The Impact of Seasonal Credit on Agricultural Production and Remittances

Abstract

Globally, hundreds of millions of people suffer not just from chronic poverty, but also acute hardships during particular times of the year. These “lean seasons” commonly occur in rural communities in between the planting and harvest seasons, when stores from the last harvest run out and there is little agricultural work locally. Lean-season migration can help households cope with seasonal poverty by providing an additional income source when labor demand in agriculture is low. All-else equal, migration will be most effective at reducing seasonal poverty when migrants can easily remit their earnings during the lean season, either digitally or by hand. This policy brief highlights the effect of a seasonal loan program that offered small loans timed to the lean season to households engaged in agriculture and circular labor migration in Nepal. In the sample, the researchers find evidence to remittance constraints: roughly two thirds of households engage in circular migration, over half of remittances are brought back by hand, and remittances rise sharply after the lean season when most migrants return. They designed an intervention to let households access future harvest and remittance income during the lean season when it is more valuable. They find that seasonal loans improve measures of lean season welfare and increase agricultural investment. The agricultural investments result in increased harvest revenue, and households offered the loan receive more remittances throughout the study period. This research is part of the Gender, Growth and Labour Markets in Low-Income Countries programme