1. Thoughts on “The Supply and Demand Side Impacts of Credit Market Information” by McIntosh, de Janvry, and Sadoulet Steve Boucher, UC-Davis Prepared for the conference: Financial Innovations and the Real Economy Federal Reserve Bank of San Francisco November 16, 2006

2. Outline What I learned from Craig’s paper More questions I’d like Craig to answer The need for more institutional innovations in rural (agricultural) finance

3. Broad Lessons Learned Information really matters! Different types of information asymmetries matter in different ways (adverse selection versus moral hazard). Strengthening credit bureaus represents a relatively low cost, high return strategy to strengthen credit markets

4. How did they do it? Innovatively took advantage of “natural” experiment Innovative implementation of randomized field experiment

5. Questions/Concerns for Craig Potential confounding of information effect with other changes in lender behavior To what degree does the introduction of CB’s impact the risk sharing rules of contracts? Would individual reporting of group members’ performance have a different effect than group reporting? How large is the “crowding out” of informal insurance that results from CB’s?

6. Challenge: How to extend micro-finance to rural areas? First-stage reforms –Financial liberalization –Strengthen property rights (titling) –Follow Yunus Results…

7. Frequency of Credit Constraints among Farm Households in Latin America UnconstrainedConstrained Honduras (2001) 61%39% Nicaragua (2002) 42%58% Peru (2003) 43%57% Source: Boucher, Carter and Barham (2005) & Boucher and Guirkinger (2006)

9. How prevalent are credit constraints? (farm households in Peru)

10. Root Problems Imperfect insurance markets Thin land markets –Spatial nature of land (you must go to the land implies relatively few potential buyers) –politically charged nature of land (contradiction: Borrowers must be able to commit to allowing foreclosure. But land is not just another asset…) Innovations?? –Index insurance linked to loans?