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

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  • Maitra, Pushkar
  • Mitra, Sandip
  • Mookherjee, Dilip
  • Motta, Alberto
  • Visaria, Sujata

Abstract

Recent evaluations have found that traditional microloans have iinsignificant impacts on incomes and output. Randomly selected villages in West Bengal, India participated in a field experiment with a novel variant of microcredit called TRAIL, where the selection of borrowers of individual liability loans was delegated to local trader-lender agents incentivized by repayment-based commissions. Other randomly selected villages participated in a group-based microcredit program called GBL. TRAIL loans increased the production of the leading cash crop and farm incomes by 27-37%, but GBL loans had insignificant effects. To understand underlying mechanisms, we develop and test a theoretical model that explains borrower selection into the two schemes as well as borrower incentives to invest the loans for productive purposes. We find that borrowers selected by the TRAIL agents were more able farmers than those who self-selected into the GBL scheme; this pattern of selection explains about a third of the observed di fference in income impacts.

Suggested Citation

  • Maitra, Pushkar & Mitra, Sandip & Mookherjee, Dilip & Motta, Alberto & Visaria, Sujata, 2016. "Financing Smallholder Agriculture: An Experiment wth Agent-Intermediated Microloans in India," CEPR Discussion Papers 11549, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11549
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    Cited by:

    1. Pushkar Maitra & Sandip Mitra & Dilip Mookherjee & Alberto Motta & Sujata Visaria, 2014. "Helping Microfinance Fulfill its Promise: Raising Borrower Incomes through Agent-Intermediated Lending," HKUST IEMS Thought Leadership Brief Series 2015-03, HKUST Institute for Emerging Market Studies, revised Oct 2014.
    2. Sandip Mitra & Dilip Mookherjee & Maximo Torero & Sujata Visaria, 2018. "Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers," The Review of Economics and Statistics, MIT Press, vol. 100(1), pages 1-13, March.
    3. Casaburi, Lorenzo & Macchiavello, Rocco, 2017. "Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry," CAGE Online Working Paper Series 322, Competitive Advantage in the Global Economy (CAGE).
    4. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.
    5. Shilpa Aggarwal & Eilin Francis & Jonathan Robinson, 2018. "Grain Today, Gain Tomorrow: Evidence from a Storage Experiment with Savings Clubs in Kenya," NBER Working Papers 24391, National Bureau of Economic Research, Inc.
    6. Pushkar Maitra & Sandip Mitra & Dilip Mookherjee & Sujata Visaria, 2017. "The Equity Impacts of Targeted Smallholder Agricultural Credit," HKUST IEMS Working Paper Series 2017-41, HKUST Institute for Emerging Market Studies, revised Mar 2017.
    7. Mookherjee, D. & Motta, A., 2016. "A theory of interactions between MFIs and informal lenders," Journal of Development Economics, Elsevier, vol. 121(C), pages 191-200.

    More about this item

    Keywords

    Agent-based Lending; Agricultural Finance; Group Lending; Repayment; selection;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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