Allocating production risks through credit cum insurance contracts: the design and implementation of a fund for small cotton growers to access market finance
In: International Food and Agribusiness Management ReviewSearch for other papers by Mauro Alem in
Current site
Google Scholar
Search for other papers by Julio Jorge Elias in
Current site
Google Scholar
Collateral requirements that lenders place on small cotton producers can lead to risk rationing and to farmers’ dependence on downstream parties. This paper presents a cotton fund that consists of a set of contracts – credit, insurance, warrant and forward – that enables producers to tackle specific agricultural risks and gain access to market finance. These financial contracts proved to be successful at guaranteeing the fund as issuer of state-contingent debt securities in the capital markets. The fund, as an intermediary, lent to cooperatives to help finance small cotton producers in northern Argentina. The paper explains the experimental design of this innovative fund and presents a potential alternative to government intervention by moving away from ex post subsidies for small producers and, instead, facilitating ex ante private credit. The paper contributes to the literature on rural financial intermediation by designing a new mechanism to raise funds coming from relatively uninformed investors and creating collateral substitutes through delegated monitoring to overcome asymmetric information and limited commitment.
-
Adams, D.W., H.G. Douglas and J.D. Von Pischke. 1984. Undermining rural development with cheap credit. In: Undermining rural development with cheap credit, edited by D.W. Adams, H.G. Douglas and J.D. Von Pischke. Westview special studies in social, political and economic development series, Boulder, CO, USA, pp. 1-7.
'Undermining rural development with cheap credit ', in Undermining rural development with cheap credit , () 1 -7 .
-
Aleem, I. 1990. Imperfect information, screening, and the costs of informal lending: a study of a rural credit market in Pakistan. World Bank Economic Review 4(3): 329-349.
'Imperfect information, screening, and the costs of informal lending: a study of a rural credit market in Pakistan ' () 4 World Bank Economic Review : 329 -349 .
-
Alem, M and J.J. Elias. 2016. Vigencia y Futuro de la Banca de Desarrollo: Un Enfoque desde la Asignación de Riesgos y Recursos. Unpublished Manuscript. [Available upon request with corresponding author].
'Vigencia y Futuro de la Banca de Desarrollo: Un Enfoque desde la Asignación de Riesgos y Recursos ', ().
-
Banerjee, A.V. 2003. Contracting constraints, credit markets, and economic development. In: Advances in economics and econometrics: theory and applications, edited by M. Dewatripont, L.P. Hansen and S. Turnovsky. Eighth World Congress, Volume III, Cambridge University Press, Cambridge, UK.
'Contracting constraints, credit markets, and economic development ', in Advances in economics and econometrics: theory and applications , ().
-
Burkart, M. and T. Ellingsen. 2004. In-kind finance: a theory of trade credit. American Economic Review 94(3): 569-590.
'In-kind finance: a theory of trade credit ' () 94 American Economic Review : 569 -590 .
-
Conning, J. and C. Udry. 2007. Rural financial markets in developing countries. Ch. 56. In: Handbook of agricultural economics, edited by R. Evenson and P. Pingali. Vol. 3. Elsevier, New York, NY, USA, pp. 2857-2908.
'Rural financial markets in developing countries. Ch. 56 ', in Handbook of agricultural economics , () 2857 -2908 .
-
Coulter, J and G. Onumah. 2002. The role of warehouse receipt systems in enhanced commodity marketing and rural livelihoods in Africa. Food Policy. 27: 319-337.
'The role of warehouse receipt systems in enhanced commodity marketing and rural livelihoods in Africa ' () 27 Food Policy : 319 -337 .
-
Duflo, E. 2017. The Economist as plumber. American Economic Review 107(5): 1-26.
'The Economist as plumber ' () 107 American Economic Review : 1 -26 .
-
Guirkinger, C. and S.R. Boucher. 2008. Credit constraints and productivity in Peruvian agriculture. Agricultural Economics 39: 295-308.
'Credit constraints and productivity in Peruvian agriculture ' () 39 Agricultural Economics : 295 -308 .
-
Ministerio de Agroindustria de Argentina. 2017. Subsecretaria de mercados agropecuarios. cotizaciones semanales de la cámara algodonera: infomación histórica. Available at: http://tinyurl.com/y8fz9uqt.
-
Ministerio de Agricultura Ganaderia y Pesca de la Nacion (MAGPN). 2010. Informe Argentina: sobre situacion actual y perspectivas de la industria alodonera. 69 Reunion del Comite Consultivo Internacional del Algodon, Lubock, Texas, USA. Available at: http://tinyurl.com/ybx7ybnz.
-
Moody’s. 2010. Informe de calificacion – fideicomiso financiero algodón I. Moody’s, September 2, Buenos Aires, Argentina.
'Informe de calificacion – fideicomiso financiero algodón ', ().
-
Phelan, C. 1994. Incentives and aggregate shocks. Review of Economic Studies 61: 681-700.
'Incentives and aggregate shocks ' () 61 Review of Economic Studies : 681 -700 .
-
Prescott, E.S. 2003. Communication in private-information models: theory and computation. The Geneva Papers on Risk and Insurance Theory 28(2): 105-30.
'Communication in private-information models: theory and computation ' () 28 The Geneva Papers on Risk and Insurance Theory : 105 -30 .
-
Stiglitz, J.E. and A. Weiss. 1981. Credit rationing in markets with imperfect information. American Economic Review 71(3): 393-410.
'Credit rationing in markets with imperfect information ' () 71 American Economic Review : 393 -410 .
-
Tirole, J. 2006. The theory of corporate finance. Princenton University Press, Princeton, NJ, USA.
The theory of corporate finance , ().
-
Townsend, R.M. 2003. Microcredit and mechanism design. Journal of the European Economic Association 1(2-3): 468-477.
'Microcredit and mechanism design ' () 1 Journal of the European Economic Association : 468 -477 .
-
Towo, N.N. and P.J. Kimaro. 2014. Warehouse receipt system: a solution towards smallholder farmers´ financial constraints? International Journal of Economics, Commerce and Management 2(7). Available at: http://ijecm.co.uk/wp-content/uploads/2014/07/2719.pdf.
-
Watts, M.J. 1994. Life under contract: contract farming, agrarian restructuring, and flexible accumulation. In: Living under contract: contract farming and agrarian transformation in sub Saharan Africa, edited by P.D. Little and M.J. Watts. University of Wisconsin Press, Madison, WI, USA, pp. 21-77.
'Life under contract: contract farming, agrarian restructuring, and flexible accumulation ', in Living under contract: contract farming and agrarian transformation in sub Saharan Africa , () 21 -77 .
| All Time | Past 365 days | Past 30 Days | |
|---|---|---|---|
| Abstract Views | 0 | 0 | 0 |
| Full Text Views | 253 | 83 | 10 |
| PDF Views & Downloads | 118 | 47 | 4 |
Allocating production risks through credit cum insurance contracts: the design and implementation of a fund for small cotton growers to access market finance
In: International Food and Agribusiness Management ReviewSearch for other papers by Mauro Alem in
Current site
Google Scholar
PubMed
Search for other papers by Julio Jorge Elias in
Current site
Google Scholar
PubMed
Collateral requirements that lenders place on small cotton producers can lead to risk rationing and to farmers’ dependence on downstream parties. This paper presents a cotton fund that consists of a set of contracts – credit, insurance, warrant and forward – that enables producers to tackle specific agricultural risks and gain access to market finance. These financial contracts proved to be successful at guaranteeing the fund as issuer of state-contingent debt securities in the capital markets. The fund, as an intermediary, lent to cooperatives to help finance small cotton producers in northern Argentina. The paper explains the experimental design of this innovative fund and presents a potential alternative to government intervention by moving away from ex post subsidies for small producers and, instead, facilitating ex ante private credit. The paper contributes to the literature on rural financial intermediation by designing a new mechanism to raise funds coming from relatively uninformed investors and creating collateral substitutes through delegated monitoring to overcome asymmetric information and limited commitment.
| All Time | Past 365 days | Past 30 Days | |
|---|---|---|---|
| Abstract Views | 0 | 0 | 0 |
| Full Text Views | 253 | 83 | 10 |
| PDF Views & Downloads | 118 | 47 | 4 |
