Microequity and mutuality : experimental evidence on credit with performance-contingent repayment

A large food multinational wishes to help micro-distributors in its supply chain with the financing of a productive asset. Collaborating with the firm in Kenya, we conduct a field experiment to compare asset financing under a traditional debt contract to three alternatives that provide a greater sharing of risk and reward. We find the largest impacts from a novel hybrid contract that combines both debt- and equity-like features. The results suggest substantial mutual benefits for the multinational, its micro-distributors, and stock-points within its supply chain. These findings demonstrate the economic appeal of financing contracts that harness the improved observability of performance data in many low- and middle-income settings.