Decentralized Targeting of Agricultural Credit Programs: Private versus Political Intermediaries Presenter: Pushkar Maitra Co-authors: Sandip Mitra, Dilip Mookherjee, Sujata Visaria Abstract
We report on a ﬁeld experiment in rural West Bengal, India comparing two approaches to delegating beneﬁciary selection for an agricultural credit program. A local agent recommended borrower for individual liability loans, and was incentivized by repayment-linked commissions. In the TRAIL treatment arm, the agent was a randomly chosen trader, whereas in the GRAIL treatment arm, he was appointed by the elected village council. Beneﬁciaries in the TRAIL scheme took up loans more, repaid at similar rates, and earned larger increases in farm incomes than in the GRAIL scheme. Borrowers recommended by the TRAIL agents were more productive than borrowers recommended by the GRAIL agents. However, we ﬁnd that the bulk of the observed diﬀerence in average treatment eﬀects occurs because TRAIL borrowers outperformed GRAIL borrowers of equal productivity. We explain this through a theoretical model where TRAIL agents are incentivized by middleman margins to help lower borrowers’ unit costs of cultivation, whereas GRAIL agents are motivated by political objectives to monitor poorer borrowers and lower their default rates. The data support the predictions of this model.