Decentralized Targeting of Agricultural Credit Programs: Private versus Political Intermediaries

Abstract

We compare two di↵erent methods of appointing a local commission agent as an intermediary for a credit program. In the Trader-Agent Intermediated Lending Scheme (TRAIL), the agent was a randomly selected established private trader, while in the Gram Panchayat-Agent Intermediated-Lending Scheme (GRAIL), he was randomly chosen from nominations by the elected village council. More TRAIL loans were taken up, but repayment rates were similar, and TRAIL loans had larger average impacts on borrowers' farm incomes. The majority of this difference in impacts is due to di↵erences in treatment e↵ects conditional on farmer productivity, rather than di↵erences in borrower selection patterns. The findings can be explained by a model where TRAIL agents increased their middleman profits by helping more able treated borrowers reduce their unit costs and increase output. In contrast, for political reasons GRAIL agents monitored the less able treated borrowers and reduced their default risk.

Selection Into Credit Markets: Evidence From Agriculture in Mali

“…By contrast, the loan product studied here is designed for farmers by providing capital at the beginning of the planting season and requiring repayment as a lump sum at harvest. Maitra, Mitra, Mookherjee, and Visaria (2020) also found positive impacts from an agricultural microcredit program on farm value-added in India for one version of the program, though not for a version which targeted the program differently. However, lending may not be sufficient to induce investments in the presence of other constraints.…”

Declining Clientelism of Welfare Benefits? Targeting and Political Competition Based Evidence from an Indian State

“…More than 6 Sample villages were selected randomly from a stratified (by gram panchayat) list of villages, with the requirement that they be at least 8 kilometers apart from each other. The surveys were conducted for other unrelated projects: see Maitra et al (2017), Mitra et al (2018), Maitra et al (2022Maitra et al ( , 2023b. As per the 2011 census of India, the population of Hugli was 3.4 million and the population of Pashchhim Medinipur was 5.2 million.…”