Risk aversion and credit access: Solving financial exclusion through contract innovation
Ambler, Kate · Bakhtiar, M. Mehrab · de Brauw, Alan · Uddin, Mohammad Riad
Feb 2026 · IFPRI Discussion Paper Book 2405 · Intl Food Policy Res Inst
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About this ebook
Credit market failures may reflect voluntary withdrawal by risk-averse borrowers in addition to supply-side constraints. We conduct a randomized trial with 1,517 Bangladeshi households, offering cattle financing through conventional loans or profit-sharing contracts that spread risk between the farmer and the financial partner. Overall, interest in and take-up of the profit-sharing contracts were modestly higher than the conventional loans. However, conventional loan take-up was much lower among risk-averse farmers, and profit-sharing eliminated the take-up gap between risk-averse and non-risk-averse farmers. We find that it is male risk preferences that are associated with these decisions even when contracts explicitly target women. Livestock investment increases under both contracts with no evidence of moral hazard under profit-sharing.
Credit market failures may reflect voluntary withdrawal by risk-averse borrowers in addition to supply-side constraints. We conduct a randomized trial with 1,517 Bangladeshi households, offering cattle financing through conventional loans or profit-sharing contracts that spread risk between the f...
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