Microequity and Mutuality: Experimental Evidence on Credit with Performance-Contingent Repayment

Value Chain Microfinance

“…Often these relationships can be multi-level, with several tiers of the distribution network, and intermediaries who may themselves be financially constrained offering finance to the final retailers. Recently studied examples include the distribution of global goods such as soda and chewing gum (Cordaro et al 2022) and of locally produced goods, such as agricultural produce (Karlan et al 2019).…”

“…Tying finance to a value chain relationship can also be used to substantially alter the risk exposure of one or both agents. It can make microequity viable, as the agent may be much better informed about performance and effort than a third-party microfinance company (Cordaro et al, 2022). This may enable better sharing of upside risk, and hence allow covered parties to make productive but risky investments.…”

“…Asset financing has seen substantial recent innovation. Cordaro et al (2022) considers a case in which a producer offers asset financing to its micro-distributors for them to purchase a productive asset. Crucially, since the producer knows the sales of its distributors, the asymmetric information problem which typically plagues performance-linked repayments can be overcome.…”

Give Me a Pass: Flexible Credit for Entrepreneurs in Colombia

“…For example, most agricultural loans are offered with a single installment due at harvest as farmers typically receive income only after the crops are sold. Idiosyncratic, unanticipated shocks, however, are harder to verify; perhaps because entrepreneurs could misreport actual revenues, full revenue-sharing contracts seem nonexistent (de Mel, McKenzie, and Woodruff 2019;Cordaro et al 2022).…”