Decentralized Targeting of Agricultural Credit Programs: Private versus Political Intermediaries

Abstract

We compare two different methods of appointing a local commission agent as an intermediary for a credit program. In the Trader-Agent Intermediated Lending Scheme (TRAIL), the agent was a randomly selected established private trader, while in the Gram Panchayat-Agent Intermediated-Lending Scheme (GRAIL), he was randomly chosen from nominations by the elected village council. More TRAIL loans were taken up, but repayment rates were similar, and TRAIL loans had larger average impacts on borrowers' farm incomes. The majority of this difference in impacts is due to differences in treatment effects conditional on farmer productivity, rather than differences in borrower selection patterns. The findings can be explained by a model where TRAIL agents increased their middleman profits by helping more able treated borrowers reduce their unit costs and increase output. In contrast, for political reasons GRAIL agents monitored the less able treated borrowers and reduced their default risk.

Microfinance and Diversification

“…2 Loans are provided to individuals, but group liability is enforced among five-member subgroups. In practice, group liability tends to be used primarily to provide security and exert peer pressure to ensure repayment, and avoid social and political incentives distorting the allocation of credit (Maitra et al 2017(Maitra et al , 2021Bandiera et al 2021;Vera-Cossio 2021). 3…”

Loan Officers Impede Graduation from Microfinance: Strategic Disclosure in a Large Microfinance Institution

“…Our paper contributes to the literature examining the decision process of loan officers and other lending agents within banks and microfinance institutions (e.g. Hertzberg et al, 2010;Cole et al, 2014;Fisman et al, 2017Fisman et al, , 2018Maitra et al, 2017;Vera-Cossio, 2021;Maitra et al, 2021). Most closely related are Karlan et al (2018) and Giné et al (2017), both of which document unintended consequences of incentive provision in microcredit institutions.…”

Selection Into Credit Markets: Evidence From Agriculture in Mali

“…By contrast, the loan product studied here is designed for farmers by providing capital at the beginning of the planting season and requiring repayment as a lump sum at harvest. Maitra, Mitra, Mookherjee, and Visaria (2020) also found positive impacts from an agricultural microcredit program on farm value‐added in India for one version of the program, though not for a version which targeted the program differently. However, lending may not be sufficient to induce investments in the presence of other constraints.…”