Heterogeneous Demand and Supply for an Insurance-Linked Credit Product in Kenya: A Stated Choice Experiment Approach

We employ a discrete choice experiment to elicit demand and supply side preferences for insurancelinked credit, a promising market-based tool for managing agricultural weather risks and providing access to credit for farmers. We estimate preference heterogeneity using primary data from smallholder farmers and managers of lenders/insurers combined with household socio-economic survey data in Kenya. We analyse the choice data using multinomial logit and Hierarchical Bayes estimation of a mixed logit model. Although there are some similarities, we find that there is conflicting demand and supply side preferences for credit term, collateral requirement, and loan use flexibility. We also analyse willingness to buy and willingness to offer for farmers and supplies, respectively for risk premium at different attributes and their levels. Identifying the preferred attributes and levels for both farmers and financial institutions can guide optimal packaging of insurance and credit providing market participation and adoption motivation for insurance-bundled credit product.