Learn how the World Bank Group is helping countries with COVID-19 (coronavirus). Find Out

Events
Joint Liability, Asset Collateralization, and Credit Access: Evidence from Rainwater Harvesting Tanks in Kenya
April 1, 2015Poverty and Applied Microeconomics Seminar Series

Michael Kremer (Harvard University) will present the results of recent research.

Speaker: Michael Kremer is the Gates Professor of Developing Societies in the Department of Economics at Harvard University and Senior Fellow at the Brookings Institution. Kremer’s recent research examines education and health in developing countries, immigration, and globalization. More »

Abstract: A randomized trial among dairy farmers in Kenya suggests that take up of loans to purchase rainwater harvesting tanks is highly sensitive to deposit and guarantor requirements. Only 2.4% of farmers took up loans to buy rainwater harvesting tanks under standard credit terms with high deposit and guarantor requirements. Giving farmers the opportunity to collateralize loans with the asset they purchase increased loan take up to 44%.  In contrast, substitution of joint liability guarantor requirements for deposit requirements does not increase loan take up.  While easier credit terms are associated with higher rates of ever being late on a payment, late balances were trivial at the end of the sample, and unaffected by relaxing credit terms.  All loans were fully repaid (in one case out of the proceeds of a tank sale.)  Many borrowers repay loans early.  The data are consistent with the hypothesis that farmers are loss averse and that asset-backed collateralization encourages investment by loss-averse agents. Children in households offered loans on less restrictive terms spend less time fetching water and tending livestock and girls are more likely to be enrolled in school.  Households offered loans on less restrictive terms sell more milk to the dairy.

Last Updated: Mar 30, 2015

The Poverty and Applied Micro Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers in applied microeconomics from the fields of poverty, human development and public service delivery, agriculture and rural development, political economy, behavioral economics, private sector development, and a range of other fields to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Event Details
  • Date: April 1, 2015
  • Location: World Bank Headquarters, MC3-570
  • Time: 12:30 - 2:00 PM
  • CONTACT: Anna Bonfield
  • abonfield@worldbank.org