Loans allowed low-income households to reallocate labour away from the market and back onto their own farms, and thereby improve their own harvests
Read “Seasonal Liquidity, Rural Labor Markets, and Agricultural Production” by Günther Fink, B. Kelsey Jack, and Felix Masiye here.
For villagers who support themselves by growing and selling their own crops, the hardest months of the year are those immediately before the harvest when savings have been used up but the income from crops is still weeks away, and your friends and neighbours are often in the same situation so are unable to offer financial support. Those affected often sell family labour to better-off farmers in their village to get by, but this leads to them underinvesting in their own farm and hurting their future harvest. In this VoxDevTalk, Günther Fink and Kelsey Jack discuss an experiment in which they offered subsidised loans, in the form of either food or cash, in randomly selected villages in rural Zambia to help with liquidity during this ‘hungry season’. Take up of the loans was extremely high, and the authors found that people used them to reallocate family labour away from the market and back onto their own farms – in some cases they even hired some of their neighbours to improve their harvest outcomes. On average, harvests increased by enough to cover the value of the loan. Scaling up this type of intervention could help address the inefficiencies caused by lower-income households selling their labour at low wages to better-off households and have a strong redistribution effect.