Xavier & Yang, Dean, 2007. "Insurance, credit, and technology adoption : field experimental evidence from Malawi," Policy Research Working Paper Series 4425, The World Bank.
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Cited by:
  1. Petia Topalova & Shawn Cole & Xavier Gene & Jeremy Tobacman & Robert Townsend & James Vickery, 2011. "Barriers to Household Risk Management: Evidence from India," Working Papers id:4293, eSocialSciences.

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