Productivity Shocks and Repayment Behavior in Rural Credit Markets : A Framed Field Experiment

Productivity Shocks and Repayment Behavior in Rural Credit Markets : A Framed Field Experiment

Improving rural credit markets requires a good understanding of the root causes of market failures and taking necessary steps to address them. This paper investigates the role of productivity shocks in borrowers' repayment choices. Using a fra...

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Bibliographic Details
Main Authors: Adjognon, Guigonan Serge, Liverpool-Tasie, Lenis Saweda, Shupp, Robert
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2018
Subjects:
ACCESS TO FINANCE
ACCESS TO CREDIT
RURAL CREDIT MARKET
MARKET FAILURE
LENDING TO THE POOR
PRODUCTIVITY
ECONOMIC SHOCKS
CASH CROP
DEFAULT
AGRICULTURAL PRODUCTION
WEATHER IMPACTS
CLIMATE IMPACT
CLIMATE CHANGE
Online Access:http://documents.worldbank.org/curated/en/126251531409559719/Productivity-shocks-and-repayment-behavior-in-rural-credit-markets-a-framed-field-experiment
http://hdl.handle.net/10986/30001
Description
Summary:Improving rural credit markets requires a good understanding of the root causes of market failures and taking necessary steps to address them. This paper investigates the role of productivity shocks in borrowers' repayment choices. Using a framed field experiment that simulated a repeated interaction in an input credit market, the analysis finds strong evidence that negative productivity shocks lead to higher default, even when they do not induce negative returns. This relationship is robust to the presence of an information exchange system enforcing dynamic incentives. The findings suggest that recurrent agricultural production shocks resulting from the negative effects of climate change could exacerbate failures in rural credit markets, undermining hard-won progress toward rural financial inclusion.

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