Working Paper: NBER ID: w30411
Authors: Francesco Cordaro; Marcel Fafchamps; Colin Mayer; Muhammad Meki; Simon Quinn; Kate Roll
Abstract: We conduct the first field experiment of a performance-contingent microfinance contract. A large food multinational wishes to help micro-distributors in its supply chain with the financing of a productive asset. Working with the firm in Kenya, we compare asset financing under a traditional debt contract to three alternatives: (i) a novel equity-like financing contract, (ii) a hybrid debt-equity contract, and (iii) an index-insurance financing contract. Experimental results reveal large positive impacts from the contractual innovations. These findings demonstrate the economic appeal of microfinance contracts that leverage improved observability of performance to achieve a greater sharing of risk and reward.
Keywords: microfinance; performance-contingent contracts; supply chain finance; field experiment; Kenya
JEL Codes: D25; G41; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| performance-contingent contracts (equity and hybrid) (J33) | monthly profits (E25) |
| hybrid contract (D86) | monthly profits (E25) |
| performance-contingent contracts (equity and hybrid) (J33) | household consumption expenditure (D12) |
| performance-contingent contracts (equity and hybrid) (J33) | selling activities (M31) |
| contract type (K12) | monthly profits (E25) |
| contract type (K12) | household consumption expenditure (D12) |