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Financing smallholder agriculture: An experiment with agent-intermediated microloans in India

Maitra, P., Mitra, S., Mookherjee, D. , Motta, A. & Visaria, S. ORCID: 0000-0001-7406-4929 (2017). Financing smallholder agriculture: An experiment with agent-intermediated microloans in India. Journal of Development Economics, 127, pp. 306-337. doi: 10.1016/j.jdeveco.2017.03.001


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.

Publication Type: Article
Additional Information: © 2017. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Agricultural finance, Agent-based lending, Group lending, Selection, Repayment
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
S Agriculture
Departments: Bayes Business School > Finance
SWORD Depositor:
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