“Self-Selection into Credit Markets: Evidence from Agriculture in Mali;” by Lori Beaman, Dean Karlan, Bram Thuysbaert and Christopher Udry; released as a working paper by Poverty Action Lab; May 2014; 36 pages; available at http://www.povertyactionlab.org/evaluation/self-selection-credit-markets-mali
In Mali, as in many parts of the developing world, agriculture sustains the livelihood of the vast majority of citizens. This report describes a “long history of failed agricultural credit programs” and seeks to consider new strategies and methods in agricultural microlending. The study examines the impact of an experimental microlending program conducted by researchers from Belgium-based Ghent University and US-based Northwestern and Yale Universities that sampled 198 villages from the Sikasso region of Mali between 2010 and 2012.
Mali’s rain-fed agrarian sector allows for high marginal returns relative to the cost of investment, and the researchers demonstrate how returns vary for different farmers. Often, the limiting agent for agricultural productivity is capital. In the past, microcredit agencies have attempted to ameliorate this limitation by developing loan products that require small but regular repayments. Unfortunately, this can undercut an industry that typically makes money seasonally. The researchers try to circumvent this predicament by studying the effect of loan products that collect a larger loan repayment once or twice per year. A second goal is to determine if high-performing farmers, in particular, self-select into these loan products.
In this experiment, researchers arranged to offer loans in 88 villages randomly selected out of the 198 villages studied. The loans were disbursed through partner microcredit organization Soro Yiriwaso, and a one-time USD 140 cash grant was given to a random subset of participants who chose not to accept a loan. In the remaining 110 villages – the control group – no loans were offered, but some households were randomly selected to receive the cash grant of USD 140. This arrangement allows researchers to compare the returns on grants in no-loan villages versus grants disbursed to households that self-selected to not borrow.
In no-loan villages, the cash grants boosted productivity as 8 percent more land was cultivated, 14 percent more fertilizer was used, agricultural output increased by 13 percent and profits rose by 12 percent. In loan villages, on the other hand, households that accepted grants had zero returns, and households that self-selected into the borrowing scheme had higher returns than those who did not choose to borrow. This suggests that the experiment’s process sorts farmers into categories of high productivity (those who choose to accept a loan) and low productivity (those who forego the loan).
The report concludes by alleging that microcredit products with small, repeating repayment sizes are ineffective for agriculture. Instead, the authors believe that larger “balloon payments” – timed to correspond with harvest time – can be part of a more successful strategy.
By Meraj Husain, Research Associate
Sources and Additional Information
 Poverty Action Lab: Self-Selection into Credit Markets: Evidence from Agriculture in Mali
MicroCapital, June 14, 2013, “Final Impact Evaluation of the ‘Savings for Change’ Program in Mali, 2009-2012;” by the Bureau of Applied Research in Anthropology at the University of Arizona and Innovations for Poverty Action; Published by Oxfam America and Freedom from Hunger
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