Thoughts on

1

• Thoughts on The Supply and Demand Side Impacts
  of Credit Market Information by McIntosh, de
  Janvry, and Sadoulet
• Steve Boucher, UC-Davis
• Prepared for the conference
• Financial Innovations and the Real Economy
• Federal Reserve Bank of San Francisco
• November 16, 2006

2
Outline

• What I learned from Craigs paper
• More questions Id like Craig to answer
• The need for more institutional innovations in
  rural (agricultural) finance

3
Broad Lessons Learned

• Information really matters!
• Different types of information asymmetries matter
  in different ways (adverse selection versus moral
  hazard).
• Strengthening credit bureaus represents a
  relatively low cost, high return strategy to
  strengthen credit markets

4
How did they do it?

• Innovatively took advantage of natural
  experiment
• Innovative implementation of randomized field
  experiment

5
Questions/Concerns for Craig

• Potential confounding of information effect with
  other changes in lender behavior
• To what degree does the introduction of CBs
  impact the risk sharing rules of contracts?
• Would individual reporting of group members
  performance have a different effect than group
  reporting?
• How large is the crowding out of informal
  insurance that results from CBs?

6
Challenge How to extend micro-finance to rural
areas?

• First-stage reforms
• Financial liberalization
• Strengthen property rights (titling)
• Follow Yunus
• Results

7
Frequency of Credit Constraints among Farm
Households in Latin America
Source Boucher, Carter and Barham (2005)
Boucher and Guirkinger (2006)
8
(No Transcript)
9
How prevalent are credit constraints?(farm
households in Peru)
10
Root Problems

• Imperfect insurance markets
• Thin land markets
• Spatial nature of land (you must go to the land
  implies relatively few potential buyers)
• politically charged nature of land
  (contradiction Borrowers must be able to commit
  to allowing foreclosure. But land is not just
  another asset)
• Innovations??
• Index insurance linked to loans?