Rising rainfall and temperature variability induced by climate change poses a substantial economic risk to smallholder dairy farmers in developing countries. Rainwater harvesting tanks may help farmers adapt to climate uncertainty. Previous work has found that Asset Collateralised Loans (ACLs) help farmers purchase water tanks in Kenya, but the ACL model remains rare in low-income countries. The researchers will conduct a randomised evaluation to advance the understanding of the potential impact of the ACL model at scale. They will quantify how the model can improve farmers’ access to water tanks, climate resilience, and economic productivity. They will also measure the impact on women’s time-allocation and roles in dairy farming as women tend to bear the disproportionate burden of domestic and livestock water shortages. Lastly, they will explore (i) how low-cost design improvements using digital tools could increase the return to the ACL by potentially reducing the cost of loan management for both lenders and borrowers, and (ii) how timely advice on improved dairy farming practices might complement the impact of water tanks.
To conduct this research, the researchers will partner with two dairy cooperatives in Kenya as they launch ACL lending models for their members. The researchers will pair administrative data on milk sales, loan performance, and digital advisory service roll-out and engagement with survey data on household milk production and agricultural practices, time use, water use, and welfare. They will also collect data on adoption and use of water tanks. This data will be collected and organised at the household level across baseline, midline, and endline.
By quantifying both the benefits to farmers and the scalability and sustainability of the ACL model, the researchers expect that this project can contribute to unlocking investment from impact investors and development finance institutions. This project will also contribute to the knowledge base on the potential magnitude of productivity and welfare impacts on low-income households of unlocking investment in productive assets, and how financial service providers, impact investors, philanthropic donors, and policymakers can support cooperatives in enabling investment in productive assets by small dairy producers. However, asset collateralised lending need not be limited to dairy farming or the agricultural sector; this project contributes to a growing evidence base on how contextually appropriate financial services can help small firms and producers in developing countries obtain productive assets across a wide range of sectors.
