Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de...

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Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for the conference: Financial Innovations and the Real Economy Federal Reserve Bank of San Francisco November 16, 2006

Transcript of Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de...

Page 1: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by

McIntosh, de Janvry, and Sadoulet

Steve Boucher, UC-Davis

Prepared for the conference:

Financial Innovations and the Real Economy

Federal Reserve Bank of San Francisco

November 16, 2006

Page 2: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Outline

• What I learned from Craig’s paper

• More questions I’d like Craig to answer

• The need for more institutional innovations in rural (agricultural) finance

Page 3: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Broad Lessons Learned

• Information really matters!

• Different types of information asymmetries matter in different ways (adverse selection versus moral hazard).

• Strengthening credit bureaus represents a relatively low cost, high return strategy to strengthen credit markets

Page 4: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

How did they do it?

• Innovatively took advantage of “natural” experiment

• Innovative implementation of randomized field experiment

Page 5: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Questions/Concerns for Craig

• Potential confounding of information effect with other changes in lender behavior

• To what degree does the introduction of CB’s impact the risk sharing rules of contracts?

• Would individual reporting of group members’ performance have a different effect than group reporting?

• How large is the “crowding out” of informal insurance that results from CB’s?

Page 6: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Challenge: How to extend micro-finance to rural areas?

• First-stage reforms– Financial liberalization– Strengthen property rights (titling)– Follow Yunus

• Results…

Page 7: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Frequency of Credit Constraints among Farm Households in Latin America

Unconstrained Constrained

Honduras (2001)

61% 39%

Nicaragua (2002)

42% 58%

Peru(2003)

43% 57%

Source: Boucher, Carter and Barham (2005) & Boucher and Guirkinger (2006)

Page 8: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Nicaragua Peru Honduras0

20

40

60

80

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rain

ed

Ho

use

ho

lds

as

% o

f U

nco

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rain

edInputs Used per HectareNet Family Income per HectareTotal Productive Wealth

Figure 1 Incidence & Cost of Credit Constraints

Source: Boucher, Carter and Guirkinger, 2006

Page 9: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

How prevalent are credit constraints?(farm households in Peru)

Household Formal Sector Outcome 1997 2003 Constrained 56% 43% Quantity Rationed 37% 10% Risk Rationed 9% 22% Transaction Cost Rationed 10% 11% Unconstrained 44% 57% Borrowers 28% 25% Non-borrowers 16% 32%

Page 10: Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for.

Root Problems

• Imperfect insurance markets• Thin land markets

– Spatial nature of land (you must go to the land implies relatively few potential buyers)

– politically charged nature of land (contradiction: Borrowers must be able to commit to allowing foreclosure. But land is not just another asset…)

• Innovations??– Index insurance linked to loans?