Helping Microfinance Fulfill its Promise: Raising Borrower Incomes through Agent-Intermediated Lending

Growing evidence suggests that the traditional model of microcredit has not succeeded in reducing poverty. In most of the developing world, the poor are rural. Credit that helps to raise agricultural incomes can help them escape poverty. The TRAIL (trader-agent-intermediated lending) approach leverages local intermediaries who have information about a farmer’s ability and willingness to repay. In return for a commission that depends on the repayment rate, intermediaries recommend borrowers to the microfinance institution (MFI). In a field experiment in India, the TRAIL scheme was more cost-effective, had higher repayment rates and imposed lower costs on borrowers. TRAIL loans significantly increased agricultural incomes from high-risk, high-value cash crops.