Khushbu Mishra

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Nicolas Hérault

Melbourne Institute Brown Bag

Title: You are Approved! Impact of Index-Insured Loans on Credit Market Access in Northern Ghana

Abstract: Access to credit is an important conduit to the adoption of improved production technologies, which are essential to curtailing poverty and food insecurity in developing agrarian economies. Yet, despite decades of policies to improve access to credit, it remains critically low, particularly among smallholder farmers.  In this paper, we test the viability of increasing credit access by coupling drought index insurance and agricultural credit using a two-armed randomized control trial in northern Ghana. In the first treatment arm, we offered drought index-insured loans with the farmers as the insurance policy holders (micro-level insurance) and in the second treatment arm, we offered drought index-insured loans with the banks as the insurance policy holders (meso-level insurance). Our empirical analysis reveals that coupling loans with meso-level insurance increases the likelihood of loan approval by about 24 percentage points, indicating a significant supply side response to reduced systemic (drought) risk. On the demand side, however, we find no evidence of such impact on the likelihood of loan application. Overall, our results indicate that insured loans hold significant promise for expanding credit access in developing countries.

Presenter: Khushbu Mishra, Stetson University

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