Impacts of Asset Collateralized Loans

The intervention is a credit intervention, in collaboration with a savings and credit cooperative (SACCO). The main intervention covered 1804 farmers who were offered a loan for a 5000 liter plastic water tank worth 24,000 Kenyan shillings (approximately $320). The loans were rolled out between March and October 2010.

The loan capital could only be used to purchase the water tank. Once the loan contracts with the SACCO was signed, the SACCO delivered the tanks to the farmer's house. The loans were to be paid over 24 months, with a month principal payment of KShs 1,000 due a month. The interest charged by the SACCO was 1% on a declining balance.

A second phase of loans was rolled out between February and April 2012, covering 2600 farmers. This was conducted as an out of sample test of the loan contracts.

2010-03-01

2010-10-30

Measures of loan default (late payments, early payments, pending default letters, default); measure of productivity of the water tanks (milk sales, milk production), assets (especially ownership of water tanks), time use (by age and gender), child education outcomes

We conducted a number of different surveys:

- A first baseline survey was administered to 2046 households regularly selling milk to the dairy out of which 1804 farmers were administered the loans. This was collected in two rounds (one in June through November 2009 and the second in February-July 2010). The baseline survey collected data on demographics, production of milk, agricultural production, household assets, credit, income and consumption. The baseline sample was of 2046 farmers. For these farmers, we then conducted a screening test to determine if the farmers were still delivering milk to the Nyala Cooperative. The post-screening sample of 1804 farmers were then randomly assigned to one of four treatment groups as above.

- A second baseline (as an update) was administered to 917 farmers from the first phase of the first baseline (due to a delay in implementation) in March-June 2010.

- The first follow up was conducted on a sample of 901 households that covered just two treatments groups (Groups A and C described below) in January-March 2011, covering the same questions as the original baseline.

- We administered additional production surveys and time use surveys. The production surveys were conducted on the sample from treatment groups A and C (in September 2011 and February 2012) and the time use surveys on the full sample (in September 2011, February 2012 and May 2012).

- Administrative data from the dairy was used to construct indicators of loan recovery, repossession, early repayment and late repayment collection actions

The 1804 farmers were randomly divided into the following groups of loan contracts:

Group A: an asset collateralized loan that required a standard small deposit of Ksh 1,000 (4%) from the borrower [510 farmers]

Group G: an asset collateralized loan that required a single guarantor to back Ksh 5,000 (21%) of the loan against default in addition to the standard small deposit of Ksh 1,000 (4%) from the borrower [425 farmers]

Group D: an asset collateralized loan that required a larger deposit of Ksh 5000 (21%) along with the standard small deposit of Ksh 1,000 (4%), all from the borrower [450 farmers]

Group C: a 100% cash collateralized joint liability loan that required up to 3 guarantors to pledge Ksh 16,000 (2/3rd of the loan amount) against default in addition to a deposit of Ksh 8000 (1/3rd of loan amount) from the borrower [419 farmers]

In addition, the farmers in Groups D and G were further split into two sub-groups to isolate the effect of guarantors and deposit requirement on farmers. We randomly divided Group D & G into the following sub-groups, Group DM , Group DW , Group GM , and Group GW wherein M implies maintained and W implies waived.

Group GM - The terms of the loan and guarantor deposit amounts were maintained

Group GW - After the first month installment, the guarantors were released of their responsibility for the loan in the event of default and their deposits of Ksh 5000 were returned.This implied that the farmers in this sub-group assumed full responsibility for repayment with the asset (water tank) as collateral, just as in Group A.

Group DM - The terms of the loans and deposit requirements were maintained.

Group DW - After the first month installment , the farmers were given back Ksh 5000 (21%) of their deposit. This left the farmers in this sub-group with the standard small deposit of Ksh 1000 (4%) just as in Group A.

All farmers in these two groups are informed of the 50% possibility of their loans being modified at the time they sign their loan agreements.

As a result of the sub-division, all the farmers in Group A, Group DW, and Group GW have identical loan terms of having Ksh 1000 deposit, no guarantors, and being asset-collateralized. Therefore, any difference in take-up and repayment rates across the groups can be attributed to the underlying characteristics derived from the selection of the sample. Any difference in repayment in Group DM and Group DW is due to the incentive effect of having a larger deposit (Ksh 6000 vs Ksh 1000); and any difference between Group GM, and Group GW can be attributed to the incentive effects of requiring a guarantor.

Randomization was done by computer

Randomization was conducted at the farmer level, stratified by whether farmers had piped water or not in the baseline

No

No clusters

The number of observations varied across the surveys as described above. The total number of farmers in the main study was 1804.

Phase 1: 1804 farmers - the main study is based on this sample of farmers (though a lot of the follow up surveys focused on farmers in Groups A and C)

Phase 2: 2600 farmers