Microequity and mutuality: experimental evidence on credit with performance-contingent repayment

Working paper

We conduct the first field experiment of a performance-contingent microfinance contract. A large food multinational wishes to help micro-distributors in its supply chain with the financing of a productive asset. Working with the firm in Kenya, we compare asset financing under a traditional debt contract to three alternatives: (i) a novel equity-like financing contract, (ii) a hybrid debt-equity contract, and (iii) an index-insurance financing contract. Experimental results reveal large positive impacts from the contractual innovations. These findings demonstrate the economic a ppeal of microfinance contracts that leverage improved observability of performance to achieve a greater sharing of risk and reward.

Authors: Cordaro, F; Fafchamps, M; Mayer, C; Meki, M; Quinn, S

• Publication status: Published
• Publisher: University of Oxford
• Series: CSAE Working Paper Series
• Publication date: 2022-08-24
• Paper number: CSAE-WPS-2022-08
• Language: English
• Keywords: microequity; microfinance; supply-chain finance