Hitotsubashi Institute for Advanced Study


Decentralized Targeting of Agricultural Credit Programs: Private versus Political Intermediaries


We compare two different methods of appointing a local commission agent as an intermediary for a credit program. In the Trade-Agent Intermediated Lending Scheme (TRAIL), the agent was a randomly selected established private trader, while in the Gram Panchayat-Agent Intermediated-Lending Scheme (GRAIL), he was randomly chosen from nominations by the elected village council. More TRAIL loans were taken up, but repayment rates were similar, and TRAIL loans had larger average impacts on borrowers’ farm incomes. The majority of this difference in impacts is due to differences in treatment effects conditional on farmer productivity, rather than differences in borrower selection patterns. The findings can be explained by a model where TRAIL agents increased their middleman profits by helping more able treated borrowers reduce their unit costs and increase output. In contrast, for political reasons GRAIL agents monitored the less able treated borrowers and reduced their default risk.

Report No.: HIAS-E-94
Author(s): Pushkar Maitra(a)
Sandip Mitra(b)
Dilly Mookherjee(c)
Sujata Visaria(d)
Affiliation: (a) Department of Economics, Monash University, Clayton Campus, VIC 3800, Australia
(b) Sampling and Official Statistics Unit, India Statistical Institute, 203 B.T. Road, Kolkata 700108, India
(c) Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215, USA
(d) Sujata Visaria, Department of Economics, Lee Shau Kee Business Building, Hong Kong University of Science and Technology, Clear Water Bay, Hong kong
Issued Date: January 2020
Keywords: Targeting, Intermediation, Decentralization, Community Driven Development, Agricultural Credit, Networks
JEL: H42, I38, O13, O16, O17