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MindtheGapWorkshopChristopherUdry,YaleUniversity
October2016
Isthegapreal?
• We’veallseenthis:
• Inputintensityislow
• Productivityislowrelativetotherestoftheeconomy
• Butwe’lldiscussthismorethoroughlylaterthismorning
Whataretheprimarybarrierstoadoptionofnewtechnologiesandtointensification?
Financialdimensions• Opportunitycostofcapital• Liquidityconstraints• Risk
• Opportunitycostofcapital
• Liquidityconstraints• Inflexibility,inabilitytoraisefundstotakeadvantageofopportunities,thetimingofaccesstoresources
• Risk
ConstraintsandFinancialInnovation
Constraints Instruments Evidence
Returns
Liquidity
Risk
ConstraintsandFinancialInnovation
Constraints Instruments Evidence
Returns Credit
Liquidity
Risk
ConstraintsandFinancialInnovation
Constraints Instruments Evidence
Returns Credit
Liquidity Savings
Risk
ConstraintsandFinancialInnovation
Constraints Instruments Evidence
Returns Credit
Liquidity Savings
Risk Insurance
SuccessfulAgriculturalLending
• ….israre• Mali:Soro Yiriwaso• Agriculturalloanstowomenfarmers• Individualloanswithgroupliability• 25%annualinterest+3%fees+10%requiredsaving• $110-120/woman• Avg inputexpenses$200• Householdgrossoutput$520• Nodefaultover2years
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ImpactofAccesstoBorrowingonOutput
ConstraintsandFinancialInnovation
Constraints Instruments Evidence
Returns Credit Mali: onaveragebinding,butvarieslocally
Liquidity Savings
Risk Insurance
VillageSavingsandLoanAssociation(VSLA)
• Basic Design:o Around15-30memberswhomeetweekly(mostlywomen)
o Ateachmeetingmembersmakesavingscontributions(commitment)
o Memberscantakeloansandrepaywithinteresto Atendof10-12monthcycle,fundissharedouto Emergencyfund
• FocushereisonGhana,Malawi,andUganda• Sampleof15,000householdsin950villages• Implementationperiod:22-30months
• Developed in the early 1990s in Mali by CARE• Aims to improve on the ROSCA model
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Baseline
VSLA
Drou
ght
VSLA*D
rought
Baseline
VSLA
Drou
ght
VSLA*D
rought
FoodSecurity Income
Changefrom
BaselineinStand
ardDe
vun
its
Baselinevalue=0
VSLAinUgandaandMalawiinDroughtandnon-DroughtConditions
ConstraintsandFinancialInnovation
Constraints Instruments Evidence
Returns Credit Mali: onaveragebinding,butvarieslocally
Liquidity Savings UgandaandMali:resilienceindrought
Risk Insurance
RainfallIndexInsurance
• 2008-2012,84Communities,1,406Households• Insurance:grants+subsidizedsales(Actuarialvalue8-9.5cedis/acre,averageof$40)• Cashgrants($85/acre)• Insuranceagainstdroughtandflood
ConstraintsandFinancialInnovation
Constraints Instruments Evidence
Returns Credit Mali: onaveragebinding,butvarieslocally
Liquidity Savings UgandaandMali:resilienceindrought
Risk Insurance Ghana:strongimpactoninvestment,butvariesovertime
Financialconstraintsandmissedopportunities
• Imperfectcreditmarkets• Wide-rangingevidence;fewcounter-examples• Successfulagriculturalcreditmarketinterventionsrare
• Constraintsonsaving• Growingevidence,butvaryingresults• Tiesintobehavioralliterature
• Incompleteinsurance• Evidenceverystrongagainstfullinsurance• Centralityforinvestmentchoicelessclear• Indexinsuranceproductsremainproblematic
• Investmentreturns?
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