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Microequity and Mutuality: Experimental Evidence on Credit with Performance-Contingent Repayment

Author

Listed:
  • Cordaro, Francesco
  • Fafchamps, Marcel
  • Mayer, Colin
  • Meki, Muhammad
  • Quinn, Simon
  • Roll, Kate

Abstract

A large food multinational wishes to help micro-distributors in its supply chain with the financing of a productive asset. Collaborating with the firm in Kenya, we conduct a field experiment to compare asset financing under a traditional debt contract to three alternatives that provide a greater sharing of risk and reward. We find the largest impacts from a novel hybrid contract that combines both debt- and equity-like features. The results suggest substantial mutual benefits for the multinational, its micro-distributors, and stock-points within its supply chain. These findings demonstrate the economic appeal of financing contracts that harness the improved observability of performance data in many low- and middle-income settings.

Suggested Citation

  • Cordaro, Francesco & Fafchamps, Marcel & Mayer, Colin & Meki, Muhammad & Quinn, Simon & Roll, Kate, 2024. "Microequity and Mutuality: Experimental Evidence on Credit with Performance-Contingent Repayment," CEPR Discussion Papers 18818, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18818
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    Cited by:

    1. Ubfal, Diego, 2024. "What Works in Supporting Women-Led Businesses?," IZA Discussion Papers 16950, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Microfinance; Performance-contingent finance;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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