A warehouse receipt is a document issued by a warehouse operator as evidence that a specified commodity of stated quantity and quality has been deposited at a particular warehouse by a named depositor. When backed by an appropriate legal and regulatory framework, a warehouse receipt becomes a formal financial instrument that allows the depositor to confer a security interest in the stored commodity to another party without requiring physical delivery, allowing the warehouse receipt to serve as possessory collateral for a loan. Warehouse receipt financing, in theory, permits smallholders farmers in developing countries to store their surplus safely in a modern warehouse to sell at a later date when prices are higher, while allowing them to use the stored commodity as collateral to secure a loan to finance household consumption and investment needs in the interim. However, in practice, warehouse receipt financing generally has not been embraced by smallholders in developing countries in which it is available. Here, we develop and analyze a formal stochastic dynamic model of seasonal commodity marketing that exposes the transaction cost and risk reallocation problems that undermine the benefits of warehouse receipt financing to smallholders.
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.
The CENTER FOR DEVELOPMENT RESEARCH (ZEF) was established in 1995 as an international, interdisciplinary research institute at the University of Bonn. Research and teaching at ZEF address political, economic and ecological development problems. ZEF closely cooperates with national and international partners in research and development organizations. For information, see: www.zef.de. ZEF-Discussion Papers on Development Policy are intended to stimulate discussion among researchers, practitioners and policy makers on current and emerging development issues. Each paper has been exposed to an internal discussion within the Center for Development Research (ZEF) and an external review. The papers mostly reflect work in progress. The Editorial Committee of the ZEF-DISCUSSION PAPERS ON DEVELOPMENT POLICY includes Joachim von Braun (Chair), Christian Borgemeister, and Eva Youkhana. Chiara Kofol is the Managing Editor of the series.
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