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on Microfinance |
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Issue of 2009–02–28
two papers chosen by Guadalupe Acra Ticona and Olivier Dagnelie, Université de Namur and Instituto de Analisis Economico, CSIC |
| By: | Ashraf, Nava; Giné, Xavier; Karlan, Dean S. |
| Abstract: | In much of the developing world, many farmers grow crops for local or personal consumption despite export options which appear to be more profitable. Thus many conjecture that one or several markets are missing. We report here on a randomized controlled trial conducted by DrumNet in Kenya that attempts to help farmers adopt and market export crops. DrumNet provides smallholder farmers with information about how to switch to export crops, makes in-kind loans for the purchase of the agricultural inputs, and provides marketing services by facilitating the transaction with exporters. The experimental evaluation design randomly assigns pre-existing farmer self-help groups to one of three groups: (1) a treatment group that receives all DrumNet services, (2) a treatment group that receives all DrumNet services except credit, or (3) a control group. After one year, DrumNet services led to an increase in production of export oriented crops and lower marketing costs; this translated into household income gains for new adopters. However, one year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans. The risk of such events may explain, at least partly, why many seemingly more profitable export crops are not adopted. |
| Keywords: | Export Crop; Field Experiment; Food safety standards |
| JEL: | F13 O12 Q17 |
| Date: | 2009–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:7133 |
| By: | Drugov, Mikhail; Macchiavello, Rocco |
| Abstract: | For many self-employed poor in the developing world, entrepreneurship involves experimenting with new technologies and learning about oneself. This paper explores the (positive and normative) implications of learning for the practice of lending to the poor. The optimal lending contract rationalizes several common aspects of microlending schemes, such as "mandatory saving requirements", "progressive lending" and "group funds". Joint liability contracts are, however, not necessarily optimal. Among the poorest borrowers the model predicts excessively high retention rates, the contemporaneous holding of borrowing and savings at unfavorable interest rates as well as the failure to undertake profitable and easily available investment opportunities, such as accepting larger loans to scale-up business. Further testable predictions can be used to interpret and guide the design of controlled field experiments to evaluate microlending schemes. |
| Keywords: | Credit Constraints; Group Lending; Microlending Schemes; Savings; Scaling-Up; Self-Discovery |
| JEL: | D14 O14 O16 |
| Date: | 2008–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:7011 |