Journal
JOURNAL OF DEVELOPMENT ECONOMICS
Volume 127, Issue -, Pages 306-337Publisher
ELSEVIER
DOI: 10.1016/j.jdeveco.2017.03.001
Keywords
Agricultural finance; Agent-based lending; Group lending; Selection; Repayment
Categories
Funding
- Australian Agency for International Development [CF09/650]
- International Growth Centre [1-VRA-VINC-VXXXX-98120]
- United States Agency for International Development [AID-OAA-F-13-00007]
- Hong Kong Research Grants Council [16503014]
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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.
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