Rural Finance and Commitment Mechanisms in Agricultural Input Decisions

Photo Credit: © Curt Carnemark / World Bank

 

Abstract

This experiment investigates the role that credit and access to early commitment mechanisms can have in increasing fertilizer adoption.  Researchers will partner with a national microcredit provider in Mali and a national network of agro-input dealers to provide agricultural credit on different commitment terms to purchase fertilizers via agricultural input fairs organized throughout the agricultural season. Researchers will attempt to determine whether setting commitment terms or providing access to credit has a greater impact on increasing take up of inputs.

Researchers will test variations of timing of agricultural input fairs combined with variations of credit offer in the form of the up-front payment required. A national agro-input dealer network, UNRIA, will organize input fairs at different times in the agricultural season. Soro Yiriwaso (SY), a national microfinance institution, will facilitate purchases at input fairs by offering different commitment mechanisms to access agricultural input credit. All together, farmers in treatment groups will be randomly assigned to one of six groups that vary in share of the relative size of the up-front payment (or a commitment device), the timing of the purchase, and the financing mechanism.

Farmers will be randomly assigned to an offer at the input fairs that requires them to put down either 5 percent of the cost (a soft commitment), 50 percent of the cost (a hard commitment), or farmers will be exempt from any upfront payments for inputs to be delivered. Farmers that must make down payments will have access to the input fairs just after harvest in 2018, while farmers exempt from down payments will have access to the input fairs the beginning of the planting season, approximately five months after the harvest. Farmers will also be randomly assigned to finance payment upon delivery either directly with case or through a loan. Farmers in the comparison group will not have access to the input fairs or to credit.

Researchers will collect from farmers information on production and credit decisions such as input purchases (from the fair and from other vendors), land cultivated, value of inputs, labor and (reported) value of harvest. In addition, SY will provide administrative data on credit history, the credit contract, repayments and default rates. UNRIA will collect administrative data on purchase orders and delivery of agricultural inputs.

This study is ongoing and results are forthcoming.