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Insured Loans and Credit Access: Evidence from a Randomized Field Experiment in Northern Ghana
Author(s) -
Mishra Khushbu,
Gallenstein Richard A.,
Miranda Mario J.,
Sam Abdoul G.,
Toledo Patricia,
Mulangu Francis
Publication year - 2021
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/ajae.12136
Subject(s) - indemnity , loan , business , debt , index (typography) , actuarial science , finance , world wide web , computer science
We conducted a two‐treatment randomized control trial in northern Ghana to investigate how bundling index insurance with agricultural loans affects smallholder access to credit. In one treatment, farmer groups were invited to apply for production loans bundled with an index insurance contract that, in the event of a drought, indemnifies farmers directly (micro‐insured loans). In the second treatment, farmer groups were invited to apply for production loans bundled with an index insurance contract that, in the event of a drought, indemnifies the lender on the condition that the indemnity be used to retire the farmer's debt obligation (meso‐insured loans). Farmer groups in the control category were invited to apply for uninsured loans. We find that insured loans increase farmers' likelihood of receiving credit by between 15 and 21 percentage points. Exploring the mechanisms of this effect, we find no impact on the likelihood that farmers apply for credit but do find an increase in the likelihood of loan approvals of between 17 and 25 percentage points.