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Study Overview

Uptake and Evaluation of Risk-Contingent Credit for Promoting Resilience and Livelihoods for Smallholder Farmers in Kenya
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Study Status:
In Development
Uninsured risks, particularly those associated with drought, are a major cause of low agricultural productivity in Kenya. New technologies provide one avenue by which to increase productivity and improve farm incomes. Yet many farmers often lack sufficient access to credit with which to avail these technologies, either due to involuntary quantity rationing or voluntary risk rationing. To address these challenges, we are implementing an innovative market-based risk-financing solution called Risk-Contingent Credit (RCC). RCC is a financial product that embeds within its structure an insurance contract that, when triggered, offsets loan payments, providing a risk-efficient balance between business and financial risks. Because the insurance coverage substitutes for collateral, it is more financially inclusive than conventional credit and has the potential to bring quantity-rationed and risk-rationed farmers into the credit market. By implementing a household level multi-arm randomized controlled trial with 1150 households we plan to assess the uptake and impact of RCC on agricultural investment, productivity, resilience, and farmer welfare relative to traditional credit and no credit.
Agriculture and Rural Development
Environment and Disaster Management
Private Sector Development
Additional Keywords:
Risk-contingent credit, Climate risk financing, randomized controlled trial, resilience
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Principal Investigator(s)

Name of First PI:
Liangzhi You
Name of Second PI:
Apurba Shee
University of Greenwich

Study Sponsor

International Initiative for Impact Evaluation (3ie)
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Research Partner

Name of Partner Institution:
Equity Bank Kenya Ltd.
Type of Organization:
Private firm

Intervention Overview

The intervention under study is Risk-Contingent Credit (RCC), an innovative product for providing finance to households in rural Kenya, particularly those that are quantity- or risk-rationed in access to credit. The product embeds an index-based insurance product with a conventional credit product, thereby eliminating the need for borrowers to provide collateral as a condition for accessing credit. As a result, access to credit becomes more inclusive. The insurance contract pays indemnities to the creditor upon the occurrence of an adverse event that might otherwise inhibit the borrower’s ability to repay the loan, thereby reducing default risk. The intervention is implemented in Machakos County in Eastern province of Kenya. Agriculture is practiced by smallholder farmers with maize being the primary staple crop in the area. Our partner Equity Bank offers households RCC and traditional credit in a randomized control trial. We expect RCC to be attractive and can provide large benefits to the smallholders in this county.
Theory of Change:
The main research question here is: Does RCC improve the production strategies and welfare of smallholder maize and wheat farmers by increasing investments in agricultural inputs or encouraging the adoption of new technologies? The theory of change links actual needs to programmatic inputs, expected outputs, outcomes and long-term impacts. As a consequence, the chain starts with the need or the problem, which is adverse weather (drought) and limited access to credit. This creates the need of a risk transfer mechanism. We use a satellite-derived drought indicator to design the RCC. Because the embedded insurance component of RCC substitutes for collateral, it can attract risk-rationed farmers into the credit market. In RCC, the indemnity from the insurance reduces farmers’ debt obligation when droughts threaten agricultural production, thereby reducing default risk, improving risk-bearing ability and trust, increasing the uptake of RCC, and ultimately increasing investments in agricultural inputs. RCC does not require farmers to pay the insurance premium upfront; rather farmers receive credit upfront and loan repayment depends on the production risk they face. Consequently, RCC can contribute to high and sustained uptake by farmers. There are several explicit assumptions that underlie the various links in our envisioned impact pathway. First, we assume that there is a conducive regulatory environment for implementation of the RCC. Since the RCC product has already been approved by the Kenya Insurance Regulatory Authority, we do not feel this assumption is particularly risk-laden. Second, we assume that farmers will understand a complex product like RCC. Participants are being engaged in financial literacy training, and evaluations of these trainings demonstrate a fairly comprehensive understanding of RCC. A third assumption is that we will have sufficient uptake of RCC. This is necessary to ensure our ability to detect a minimum desired treatment effect.
Multiple Treatment Arms Evaluated?

Implementing Agency

Name of Organization:
Equity Bank Kenya Ltd.
Type of Organization:
Private for profit organization

Program Funder

Name of Organization:
Global Resilience Partnership- US Agency for International Development (USAID)
Type of Organization:
Foreign or Multilateral Aid Agency

Intervention Timing

Intervention or Program Started at time of Registration?
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Evaluation Method

Evaluation Method Overview

Primary (or First) Evaluation Method:
Randomized control trial
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Method Details

Details of Evaluation Approach:
We use mixed methods to identify the potential outcome variables and to understand the pathways through which the outcomes were realized. We conducted qualitative investigations including focus group discussions and informal interviews with households in selected sites. Our quantitative evaluation relies on RCTs, behavioral experiments, and three rounds of household survey data (baseline, midline, and endline). We conducted the baseline survey in May 2017, gathering information on household demographics, welfare indicators, agricultural investment and farming practices, and other outcome variables specified in our qualitative analysis. We also conducted behavioral experiments to elicit farmers’ risk preference and credit rationing status. We randomly assigned the households into three study arms: T1 (traditional credit), T2 (RCC) and CG (no credit). We plan to conduct two follow-up surveys, in 2018 (midline) and 2020 (endline) allowing us to assess the short- and medium-term impacts of RCC, respectively. We will then analyse the baseline and follow up data to answer our research questions.
Outcomes (Endpoints):
Primary outcomes: increased RCC take-up, improved agricultural investment, improved crop management practices, reduced vulnerability to shocks, increased investment in high-risk agriculture. Secondary outcomes: agricultural productivity, agricultural incomes, household consumption, dietary diversity and food security, risk coping strategies, women participation.
Unit of Analysis:
The main unit of analysis is household
1. Does RCC increase quantity- and risk-rationed farmers’ access to credit? 2. Does uptake of RCC differ among farmers with different preferences or characteristics? 3. How does RCC affect farmers’ productive behavior and welfare (e.g., investments in modern agricultural inputs or new technologies? 4. How do these impacts differ from those of traditional loans?
Unit of Intervention or Assignment:
The intervention is randomized at individual level, with village/community level stratification.
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Size of Treatment, Control, or Comparison Subsamples:
RCC treatment 350 households, traditional credit 350 households, control 350 household, additional 100 households for demand estimation

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Outcomes Data

We will collect all outcome data through repeated household surveys. We conducted baseline and plan to conduct two follow-up surveys, in 2018 (midline) and 2020 (endline) allowing us to assess the short- and medium-term impacts of RCC, respectively.
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Treatment Assignment Data

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Data Analysis

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Study Materials

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Registration Category

Registration Category:
Prospective, Category 1: Data for measuring impacts have not been collected

Completion Overview

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Preliminary Report:
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Data Availability

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Other Materials

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Study Stopped