The impact is yet to be determined. Results from the experimental games are revealing that trust is an important component in the lender-borrower relationship. We hope that this will lead to expanded forms of trust-based lending. In India our research has shown that risk-contingent credit can be offered at interest rates that are lower than micro-credit rates and rates offered by money lenders. We are finding that informal lending in China is a pwerful economic force and believe that new policies towards microcredit may not work as well as in India. A comparison between China and India is currently underway, with findings that Indians would be much more receptive than Chinese to microcredit innovations.
In Kenya our new products can be used to insure against slow-onset famine originating from a drought event. New ideas under the direction of Chris Barret on livestock insurance are showing promise and expect to be implimented in 2009.
impact statement issue
Poor households in China and India are caught in a never-ending poverty-trap; Despite economic growth, the gains and sources of capital are going to urban growth, leaving farmers worse off. Farmers are credit constrained, and this limits the opportunity for investment and growth opportunities. To understand these credit issues, we need to understand the flow of credit, the relationship between lenders (formal and informal) and borrowers, and the identification of the sources of risk that limit access to credit.
In 2008, we expanded the scope of this research to India.
impact statement response
In 2007 we traveled to China on two occasions. On the first occasion we conducted experiments using Chinese students at China Agricultural University and Northwest Agriculture and Forestry University to understand trust and lending. On the second occasion, we conducted 400 household surveys in Shaanxi province to identify sources of risk, interest in insurance, the extent and causes of credit rationing, and the role of informal credit in the rural economies. In India, we conducted research into the viability of risk-contingent micro- credit for pulse crops; in Kenya we designed, developed, and tested weather-linked famine bonds.
We have now completed four surveys in (three in 2008) China and one in India, and will conduct another in 2009 in the Dominican Republic.
impact statement summary
This project is investigating the relationship between business and financial risks faced by Chinese (and eventually Indian) farmers with the aim of understanding the flow of formal and informal credit, credit rationing, and credit availability to small-holder farmers; and to identify new opportunities for credit access, including risk-contingent micro-credit. A major study has been undertaken to understand the lender-borrower relationship and the economics of lending on trust versus lending on collateral.
Other private funding
Myers Endowment Funds have been dedicated to this effort
