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IFPRI 61 Women Self-help groups in India and Bangladesh 63 Agricultural insurance 64 Rural Producer Organizations 65 Web-based information clearing house 66 Impact evaluation of value chains Maximo Torero 11 July 2013. Activity 61: An innovative risk scoring tool for group lending. - PowerPoint PPT Presentation
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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