Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana
This study uses a randomized experiment to investigate the role of crop-price risk in reducing demand for credit among farmers. It also examines the role of risk mitigation in farmers’ investment decisions.
Factors such as crop prices and weather patterns are unpredictable and out of farmers’ control. They have an enormous impact on farmers’ fortunes and their ability to repay loans. The study, conducted in rural Ghana:
- Offers farmers loans with an indemnity component that forgives 50% of the loan if crop prices drop to a threshold price;
- Offers a standard loan product to a control group;
- Uses data from a baseline survey, administrative data from the bank and a follow-up survey that focuses on farmers’ investment decisions.
The study finds high loan uptake among all farmers and little impact of the indemnity component on uptake or other outcomes of interest. The high take-up rate of credit makes it difficult to assess heterogeneity in take-up that the study aims to test.