x

We are happy to announce that all trial registrations will now be issued DOIs (digital object identifiers). For more information, see here.
Insurance, Credit, and Technology Adoption: Field Experimental Evidence from Malawi
Last registered on June 07, 2016

Pre-Trial

Trial Information
General Information
Title
Insurance, Credit, and Technology Adoption: Field Experimental Evidence from Malawi
RCT ID
AEARCTR-0001327
Initial registration date
June 07, 2016
Last updated
June 07, 2016 2:24 PM EDT
Location(s)
Region
Primary Investigator
Affiliation
University of Michigan
Other Primary Investigator(s)
PI Affiliation
Development Economics Research Group, World Bank and Bureau for Research and Economic Analysis of Development (BREAD)
Additional Trial Information
Status
Completed
Start date
2006-06-01
End date
2006-11-30
Secondary IDs
Abstract
Does production risk suppress the demand for credit? We implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and groundnut seeds for planting in the November 2006 crop season. The other half of farmers were offered a similar credit package, but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0% for farmers who were offered the uninsured loan. There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having some limited liability in case of default: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual’s default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics.
External Link(s)
Registration Citation
Citation
Giné, Xavier and Dean Yang. 2016. "Insurance, Credit, and Technology Adoption: Field Experimental Evidence from Malawi." AEA RCT Registry. June 07. https://doi.org/10.1257/rct.1327-1.0
Former Citation
Giné, Xavier and Dean Yang. 2016. "Insurance, Credit, and Technology Adoption: Field Experimental Evidence from Malawi." AEA RCT Registry. June 07. https://www.socialscienceregistry.org/trials/1327/history/8651
Sponsors & Partners

There are documents in this trial unavailable to the public. Use the button below to request access to this information.

Request Information
Experimental Details
Interventions
Intervention(s)
The trial tests whether risk hinders take-up of loans for hybrid seed adoption by giving farmers insurance against rainfall risk. Roughly 800 maize and groundnut farmers in 32 localities in central Malawi were offered credit to purchase high-yielding hybrid maize and groundnut seeds for planting in the November 2006 crop season but half were required to purchase weather insurance in addition to the loan. The insurance partially or fully forgave the loan in the event of poor rainfall. Using the loan the farmers had the option to purchase an improved groundnut only or improved groundnut and a hybrid maize seed and fertilizer package.
Intervention Start Date
2006-10-01
Intervention End Date
2006-11-30
Primary Outcomes
Primary Outcomes (end points)
Take-up of insured and uninsured loans
Primary Outcomes (explanation)
Secondary Outcomes
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
Researchers started with 32 localities and randomly assigned half the localities an opportunity to take out a loan to purchase high-yield maize and groundnut seeds while the other localities were offered the same package but with a requirement to purchase weather insurance alongside the loan. The insurance policy partially or fully forgave the loan in the event of poor rainfall.

Loan details: The loans for the hybrid seeds were offered based on group liability contracts for clubs of 10-20 farmers. Take-up of the loan was an individual decision, but the subset of farmers who took up the loan was told that they were jointly liable for one another’s loans.

Insurance details: The weather insurance policy was customized to each of the four project regions (Lilongwe North, Kasungu, Nkhotakota, and Mchinji). Payouts were based on the rainfall readings at the closest weather station to the individual in question, and premiums were lower in places where the likelihood of a bad rainfall shock was lower. Compared with the annual interest for the uninsured loan (27.5 percent), a farmer taking out an insured groundnut loan faced an effective interest rate ranging from 37.8 percent to 44.4 percent, depending on the area.

All farmers in the study were administered a household survey that covered income, education, assets, income-generating activities (including detailed information on crop production and crop choice), measures of risk aversion, and knowledge about financial products such as credit and insurance.
Experimental Design Details
Randomization Method
Randomization done in office by a computer
Randomization Unit
Locality
Was the treatment clustered?
Yes
Experiment Characteristics
Sample size: planned number of clusters
32 localities
Sample size: planned number of observations
787 farmers
Sample size (or number of clusters) by treatment arms
Treatment (uninsured loan): 16 localities, 394 farmers
Control (insured loan): 16 localities, 393 farmers
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB
INSTITUTIONAL REVIEW BOARDS (IRBs)
IRB Name
University of Michigan
IRB Approval Date
2007-08-14
IRB Approval Number
HUM00014810
Post-Trial
Post Trial Information
Study Withdrawal
Intervention
Is the intervention completed?
Yes
Intervention Completion Date
November 30, 2006, 12:00 AM +00:00
Is data collection complete?
Yes
Data Collection Completion Date
November 30, 2006, 12:00 AM +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
32 localities
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
787 farmers
Final Sample Size (or Number of Clusters) by Treatment Arms
Treatment (uninsured loan): 16 localities, 394 farmers Control (insured loan): 16 localities, 393 farmers
Data Publication
Data Publication
Is public data available?
Yes
Program Files
Program Files
Reports and Papers
Preliminary Reports
Relevant Papers
Abstract
INSURANCE, CREDIT, AND TECHNOLOGY ADOPTION: FIELD EXPERIMENTAL EVIDENCE FROM MALAWI

Does production risk suppress the demand for credit? We implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and groundnut seeds for planting in the November 2006 crop season. The other half of farmers were offered a similar credit package, but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0% for farmers who were offered the uninsured loan. There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having some limited liability in case of default: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual’s default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics.
Citation
Gine, Xavier, and Dean Yang. 2009. "Insurance, Credit, and Technology Adoption: Field Experimental Evidence from Malawi." Journal of Development Economics 89: 1-11.