| Sumario: | Smallholder farmers in low- and middle-income countries often encounter significant challenges in accessing financial services, primarily due to the limited presence of formal financial institutions in rural areas (DemirgüçKunt et al., 2022). These challenges are compounded by factors such as the high costs and risks associated with financing small, dispersed farms and the farmers’ lack of collateral (Barrett et al., 2022; Dorward et al., 2009). Despite the emergence of microfinance as a tool to bridge this gap, the rigid repayment structures required by most microfinance institutions frequently clash with the seasonal nature of agricultural production, creating financial strain for farmers (Armendáriz and Morduch, 2010). These challenges underscore the need for more flexible and tailored financial solutions for smallholder farmers.
The private sector can address some of these challenges by developing innovative financial products that manage risk and transaction costs in novel ways. In this study we collaborate with WeGro, a Bangladeshi firm seeking to develop such innovations, to evaluate a finance model designed for smallholder farmers raising livestock for fattening. WeGro employs a profit-sharing model that seeks to spread the risk between the company and the farmer, while at the same time collateralizing the loan with the asset itself to limit the risk for the financing company. We evaluate an expansion of WeGro’s profit sharing model for livestock fattening and compare it to a standard loan contract through a randomized control trial conducted in 105 villages in northwestern Bangladesh. The design and implementation of this study are detailed in Ambler et al. (2023). In this brief, we discuss intervention take-up in the treatment groups, and farmer and company earnings when the financial product is adopted by farmers.
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