Does experience with agricultural loans improve farmers' well-being? Evidence from Benin

Abstract

PurposeThe purpose of this study is to examine the effect of loans provided by Benin's largest microlender.Design/methodology/approachA pipeline design and matching techniques contribute for identifying the causal effect. The loan treatment considered is loan experience. It includes program entry timing, take-up frequency and the amount obtained over six years. The study uses a cluster analysis to create comparison groups.FindingsExperience with agricultural loans has a statistically significantly positive effect on recipients' farm income, food security and women's empowerment. Though unusual, these positive results can be credited to the very low rate of loan repurposing and mostly to the lender's rigorous loan implementation strategy.Practical implicationsThe study results validate the hypothesis underlying development strategies that target women regarding loan programs. The study provides a simple yet valuable lesson for future credit impact evaluations: the context of the loan program as well as the evaluation indicators is essential.Social implicationsThis study’s findings suggest that microcredit, when offered judiciously and with support, can improve farmers' conditions.Originality/valueGiven the relatively long period studied, the analysis has been innovative in defining loan treatment and creating reliable treatment groups. Also to the best of the authors’ knowledge, this study is the first of its kind in Benin.