IFPRI 61 Women Self-help groups in India and Bangladesh 63 Agricultural insurance 64 Rural Producer Organizations 65 We

1. IFPRI 61 Women Self-help groups in India and Bangladesh 63 Agricultural insurance 64 Rural Producer Organizations 65 Web-based information clearing house 66 Impact evaluation of value chains Maximo Torero 11 July 2013

2. Activity 61: An innovative risk scoring tool for group lending • Individuals that form a group or association generally share many characteristics, but not all of these characteristics are directly observed by third parties like lending institutions. • e.g. their risk type, entrepreneurial spirit, solidarity, reciprocity, trust. • These unobservables further define a group (type) and are likely to affect the behavior of group members. • A risk scoring tool that allows for group types (resulting from observed & unobserved characteristics) can help lenders to: • Reduce information asymmetries by more accurately classifying their clients. • Better understand the factors driving repayment behavior, which may vary across different group types.

3. More “responsible” group Allow a more flexible repayment schedule (reduce transaction costs) (Low risk, high reciprocity) An innovative risk scoring tool for group lending Higher repayment probability Two different types of farmer groups requesting a loan RISK TOOL WITH VARYING TYPES The factors driving repayment behavior may vary by group type Lower repayment probability Importance of imposing a high frequency repayment schedule Less “responsible” group (High risk, low reciprocity) No distinction between groups Mixed repayment probability The group types are determined by observable & unobservable characteristics STANDARD RISK TOOL WITH NO TYPES Same factors driving repayment behavior

4. Outputs by activity: Activity 61 Output 3.1.6: Suggested innovative mechanisms to improve smallholders’ access to credit and insurance

5. Outcomes by activity Outcome 3.1.3: Use of outputs by policymakers to establish policies aimed at improving smallholders’ access to credit and insurance The project has influenced: • The World Bank, which is the major donor to promote the microfinance model in India and Bangladesh. The specific counterparts are VijayendraRao and Elliot Mghenyi. • The Society for Elimination of Rural Poverty (SERP), which was set up by the Department of Rural Development of Andhra Pradesh to implement the new self-help group model. The specific counterparts are C.P. Nagi Reddy and P. Usha Rani.

6. Impact: Activity 61 • We have communicated our findings to the main partners through face-to-face meetings, conferences, workshops, and emails. • Goal is to influence partners on the use of self help groups to increase access to finance

7. Linkages with other CRPs • No linkages at this point • Will be linked through the Warehouse of tools Tool’s progress • Tool of scoring system being developed

8. Activity 63: Simple Weather Securities Can we improve the design indexed productsso that: Smallholder farmers want? Protect farmers in bad years and that allowing them to increase agricultural investment

9. Lessons: demand for insurance • Demand is strong when farmers are offered high quality insurance products (Ethiopia, Bangladesh) • Complementary financial products are also important (Dercon, Hill, Clarke, Outes-Leon and Seyoum Taffesse 2012): • In Ethiopia: demand was 50% higher when insurance sold to groups encouraged to share non-insured risk

10. Improving the quality of insurance for next phase: innovating with gap insurance • Farmers’ concern: index insurance will not pay them when they need it, what if they had a bad year, but the index is good? • Gap insurance addresses this concern: if the year has been bad, but the index does not pay, a crop cut is requested. If average yield is low, a payout will be made. • Experience: • Once gap insurance was introduced in Ethiopia, demand increased: In 2012, 1500+ policies issued with 48% of targeted farmers purchasing in some districts (compared to about 500 policies in the previous year) • Strong demand in Bangladesh for a similar product.

11. Outputs by activity: Activity 63 Output 3.1.6: Suggested innovative mechanisms to improve smallholders’ access to credit and insurance

12. Outcomes by activity Outcome 3.1.3: Use of outputs by policymakers to establish policies aimed at improving smallholders’ access to credit and insurance 3.1.4: Use of outputs by policymakers to establish/improve quality insurance systems The project has influenced: • Engagement with BuusaaGonofaa MFI regarding scaling up products with gap insurance sold through iddirs: emails during March and April, and meeting in April with the General Manager of BuusaaGonofaa in which the research results and plans for scaling up after the end of the project were discussed. • Discussions with reinsurance brokers Guy Carpenter and MiCRO: email exchanges, conference calls and one face to face meeting during March and April on how they can support a protocol for reducing basis risk. They prepared a powerpoint presentation which they presented to their board and donors in April. It was agreed that they would work with BussuaaGonofaa MFI on a scaling up strategy, and that IFPRI would start to reduce involvement as a result. This agreement needs to be followed up on as no progress has been made since April. • A brief explaining gap insurance and the role of group savings was drafted with the USAID funded I4 initiative and posted online in early May. • A synthesis report on the World Bank’s on Financial Innovations for Social and Climate Resilience initiative was written and published summarizing some of the Ethiopia research.

13. Impact: Activity 63 • We have communicated our findings to the main partners through face-to-face meetings, conferences, workshops, and emails. Specifically insurance companies and re-insurance companies • Goal is to influence partners on the use of the combination of the weather and gap insurance

14. Linkages with other CRPs • Linkages with CCAFs • Will be linked through the Warehouse of tools best practices Tool’s progress • First draft of documentation for best practices being developed

15. Activity 64: Rural producer organizations– Collective Action • By engaging markets collectively, farmer groups can help smallholders achieve economies of scale and increase their bargaining power in input and output markets • However, collective marketing also involves additional costs: coordination, time, uncertainty • Strengthen farmer groups’ market access through simple innovations in institutional mechanisms • Implemented in Uganda and Senegal. Future plans in wheat and maize in 4 African countries.

16. Uganda: Working capital loan intervention Smallholder 4. Group deducts fees and distributes payment between farmers B. Trader pays farmer on the spot A. Trader buys output from producer at farm gate 1. Farmers deliver output to group, receives no payment yet Intervention: 2 we introduce a simple voucher/bookkeeping system (easy to claim partial payment and understand deductions) • Results: • Reduction in cost of selling through the group • Working capital loan almost doubled the amount of output collected from members for group sales, which resulted in prices 80% higher than those accepted by farmers selling individually • Farmers motivated to apply for loans from microfinance institutions Intervention: 1 Working capital loan to allow groups to make a partial payment to farmers on delivery Itinerant trader Farmer group Processor / Exporter 2. Group bulks from farmers and delivers to buyer 3. Price and volumes are negotiated and buyer pays for group delivery

17. Outputs by activity: Activity 64 OP 3.1.5: Series of documents on optimal strategies for contract farming arrangements, horizontal coordination, business-capacity development and inclusive business strategies

18. Outcomes by activity OC 3.1.2: Use of outputs to establish contract farming arrangements, horizontal coordination and inclusive business models, and develop business-capacity across CRPs As per the proposal to CRP2, “The project will strengthen the capacity of RPOs and federations of RPOs, researchers, policy makers and other stakeholders in the study country. So, we anticipate that primary beneficiaries in the short and long run will be RPOs and their members. In addition, the project will generate knowledge that will contribute to a growing literature on RPOs and their functioning. So, indirect beneficiaries will include policymakers, other researchers, and donors who are interested in how to strengthen RPOs. Finally, there will also be direct benefits to those RPOs selected to be in our experiments through learning and potential monetary gains.”

19. Impact: Activity 64 • Goal is to influence RPOs and partner institutions (implementers). • At this stage of the project however, without definite results, no particular outreach was implemented as part of the project.

20. Linkages with other CRPs • Will be linked through the Warehouse of tools best practices Tool’s progress • Documentation for best practices will be developed

21. Activity 66: Impact evaluation • Optimal from an evaluation perspective: randomize an intervention at one point in the value chain • Example: Randomize a commitment savings program among high value producers to alleviate credit constraints • Allows for “clean” identification of intervention impacts

22. But… • Many interventions take place throughout the value chain • Randomizing along the whole value chain can be difficult • Extremely complex to find an appropriate control group • May target specific producers but not necessarily capture the full value chain

23. Possible solution… • Using regression discontinuity design along with targeting by proxy means test score • Groups with score below a threshold are given intervention, whereas above threshold are not • Idea is to compare observations “just” below and “just above the threshold to identify impacts of the intervention • Estimates Local Treatment Effect– local to the threshold

24. Example for EL Salvador Figure 1B: Comparison buffers Figure 1A: Segments (tramos) of the intervention HH X D C B A HH Z

25. Sampling Implications • Regression Discontinuity Design (RDD) is “higher variance” than randomization, so in general a larger sample is necessary • Literature says 2.4 times higher variance than randomized sample • But smaller samples should be possible if oversampling near the threshold • Lee and Lemieux show RDD is akin to a localized experiment, so more observations near threshold (if available) should approach randomized sample size

26. Outputs by activity: Activity 66 OP 3.2.1. Methodological guidelines on how to implement impact evaluations for value chains

27. Outcomes by activity OC 3.2.1. Methods and guidelines from CRP2 used to improve value chain-related interventions in other CRPs Through the Alan de Brauw’s role as the lead of the Impact Evaluation working group for the FTF/Feedback mechanism we are in regular contact with USAID BFS staff (at least twice monthly), helping guide their entire process of conducting value chain interventions.

28. Impact: Activity 66 • Goal is to influence partner institutions (implementers). Specifically we have direct impact on FtF

29. Linkages with other CRPs • Will be linked through the Warehouse of tools best practices to all CRPs and partners Tool’s progress • Developing a GIS tools to map value chains • Develop a tools to measure market accessibility as a potential tool for RDD • Develop sampling tools • Develop specialized questionnaires: • Common module • Specialized module by commodity

30. Value Chains Clearinghouse • The Value Chain Knowledge Clearinghouse is an initiative led by PIM CGIAR Research Program [IFPRI, CIAT, ILRI, IITA, World Agroforestry Centre, ICRISAT, Bioversity, and CIP]. • The purpose of this portal is to provide a comprehensive, easily accessible repository of research methods and best practices surrounding value chain performance that can be used by all the consortium research programs and partners.