Discussion paper

DP11549 Financing Smallholder Agriculture: An Experiment wth Agent-Intermediated Microloans in India

Recent evaluations have found that traditional microloans have insigni ficant impacts on incomes and
output. Randomly selected villages in West Bengal, India participated in a field experiment with
a novel variant of microcredit called TRAIL, where the selection of borrowers of individual liability
loans was delegated to local trader-lender agents incentivized by repayment-based commissions. Other
randomly selected villages participated in a group-based microcredit program called GBL. TRAIL
loans increased the production of the leading cash crop and farm incomes by 27-37%, but GBL loans
had insigni ficant e ffects. To understand underlying mechanisms, we develop and test a theoretical
model that explains borrower selection into the two schemes as well as borrower incentives to invest
the loans for productive purposes. We fi nd that borrowers selected by the TRAIL agents were more
able farmers than those who self-selected into the GBL scheme; this pattern of selection explains
about a third of the observed di fference in income impacts.

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Citation

Mookherjee, D, P Maitra, S Mitra, A Motta and S Visaria (2016), ‘DP11549 Financing Smallholder Agriculture: An Experiment wth Agent-Intermediated Microloans in India‘, CEPR Discussion Paper No. 11549. CEPR Press, Paris & London. https://cepr.org/publications/dp11549