HIGHLIGHTS

• Small loans can help farmers grow their agricultural businesses, but come with a host of planning and utilization challenges.
• We applied behavioral insights to strengthen farmer decision-making during the loan application process.
• Project findings point to promising insights and design channels for optimizing agricultural loans.

The Challenge

Small loans can help farmers grow their agricultural businesses by enabling them to purchase equipment or other productive assets. However, they also come with several planning and utilization challenges that may prevent people from paying back their loans or optimizing the financial resources available. 

Our Approach

To understand the loan decision-making process, we spoke with Kenyan farmers, loan officers, and other key stakeholders, observed farmer group meetings, and analyzed administrative data. We observed that many farmers lacked a plan for how to utilize their loan, both while applying and upon receipt of the loan disbursement. 

Working with Juhudi Kilimo, a microfinance organization in Kenya, we tested a simple SMS intervention designed to help farmers optimize their loan requests and asset investments. 

We tested the intervention using a randomized controlled trial and saw positive trends from the messages; farmers in the treatment group were less likely to have an overdue loan payment, were less likely to receive a loan, received loans of higher value, and received loans quicker.

Results

The trial revealed non-significant trends in a positive direction. Farmers in the treatment group were 1.3 percentage points less likely to have an overdue loan payment; 1.3 percentage points less likely to receive a loan; received loans of higher value (343 Kenyan Shillings on average); and received loans 2.1 days quicker, as compared to the control group.

Takeaway

The project findings point to promising insights and design channels for optimizing agricultural loans. Providing decision scaffolding at the loan application stage is a low-cost, light-touch way for lending institutions to support strong investments, bolster farmer livelihoods, and ensure clients are able to fulfill their loan obligations.

Interested in learning more about this work applying behavioral science to a crucial social problem? Reach out to us at info@ideas42.org or tweet at @ideas42 to join the conversation.