This two‐treatment randomized control trial in northern Ghana investigated how bundling index insurance with agricultural loans affects smallholder access to credit. In one treatment, farmer groups were invited to apply for production loans bundled with an index insurance contract that, in the event of a drought, indemnifies farmers directly (micro‐insured loans). In the second treatment, farmer groups were invited to apply for production loans bundled with an index insurance contract that, in the event of a drought, indemnifies the lender on the condition that the indemnity be used to retire the farmer's debt obligation (meso‐insured loans). Farmer groups in the control category were invited to apply for uninsured loans.

The results showed that insured loans increase farmers' likelihood of receiving credit by between 15 and 21 percentage points. Exploring the mechanisms of this effect, there was no impact on the likelihood that farmers apply for credit but there was an increase in the likelihood of loan approvals of between 17 and 25 percentage points.

Read the full paper in the American Journal of Agricultural Economics