Visaria distributive iems_mar2017

Equity Impacts ofTargeting Credit

MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Finding the Diamonds in the RoughThe Equity Impacts of Targeting Smallholder Agricultural Credit

Pushkar Maitra, Sandip Mitra, Dilip Mookherjee,Sujata Visaria

HKUST Institute for Emerging Market Studies

9 March 2017

MMMV (Mar 2017) Equity Impacts of Targeting Credit Mar 2017 1 / 50


MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Targeting Private Benefits

How should governments choose the recipients of privatebenefits?

I subsidies: food, fertilizerI transfer payments: pensions

Centralized schemes: lack of information

Decentralized schemes: corruption & elite capture



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Smallholder Agricultural Credit

Designing agricultural credit programs for small farmers

State-sponsored efforts: poor information leads to high default

Microcredit: high repayment, but does not usually targetagriculture

Can we design a scheme thatI leverages local information? andI avoids problems of elite capture?



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Agent-intermediated Lending

MMMMV (2017) designed an alternative credit deliverymechanism (AIL):

I Leverages local information, but differentlyI Individual liability loansI Borrowers recommended by a local “agent” embedded in the

communityI Agent incentivized by commissions that depend on repayment

Field experiment in 48 villages

TRAIL loans had positive significant average impacts on farmvalue-added: 22%



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Average Treatment Effects: Farm and Non-FarmIncome (Efficiency)



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

The Mechanism

TRAIL agents are more likely to select “able” borrowersI high productivityI low risk of crop failure

Positive impacts are larger for the more able farmers



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

The Comparison: Group-based Lending

Group-based lending involves self-selected borrower groups

Joint liability lending

Participation does not require recommendation by an agent

Both high and low ability individuals will form groups

Because both pay lower interest rates on GBL loans than thestatus quo

GBL loans had non-significant average impacts on farmvalue-added



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Average Treatment Effects: Farm and Non-FarmIncome (Efficiency)



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Research Question: Equity Impacts

Previous work examines the relative efficiency impacts

Welfare impacts depend on both efficiency and equity impacts

Could GBL dominate TRAIL on equity grounds?



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Why Worry?

MMMMV (2017): 30-40% of the efficiency impact of TRAILdue to borrower selection:

I TRAIL agents selected borrowers who were more productive

Productive borrowers may also be wealthier/higher SES tobegin with

TRAIL could amplify these differences

Efficiency gains, but at the cost of equity?



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Aggregate Welfare Impacts

We estimate the scheme’s impact on aggregate welfareI depends on both efficiency and equity

By partitioning householdsI by landholdingI by social group: religion/caste



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

How we estimate welfare impacts

Question: If the scheme was introduced into a village, by howmuch would the welfare of representative household change?

Problem: selection into the scheme was NOT random

Average TRAIL borrower NOT representative of population



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

How we estimate welfare impacts, contd.

Question: If the scheme was introduced into a village, by howmuch would the income of representative household change?

That depends on:I does that household participate in the scheme (pg )?I if it participates, how much does its income change (CTEg )?

Expected income effect for group g = pg × CTEg

Use welfare functions to infer welfare effectsI with different assumptions about inequality aversion



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion



That depends on:I does that household participate in the scheme (pg )?

I if it participates, how much does its income change (CTEg )?





MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion



That depends on:I does that household participate in the scheme (pg )?I if it participates, how much does its income change (CTEg )?





MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

TRAIL Features

Agent is selected randomly from list of establishedtrader/lenders in any given village

Agent recommends 30 borrowers from among landless ormarginal landowners (≤ 1.5 acres)

I subset of these are chosen randomly to receive offer of TRAILloans

Agent plays no further role: MFI sets loan terms, directlylends to and collects repayments from borrowers

No group meetings, savings requirements or genderrestrictions



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

TRAIL Loan Features

Loan interest rate pegged at below average rates on informalcredit in the village

Dynamic borrower incentives: start with small loans, futurecredit access grows at fast rate based on current repayment

*Loan durations/timing: 4 months, match key-crop cycles

*Insurance against covariate (price-yield) risks

*Doorstep banking, no bank accounts

(*: non-standard)



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

The Group Based Lending Scheme

Same loan features as TRAIL loans, except:I 5-member self-formed groups of borrowersI joint liabilityI monthly group meetingsI savings requirements



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Experimental Setting

Two potato-growing districts in a state in eastern India

48 villages randomly assigned to:I TRAIL scheme: 24I GBL scheme: 24

Collaborated with a microfinance institution

8 4-month cycles: Sept 2010 - July 2013



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Partitions

Land classI LandlessI 0-0.5 acresI 0.5-1 acreI 1-1.5 acres

Social groupI scheduled castes/scheduled tribesI non-HindusI general caste Hindus


HH Characteristics by Land Class

Average Landless 0–0.5 acres 0.5–1.0 acres 1.0–1.5 acres(1) (2) (3) (4) (5)

Head’s education: primary school or more 0.420 0.211 0.366 0.552 0.654(0.011) (0.019) (0.017) (0.021) (0.031)

Head’s primary occupation: cultivation 0.438 0.057 0.374 0.692 0.726(0.011) (0.011) (0.017) (0.020) (0.029)

Head’s primary occupation: casual labor 0.332 0.673 0.409 0.091 0.043(0.010) (0.022) (0.017) (0.012) (0.013)

Landholding (Acres) 0.464 0.000 0.261 0.755 1.237(0.009) (0.000) (0.005) (0.006) (0.009)

Pucca house 0.273 0.171 0.259 0.324 0.377(0.010) (0.018) (0.015) (0.020) (0.031)

Electrified house 0.750 0.634 0.733 0.824 0.838(0.010) (0.023) (0.015) (0.016) (0.024)

Owns radio/TV/VCR/DVD 0.452 0.325 0.398 0.543 0.636(0.011) (0.022) (0.017) (0.021) (0.031)

Owns motorized vehicle 0.127 0.068 0.073 0.181 0.272(0.007) (0.012) (0.009) (0.016) (0.029)

Owns phone (mobile or landline) 0.591 0.420 0.536 0.712 0.781(0.011) (0.023) (0.017) (0.019) (0.027)

Has savings bank account 0.446 0.250 0.414 0.542 0.667(0.011) (0.020) (0.017) (0.021) (0.030)

Has insurance policy 0.286 0.139 0.247 0.375 0.461(0.010) (0.016) (0.015) (0.021) (0.032)

HH Characteristics by Social Group

Total SC/ST Non-Hindu General(1) (2) (3) (4)

Head’s education: primary school or more 0.420 0.222 0.317 0.614(0.011) (0.015) (0.025) (0.016)

Head’s primary occupation: cultivation 0.439 0.284 0.432 0.560(0.011) (0.017) (0.026) (0.016)

Head?s primary occupation: casual labor 0.331 0.562 0.276 0.176(0.010) (0.018) (0.024) (0.012)

Landholding (acres) 0.465 0.293 0.482 0.590(0.009) (0.013) (0.022) (0.014)

Pucca house 0.273 0.112 0.329 0.376(0.010) (0.012) (0.025) (0.016)

Electrified house 0.750 0.604 0.792 0.846(0.010) (0.018) (0.022) (0.012)

Own a radio/ TV/ VCR/ DVD 0.453 0.318 0.387 0.583(0.011) (0.017) (0.026) (0.016)

Owns motorized vehicle 0.126 0.030 0.155 0.189(0.007) (0.006) (0.019) (0.013)

Owns phone (mobile or landline) 0.590 0.413 0.691 0.687(0.011) (0.018) (0.025) (0.015)

Has savings bank account 0.446 0.284 0.408 0.586(0.011) (0.017) (0.026) (0.016)

Has insurance policy 0.287 0.161 0.237 0.403(0.010) (0.013) (0.023) (0.016)


MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Land Class


Step 1: Selection Frequencies pg

pg =number of g hhs selected

total number of g hhs

selected =I recommended by TRAIL agentsI self-selected into GBL groups

selection 6= take-up

only households with ≤ 1.5 acres of land considered


MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Step 1: Selection Frequencies, contd.

0.059

0.073 0.074

0.054

0.068

0.040

0.070

0.032

0.0

5.1

Landless Land 0-0.5 Land 0.5-1.0 Land 1.0-1.5

TRAIL GBL



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Selection Frequencies by Land Class

the landless have a slightly lower selection frequency inTRAIL than in GBL

TRAIL: across land classes, selection frequencies are verysimilar

GBL: selection frequencies fall as landholding increases



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Step 2: CTEs, by land

-200

000

2000

0

Landless0-0.5 acres

0.5-1 acres1-1.5 acres

TRAIL, absolute

-200

000

2000

0

Landless0-0.5 acres


GBL, absolute

Conditional Treatment Effects, by Land



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Absolute v. Proportional CTEs, by land: TRAIL

010

000

2000

0

Landless0-0.5 acres


TRAIL, absolute

-10

12

Landless0-0.5 acres


TRAIL, relative




MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Absolute v. Proportional CTEs, by land: GBL

-200

00-1

0000

010

000

Landless0-0.5 acres


GBL, absolute

-.50

.51

1.5

Landless0-0.5 acres


GBL, relative




MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Step 3: Expected treatment effects on income

-.01

0.0

1.0

2.0

3.0

4.0

5ty

_g

Landless0-0.5 acres


TRAIL, relative

-.01

0.0

1.0

2.0

3.0

4.0

5ty

_g

Landless0-0.5 acres


GBL, relative

Expected Proportional Treatment Effects, by Land



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Step 4: Change in welfare, θ = 0

-10

12

3rd

w

TRAIL GBL

theta=0



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


0.0

5.1

.15

.2rd

w

TRAIL GBL

theta=1



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


200

400

600

800

1000

1200

rdw

TRAIL GBL

theta=2



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


050

0000

1.0e

+06

1.5e

+06

2.0e

+06

rdw

TRAIL GBL

theta=3



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


01.

0e+0

92.

0e+0

93.

0e+0

9rd

w

TRAIL GBL

theta=4



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


01.

0e+1

22.

0e+1

23.

0e+1

24.

0e+1

2rd

w

TRAIL GBL

theta=5



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Social Group



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Step 1: Selection frequencies

0.073 0.073

0.066

0.050

0.064

0.037

0.0

5.1

SC/ST Non-Hindu General

Probabilities of selection

TRAIL GBL



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Step 2: CTEs, by social group

-500

00

5000

SC/STNon-Hindu

General

TRAIL, absolute

-500

00

5000

SC/STNon-Hindu

General

GBL, absolute

Conditional Treatment Effects, by Social Group



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Absolute v. Proportional CTEs, by social group:TRAIL

050

0010

000

SC/STNon-Hindu

General

TRAIL, absolute

0.5

1

SC/STNon-Hindu

General

TRAIL, relative




MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Absolute v. Proportional CTEs, by social group:GBL

-500

00

5000

SC/STNon-Hindu

General

GBL, absolute

-.50

.5

SC/STNon-Hindu

General

GBL, relative




MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Step 3: Expected treatment effects, by socialgroup

-.01

0.0

1.0

2.0

3.0

4.0

5ty

_g

SC/STNon-Hindu

General

TRAIL, relative

-.01

0.0

1.0

2.0

3.0

4.0

5ty

_g

SC/STNon-Hindu

General

GBL, relative

Expected Proportional Treatment Effects, by Social Group



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


0.0

05.0

1.0

15.0

2.0

25rd

w

TRAIL GBL

theta=0



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


5.0e

+06

1.0e

+07

1.5e

+07

2.0e

+07

rdw

TRAIL GBL

theta=4



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion


1.0e

+09

2.0e

+09

3.0e

+09

4.0e

+09

5.0e

+09

6.0e

+09

rdw

TRAIL GBL

theta=5



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Changes in Inequality

θ = 1 θ = 2 θ = 3 θ = 4 θ = 5(1) (2) (3) (4) (5)

Panel A: TRAILBaseline 0.3249 0.7236 0.8632 0.9051 0.9234Endline 0.3205 0.7217 0.8630 0.9053 0.9237Effect on inequality ↓ ↓ ↓ ↑ ↑

Panel B: GBLBaseline 0.3662 0.8139 0.9247 0.9517 0.9625Endline 0.3594 0.7947 0.9123 0.9431 0.9561Effect on inequality ↓ ↓ ↓ ↓ ↓



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Discussion

The evidence that TRAIL was elitist is limited.

I Comparing landless borrowers:F in TRAIL had lower baseline farm income than in GBL

In fact, GBL might be keeping outI both the high wealth/high status householdsI and the poorest among the low wealth households



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Discussion

The evidence that TRAIL was elitist is limited.I Comparing landless borrowers:

F in TRAIL had lower baseline farm income than in GBL

In fact, GBL might be keeping outI both the high wealth/high status householdsI and the poorest among the low wealth households



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Selection by TRAIL agentControl 1 households Representative sample Difference

Panel A: Bought from agentLandless 0.233 0.280 -0.047

(0.079) (0.092) (0.120)0–0.5 acres 0.523 0.333 0.190***

(0.048) (0.040) (0.062)0.5–1 acres 0.339 0.365 -0.026

(0.062) (0.047) (0.078)1–1.5 acres 0.318 0.488 -0.170

(0.102) (0.079) (0.131)

Panel B: Borrowed from agentLandless 0.067 0.167 -0.100

(0.046) (0.078) (0.087)0–0.5 acres 0.349 0.107 0.241***

(0.046) (0.026) (0.050)0.5–1 acres 0.233 0.173 0.060

(0.055) (0.037) (0.064)1–1.5 acres 0.227 0.220 0.008

(0.091) (0.066) (0.112)

Panel C: Worked for agentLandless 0.167 0.000 0.167**

(0.069) (0.000) (0.078)0–0.5 acres 0.182 0.083 0.098**

(0.037) (0.023) (0.042)0.5–1 acres 0.133 0.086 0.048

(0.044) (0.027) (0.049)1–1.5 acres 0.000 0.098 -0.098

(0.000) (0.047) (0.064)

Panel D: Same social group as agentLandless 0.353 0.222 0.131

(0.083) (0.082) (0.118)0–0.5 acres 0.504 0.543 -0.039

(0.047) (0.041) (0.062)0.5–1 acres 0.672 0.517 0.155**

(0.059) (0.047) (0.077)1–1.5 acres 0.913 0.689 0.224**

(0.060) (0.070) (0.107)MMMV (Mar 2017) Equity Impacts of Targeting Credit Mar 2017 46 / 50

Social Capital in GBL Groups

Total SC/ST Non-Hindu General(1) (2) (3) (4)

Invited by group members 0.583 0.536 0.800 0.558(0.032) (0.048) (0.069) (0.051)

Encouraged by officials to join group 0.417 0.464 0.200 0.442(0.032) (0.048) (0.069) (0.051)

Received assistance from others in the group (Cycle 1) 0.248 0.239 0.361 0.216(0.028) (0.040) (0.081) (0.042)

Provided assistance to others in the group (Cycle 1) 0.124 0.080 0.171 0.158(0.021) (0.026) (0.065) (0.038)

Proportion members with same occupation 0.624 0.616 0.598 0.642(0.015) (0.022) (0.036) (0.023)

Proportion members with same education level 0.530 0.520 0.594 0.516(0.012) (0.019) (0.034) (0.018)

Proportion members in same social group 0.522 0.732 0.887 0.192(0.027) (0.038) (0.044) (0.033)

Herfindahl Index by social group 0.762 0.873 0.940 0.593(0.014) (0.019) (0.024) (0.019)

Coefficient of variation of landholding 0.999 1.217 0.975 0.805(0.035) (0.060) (0.075) (0.044)


MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Summary of Results

Compare welfare impacts of two alternative credit deliverymodels

TRAIL is not more elitist than GBL

When partitioning by landholding:I TRAIL generates higher average gains and benefits the

landless more than GBLI As a result it dominates GBL.

When partitioning by social group:I TRAIL: High status group outperforms other groupsI GBL: Low status groups outperform high status groupsI Point estimates indicate larger welfare in GBL under high θI But differences are not statistically significant



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Conclusion

Our previous work indicates that TRAIL is superior to GBLfrom an efficiency standpoint.

From an equity standpoint:I Clear evidence from land partitioning that it outperforms GBLI Less clear evidence from social group partitioning

F differences depend on θ valuesF lack statistical significance



MMMV

Motivation

Equity Impacts

TRAIL & GBL

Partitions

Results

Land

Social Group

Inequality

Mechanisms

Conclusion

Thank you!


Visaria distributive iems_mar2017

Business

Transcript of Visaria distributive iems_mar2017