Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya
Drought-related climate risk and access to credit are among the major risks to agricultural productivity for smallholder farmers in Kenya. Farmers are usually credit-constrained due to either involuntary quantity rationing or voluntary risk rationing. By exploiting randomized distribution of weather...
| Autores principales: | , , , |
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| Formato: | Journal Article |
| Lenguaje: | Inglés |
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Emerald Publishing Limited
2020
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| Acceso en línea: | https://hdl.handle.net/10568/142300 |
| _version_ | 1855516514405318656 |
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| author | Ndegwa, Michael K. Shee, Apurba Turvey, Calum G. You, Liangzhi |
| author_browse | Ndegwa, Michael K. Shee, Apurba Turvey, Calum G. You, Liangzhi |
| author_facet | Ndegwa, Michael K. Shee, Apurba Turvey, Calum G. You, Liangzhi |
| author_sort | Ndegwa, Michael K. |
| collection | Repository of Agricultural Research Outputs (CGSpace) |
| description | Drought-related climate risk and access to credit are among the major risks to agricultural productivity for smallholder farmers in Kenya. Farmers are usually credit-constrained due to either involuntary quantity rationing or voluntary risk rationing. By exploiting randomized distribution of weather risk-contingent credit (RCC) and traditional credit, the authors estimate the causal effect of bundling weather index insurance to credit on uptake of agricultural credits among rural smallholders in Eastern Kenya. Further, the authors assess farmers' credit rationing, its determinants and effects on credit uptake.The study design was a randomized controlled trial (RCT) conducted in Machakos County, Kenya. 1,170 sample households were randomly assigned to one of three research groups, namely control, RCC and traditional credit. This paper is based on baseline household survey data and the first phase of loan implementation data.The authors find that 48% of the households were price-rationed, 41% were risk-rationed and 11% were quantity-rationed. The average credit uptake rate was 33% with the uptake of bundled credit being significantly higher than that of traditional credit. Risk rationing seems to influence the credit uptake negatively, whereas premium subsidies do not have any significant association with credit uptake. Among the socio-economic variables, training attendance, crop production being the main household head occupation, expenditure on food, maize labour requirement, hired labour, livestock revenue and access to credit are found to influence the credit uptake positively, whereas the expenditure on non-food items is negatively related with credit uptake.The study findings provide important insights on the factors of credit demand. Empirical results suggest that risk rationing is pervasive and discourages farmers to take up credit. The study results also imply that credit demand is inelastic although relatively small sample size for RCC premium subsidy groups may be a limiting factor to the authors’ estimation.By implementing a multi-arm RCT, the authors estimate the factors affecting the uptake of insurance bundled agricultural credits along with eliciting credit rationing among rural smallholders in Eastern Kenya. This paper provides key empirical findings on the uptake of RCC and the effect of credit rationing on uptake of agricultural credits, a field which has been majorly theoretical. |
| format | Journal Article |
| id | CGSpace142300 |
| institution | CGIAR Consortium |
| language | Inglés |
| publishDate | 2020 |
| publishDateRange | 2020 |
| publishDateSort | 2020 |
| publisher | Emerald Publishing Limited |
| publisherStr | Emerald Publishing Limited |
| record_format | dspace |
| spelling | CGSpace1423002025-12-08T10:29:22Z Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya Ndegwa, Michael K. Shee, Apurba Turvey, Calum G. You, Liangzhi insurance randomized controlled trials capacity development credit sales risk credit credit control Drought-related climate risk and access to credit are among the major risks to agricultural productivity for smallholder farmers in Kenya. Farmers are usually credit-constrained due to either involuntary quantity rationing or voluntary risk rationing. By exploiting randomized distribution of weather risk-contingent credit (RCC) and traditional credit, the authors estimate the causal effect of bundling weather index insurance to credit on uptake of agricultural credits among rural smallholders in Eastern Kenya. Further, the authors assess farmers' credit rationing, its determinants and effects on credit uptake.The study design was a randomized controlled trial (RCT) conducted in Machakos County, Kenya. 1,170 sample households were randomly assigned to one of three research groups, namely control, RCC and traditional credit. This paper is based on baseline household survey data and the first phase of loan implementation data.The authors find that 48% of the households were price-rationed, 41% were risk-rationed and 11% were quantity-rationed. The average credit uptake rate was 33% with the uptake of bundled credit being significantly higher than that of traditional credit. Risk rationing seems to influence the credit uptake negatively, whereas premium subsidies do not have any significant association with credit uptake. Among the socio-economic variables, training attendance, crop production being the main household head occupation, expenditure on food, maize labour requirement, hired labour, livestock revenue and access to credit are found to influence the credit uptake positively, whereas the expenditure on non-food items is negatively related with credit uptake.The study findings provide important insights on the factors of credit demand. Empirical results suggest that risk rationing is pervasive and discourages farmers to take up credit. The study results also imply that credit demand is inelastic although relatively small sample size for RCC premium subsidy groups may be a limiting factor to the authors’ estimation.By implementing a multi-arm RCT, the authors estimate the factors affecting the uptake of insurance bundled agricultural credits along with eliciting credit rationing among rural smallholders in Eastern Kenya. This paper provides key empirical findings on the uptake of RCC and the effect of credit rationing on uptake of agricultural credits, a field which has been majorly theoretical. 2020-10-01 2024-05-22T12:10:17Z 2024-05-22T12:10:17Z Journal Article https://hdl.handle.net/10568/142300 en Limited Access Emerald Publishing Limited Ndegwa, Michael K.; Shee, Apurba; Turvey, Calum G.; and You, Liangzhi. 2020. Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya. Agricultural Finance Review 80(5): 745-766. https://doi.org/10.1108/AFR-10-2019-0116 |
| spellingShingle | insurance randomized controlled trials capacity development credit sales risk credit credit control Ndegwa, Michael K. Shee, Apurba Turvey, Calum G. You, Liangzhi Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya |
| title | Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya |
| title_full | Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya |
| title_fullStr | Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya |
| title_full_unstemmed | Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya |
| title_short | Uptake of insurance-embedded credit in presence of credit rationing: Evidence from a randomized controlled trial in Kenya |
| title_sort | uptake of insurance embedded credit in presence of credit rationing evidence from a randomized controlled trial in kenya |
| topic | insurance randomized controlled trials capacity development credit sales risk credit credit control |
| url | https://hdl.handle.net/10568/142300 |
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