IFPRI61 Women Self-help groups in India

and Bangladesh63 Agricultural insurance

64 Rural Producer Organizations 65 Web-based information clearing

house66 Impact evaluation of value chains

Maximo Torero11 July 2013

Activity 61: An innovative risk scoring tool for group lending

Individuals that form a group or association generally share many characteristics, but not all of these characteristics are directly observed by third parties like lending institutions.

- e.g. their risk type, entrepreneurial spirit, solidarity, reciprocity, trust.

These unobservables further define a group (type) and are likely to affect the behavior of group members.

A risk scoring tool that allows for group types (resulting from observed & unobserved characteristics) can help lenders to:

- Reduce information asymmetries by more accurately classifying their clients.- Better understand the factors driving repayment behavior, which may vary across

different group types.

An innovative risk scoring tool for group lending

Less “responsible” group

More “responsible” group

The group types are determined by observable

& unobservable characteristics

Higher repayment probability

Lower repayment probability

The factors driving repayment

behavior may vary by group type

Importance of imposing a high frequency repayment

schedule

Allow a more flexible repayment schedule (reduce

transaction costs)

(High risk, low reciprocity)

(Low risk, high reciprocity)

Two different types of farmer

groups requesting a loan

RISK TOOL WITH

VARYING TYPES

STANDARD RISK TOOL WITH NO

TYPES

Mixed repayment probabilitySame factors driving

repayment behavior

No distinction between groups

Outputs by activity: Activity 61

2013 deliverables as per work program

Status of completion Comment

Project on individual payment 100% The paper is published as NBER Working Paper, IFPRI DP and under review in International Economic Review.

Project on group evolvement 70% We have a draft paper on group repayment and will submit to DP shortly. We are also exploring a new dataset for related research

Output 3.1.6: Suggested innovative mechanisms to improve smallholders’ access to credit and insurance

Outcomes by activity

Outcome 3.1.3: Use of outputs by policymakers to establish policies aimed at improving smallholders’ access to credit and insurance

The project has influenced: • The World Bank, which is the major donor to promote the microfinance model

in India and Bangladesh. The specific counterparts are Vijayendra Rao and Elliot Mghenyi.

• The Society for Elimination of Rural Poverty (SERP), which was set up by the Department of Rural Development of Andhra Pradesh to implement the new self-help group model. The specific counterparts are C.P. Nagi Reddy and P. Usha Rani.

Impact: Activity 61

• We have communicated our findings to the main partners through face-to-face meetings, conferences, workshops, and emails.

• Goal is to influence partners on the use of self help groups to increase access to finance

Linkages with other CRPs

• No linkages at this point• Will be linked through the Warehouse of tools

Tool’s progress• Tool of scoring system being developed

Activity 63: Simple Weather Securities

Can we improve the design indexed products so that:(i) Smallholder farmers

want?(ii) Protect farmers in bad

years and that allowing them to increase agricultural investment

8

Lessons: demand for insurance Demand is strong when

farmers are offered high quality insurance products (Ethiopia, Bangladesh)

Complementary financial products are also important (Dercon, Hill, Clarke, Outes-Leon and Seyoum Taffesse 2012): In Ethiopia: demand

was 50% higher when insurance sold to groups encouraged to share non-insured risk

• Weather securities: simple and flexible drought insurance products

• Gap insurance: protects against basis risk

High quality index

insurance

• Group saving and lending: protects farmers against individual agricultural risk

Financial products to complemen

t

Improving the quality of insurance for next phase: innovating with gap insurance

Farmers’ concern: index insurance will not pay them when they need it, what if they had a bad year, but the index is good?

Gap insurance addresses this concern: if the year has been bad, but the index does not pay, a crop cut is requested. If average yield is low, a payout will be made.

Experience: Once gap insurance was introduced in Ethiopia, demand increased: In

2012, 1500+ policies issued with 48% of targeted farmers purchasing in some districts (compared to about 500 policies in the previous year)

Strong demand in Bangladesh for a similar product.

Outputs by activity: Activity 63Output 3.1.6: Suggested innovative mechanisms to improve smallholders’ access to credit and insurance

2013 deliverables as per work program Status of completion Comment

Brief summarizing results of analysis of yield and rainfall variability and implication for insurance markets in Ethiopia and Uruguay

0%

Report on the behavioral and welfare impact of improved insurance in experimental pilot 1

50% Data analysis is almost completed and some parts of the report have been drafted. Report is expected to be completed by August 2013.

Network of agricultural insurance stakeholders developed in new study country

80% Contacts have been made with insurance stakeholders in Senegal and Burkina Faso. In May we met with insurance providers and international organizations working on insurance in Senegal.

Dataset of rainfall and yields across space 100% This was constructed to complete the analysis of yields across space

Dataset from baseline data collection in experimental pilot 2

50% Data collection is underway and is expected to end at the end of next week.

Dataset from follow-up data collection in experimental pilot 1

100% Data collection has been completed.

Outcomes by activityOutcome 3.1.3: Use of outputs by policymakers to establish policies aimed at improving smallholders’ access to credit and insurance3.1.4: Use of outputs by policymakers to establish/improve quality insurance systems

The project has influenced: • Engagement with Buusaa Gonofaa MFI regarding scaling up products with gap insurance sold

through iddirs: emails during March and April, and meeting in April with the General Manager of Buusaa Gonofaa in which the research results and plans for scaling up after the end of the project were discussed.

• Discussions with reinsurance brokers Guy Carpenter and MiCRO: email exchanges, conference calls and one face to face meeting during March and April on how they can support a protocol for reducing basis risk. They prepared a powerpoint presentation which they presented to their board and donors in April. It was agreed that they would work with Bussuaa Gonofaa MFI on a scaling up strategy, and that IFPRI would start to reduce involvement as a result. This agreement needs to be followed up on as no progress has been made since April.

• A brief explaining gap insurance and the role of group savings was drafted with the USAID funded I4 initiative and posted online in early May.

• A synthesis report on the World Bank’s on Financial Innovations for Social and Climate Resilience initiative was written and published summarizing some of the Ethiopia research.

Impact: Activity 63

• We have communicated our findings to the main partners through face-to-face meetings, conferences, workshops, and emails. Specifically insurance companies and re-insurance companies

• Goal is to influence partners on the use of the combination of the weather and gap insurance

Linkages with other CRPs

• Linkages with CCAFs• Will be linked through the Warehouse of tools best

practices

Tool’s progress• First draft of documentation for best practices

being developed

Activity 64: Rural producer organizations– Collective Action

• By engaging markets collectively, farmer groups can help smallholders achieve economies of scale and increase their bargaining power in input and output markets

• However, collective marketing also involves additional costs: coordination, time, uncertainty

• Strengthen farmer groups’ market access through simple innovations in institutional mechanisms

• Implemented in Uganda and Senegal. Future plans in wheat and maize in 4 African countries.

Uganda: Working capital loan intervention

Smallholder

1. Farmers deliver

output to group,

receives no payment yet

Farmer group

2. Group bulks from

farmers and delivers to

buyer

Processor / Exporter

Itinerant trader

A. Trader buys output

from producer at farm gate

3. Price and volumes are negotiated and buyer pays for group delivery

4. Group deducts fees and distributes payment between farmers

B. Trader pays farmer on the spot

Intervention: 1Working capital loan to allow groups to make a partial payment to farmers on delivery

Intervention: 2we introduce a simple voucher/bookkeeping system (easy to claim partial payment and understand deductions)

Results:• Reduction in cost of selling

through the group• Working capital loan almost

doubled the amount of output collected from members for group sales, which resulted in prices 80% higher than those accepted by farmers selling individually

• Farmers motivated to apply for loans from microfinance institutions

Outputs by activity: Activity 64OP 3.1.5: Series of documents on optimal strategies for contract farming arrangements, horizontal coordination, business-capacity development and inclusive business strategies

2013 deliverables as per work program

Status of completion Comment

Submission of impact of training paper for journal publication

Near completion

Submission of shorten and simplified version for dedicated policy-magazine in the region

On-going

LFE design, implementation and data analysis resulting in a discussion paper

Data collection on-going

Data completion to be completed by end of July. Analysis to be performed in following 2 months

Wrap up design of RCTs and initiate implementation

Postponed to fall 2013

Provided funding availability

Outcomes by activityOC 3.1.2: Use of outputs to establish contract farming arrangements, horizontal coordination and inclusive business models, and develop business-capacity across CRPsAs per the proposal to CRP2, “The project will strengthen the capacity of RPOs and federations of RPOs, researchers, policy makers and other stakeholders in the study country. So, we anticipate that primary beneficiaries in the short and long run will be RPOs and their members. In addition, the project will generate knowledge that will contribute to a growing literature on RPOs and their functioning. So, indirect beneficiaries will include policymakers, other researchers, and donors who are interested in how to strengthen RPOs. Finally, there will also be direct benefits to those RPOs selected to be in our experiments through learning and potential monetary gains.”

Impact: Activity 64

• Goal is to influence RPOs and partner institutions (implementers).

• At this stage of the project however, without definite results, no particular outreach was implemented as part of the project.

Linkages with other CRPs

• Will be linked through the Warehouse of tools best practices

Tool’s progress• Documentation for best practices will be

developed

Activity 66: Impact evaluation

• Optimal from an evaluation perspective: randomize an intervention at one point in the value chain – Example: Randomize a commitment savings

program among high value producers to alleviate credit constraints

• Allows for “clean” identification of intervention impacts

But…• Many interventions take place throughout the

value chain– Randomizing along the whole value chain can be

difficult– Extremely complex to find an appropriate control

group– May target specific producers but not necessarily

capture the full value chain

Possible solution…• Using regression discontinuity design along

with targeting by proxy means test score– Groups with score below a threshold are given

intervention, whereas above threshold are not– Idea is to compare observations “just” below and

“just above the threshold to identify impacts of the intervention

– Estimates Local Treatment Effect– local to the threshold

Example for EL Salvador

A

BC

DHH X

HH Z

Figure 1A: Segments (tramos) of the intervention

Figure 1B: Comparison buffers

Sampling Implications

• Regression Discontinuity Design (RDD) is “higher variance” than randomization, so in general a larger sample is necessary– Literature says 2.4 times higher variance than

randomized sample• But smaller samples should be possible if

oversampling near the threshold– Lee and Lemieux show RDD is akin to a localized

experiment, so more observations near threshold (if available) should approach randomized sample size

Outputs by activity: Activity 66OP 3.2.1. Methodological guidelines on how to implement impact evaluations for value chains

2013 deliverables as per work program

Status of completion Comment

Annotated Bibliography of Present Literature

Complete We have a complete annotated bibliography on value chains in the economics literature

First pilot implemented 60% We are strategically working on several value chain projects at the moment.

Pilot 1 design documentation 60% See above

Outcomes by activity

OC 3.2.1. Methods and guidelines from CRP2 used to improve value chain-related interventions in other CRPsThrough the Alan de Brauw’s role as the lead of the Impact Evaluation working group for the FTF/Feedback mechanism we are in regular contact with USAID BFS staff (at least twice monthly), helping guide their entire process of conducting value chain interventions.

Impact: Activity 66

• Goal is to influence partner institutions (implementers). Specifically we have direct impact on FtF

Linkages with other CRPs• Will be linked through the Warehouse of tools

best practices to all CRPs and partners

Tool’s progress• Developing a GIS tools to map value chains• Develop a tools to measure market accessibility as a

potential tool for RDD• Develop sampling tools • Develop specialized questionnaires:

– Common module– Specialized module by commodity

• The Value Chain Knowledge Clearinghouse is an initiative led by PIM CGIAR Research Program [IFPRI, CIAT, ILRI, IITA, World Agroforestry Centre, ICRISAT, Bioversity, and CIP].

• The purpose of this portal is to provide a comprehensive, easily accessible repository of research methods and best practices surrounding value chain performance that can be used by all the consortium research programs and partners.

Value Chains Clearinghouse