Microequity and Mutuality: Experimental Evidence on Credit with Performance-Contingent Repayment

Francesco Cordaro, Marcel Fafchamps, Colin Mayer, Muhammad Meki, Simon Quinn and Kate Roll

No 18818, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A large food multinational wishes to help micro-distributors in its supply chain with the financing of a productive asset. Collaborating with the firm in Kenya, we conduct a field experiment to compare asset financing under a traditional debt contract to three alternatives that provide a greater sharing of risk and reward. We find the largest impacts from a novel hybrid contract that combines both debt- and equity-like features. The results suggest substantial mutual benefits for the multinational, its micro-distributors, and stock-points within its supply chain. These findings demonstrate the economic appeal of financing contracts that harness the improved observability of performance data in many low- and middle-income settings.

Keywords: Microfinance; Performance-contingent finance (search for similar items in EconPapers)
JEL-codes: G23 G32 O16 (search for similar items in EconPapers)
Date: 2024-02
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Related works:
Working Paper: Microequity and Mutuality_experimental evidence on credit with performance contingent repayment (2022)
Working Paper: Microequity and Mutuality: Experimental Evidence on Credit with Performance-Contingent Repayment (2022)
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