Better Financing to Promote Access to Water and Improve Dairy Farming in Kenya

Our intervention is an offer of a financing product for a 5,000-liter Kentank rainwater harvesting tank. Approved, treated participants will be randomly offered one of the following contracts:

-A layaway savings plan: Members will be given a commitment savings account earning 5% non-compounding annual interest. Deposits will be deducted by default from their monthly payments for milk delivered to Nyala Dairy Multipurpose Cooperative Society (MPCS), our lender’s partner dairy cooperative. However, members will have the option to adjust or opt-out of these default deposits. Members will receive their tanks once they have saved the full tank price plus a KSh 700 administration fee. Default deductions are planned to allow members to obtain their tanks in 2 years, however they will be allowed up to three years to save the full amount. Members who fail to save the full tank price within 3 years or choose to withdraw will have their money refunded to their SACCO account, minus the KSh 700 administration fee. Interest will be paid at the end of the contract only to members who have saved the full amount within the allotted time.

-2-year and 3-year asset-collateralized loans (ACL): Members will be required to pay an administration fee of KSh 700 and to make a down payment of 1/6th of the total tank price. They will then receive their tanks and be issued a loan for the remaining balance, with mandatory monthly payments of 1/24th or 1/36th of the principal plus 6.5% annual interest on the full principal. Like in the layaway contract, monthly payments will be automatically deducted from milk payments from Nyala Dairy MPCS, which may be supplemented by cash payments. If a borrower defaults on their repayments, Nyala Vision SACCO will repossess the tank and refund the borrower’s money, minus the cost of repossession and resale and the KSh 700 administration fee.

-A hybrid layaway-ACL contract: Members will be offered a layaway savings plan. They will be allowed to switch to an ACL (with monthly payments equivalent to the 2-year ACL above) and receive their tanks any time after they have saved the KSh 700 administration fee and down payment of 1/6th of the tank price, as long as they are on track to complete their contract within 3 years.
The price will include the tank and tap as well as delivery to the farmer’s home.

2022-11-16

2027-01-31

-Willingness-to-pay for each water tank financing contract (KSh)
-Obtained a new large (>= 5,000 L) water tank: (1) From Nyala; (2) From any source

Estimated per-contract SACCO profits will be calculated as revenues (such as interest payments to the SACCO, the KSh 700 administration fee, and price markups) minus costs (such as staff time for loan marketing, registration and administration, the cost of tank repossession and resale, and interest owed on savings deposits). The exact construction of this variable will be informed by observation of SACCO operations and interviews with staff.

Detailed repayment indicators:
-Tank repossessed
-Ever late on a monthly payment
-Received a pending default letter
-Down payment reclaimed
-Failed to complete full repayment by end of contract period
-Total amount outstanding at end of contract period
-Months late to complete repayment
-Repaid early
-Months early

Water storage and usage:
-Number of water tanks owned
-Total water storage capacity
-Piped water usage (meter readings)

Real impacts on dairy production:
-Self-reported daily milk production
-Monthly milk sales to Nyala Dairy MPCS
-At least one cow got sick
-Estimated per-contract SACCO profits

Sampling: Our sample will consist of dairy farmers who delivered an average of 25 - 2,000 kgs of milk per month to Nyala Dairy from January to March, 2022. This results in a sample of 9,203 dairy members, 72% of all active Nyala producers over the period. We remove members with average monthly milk deliveries less than 25 kgs because this is the approximate amount necessary to pay the full tank price within three years using milk earnings alone. We further remove large producers and producers that are evidently not households (e.g. schools) to focus our analysis on smallholder farming households.

Randomization: Members will be randomized into 5 main treatment arms: Control (12.5%), Layaway (12.5%), 2-year ACL (25%), 3-year ACL (25%), and Hybrid (25%). The price of the water tank offered to each member will also be randomly assigned. Both randomizations will be stratified by the nearest Nyala Vision SACCO branch and milk production quartile.

Baseline Survey: Eligible dairy farmers will then be approached for a baseline survey, which will be conducted either at their homes. The survey will collect information on demographics, farming practices and milk production, asset ownership, water access and storage, time use, health outcomes, and social groups. At the end of the survey, treated farmers will be given information on the terms of the four possible contracts and told that they may be offered a discount. They will be invited to visit their local SACCO branch within the three months to register for a contract. Members will not be told at this stage which contract or price they will be offered.

Loan Approval: The research team will share the ID numbers of all members interested in purchasing a water tank with Nyala Vision SACCO. Nyala will not be informed of the treatment status or given any individual-level survey data. Nyala will then choose whether or not to approve each member for a two-year loan contract. Approved members will be our main sample for this analysis.

Becker-DeGroot-Marschak (BDM) Elicitation: When approved members visit the SACCO branch to register for a contract, a surveyor will administer a Becker, DeGroot and Marschak (1964) preference elicitation. Farmers will be asked if they would like to take out each contract at various prices, ranging from the retail price down to zero. Then, the surveyor will then reveal the true randomly selected contract offer and price. If the farmer’s stated willingness-to-pay for the randomly-assigned contract was as least as high as the price drawn, the farmer will be given the contract for that price. Otherwise, the farmer will not be given a financing contract. Until the price is revealed, neither the potential borrower nor the surveyor will know the contract or price assigned.

Administration: Nyala Vision SACCO will administer contracts to those who took them out during the BDM elicitation, and they will collect administrative data on repayment that will be used as outcome data. During tank installation, a subset of households connected to piped water will be fitted with a water meter, which will collect data on piped water usage.

Endline Survey: IPA will collect an endline survey to gather data on outcomes including water tank ownership, storage capacity, milk production, and related outcomes.

Not available

Public lottery, randomization done in office by a computer, coin flip, etc.
Randomization done in office by a computer

Individual

No

9,220 dairy farmers

9,220 dairy farmers

1,131 control
1,152 layaway
2,307 2-year ACL
2,296 3-year ACL
2,317 hybrid layaway-ACL