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 30411, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We conduct the first field experiment of a performance-contingent microfinance contract. A large food multinational wishes to help micro-distributors in its supply chain with the financing of a productive asset. Working with the firm in Kenya, we compare asset financing under a traditional debt contract to three alternatives: (i) a novel equity-like financing contract, (ii) a hybrid debt-equity contract, and (iii) an index-insurance financing contract. Experimental results reveal large positive impacts from the contractual innovations. These findings demonstrate the economic appeal of microfinance contracts that leverage improved observability of performance to achieve a greater sharing of risk and reward.

JEL-codes: D25 G41 O12 (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-exp and nep-mfd
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Microequity and Mutuality: Experimental Evidence on Credit with Performance-Contingent Repayment (2024)
Working Paper: Microequity and Mutuality_experimental evidence on credit with performance contingent repayment (2022)
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