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Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana
Author(s) -
Karlan Dean,
Kutsoati Ed,
McMillan Margaret,
Udry Chris
Publication year - 2011
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2010.01406.x
Subject(s) - indemnity , loan , business , interest rate , crop insurance , investment (military) , economics , agricultural economics , finance , agriculture , actuarial science , ecology , politics , political science , law , biology
Farmers face a particular set of risks that complicate the decision to borrow. We use a randomized experiment to investigate (1) the role of crop‐price risk in reducing demand for credit among farmers and (2) how risk mitigation changes farmers’ investment decisions. In Ghana, we offer farmers loans with an indemnity component that forgives 50 percent of the loan if crop prices drop below a threshold price. A control group is offered a standard loan product at the same interest rate. Loan uptake is high among all farmers and the indemnity component has little impact on uptake or other outcomes of interest.