More from the Author

• Working Paper | 2019

  Keeping the Little Guy Down: A Debt Trap for Lending with Limited Pledgeability

  Ernest Liu and Benjamin N. Roth

  Microcredit and other forms of small-scale finance have failed to catalyze entrepreneurship in developing countries. In these credit markets, borrowers and lenders often bargain over not only the division of surplus but also contractual flexibility. We show these lending relationships may lead to endogenous poverty traps for poor borrowers if future income is not pledgeable, yet richer borrowers unambiguously benefit. Improving the bargaining position of rich borrowers can harm poor borrowers, as the lender tightens restrictions and prevents them from growing. The theory rationalizes the low average impact and low demand of microfinance despite its high impact on larger businesses.

  Keywords: Entrepreneurship; Developing Countries and Economies; Microfinance; Problems and Challenges;

  Citation:

  Liu, Ernest, and Benjamin N. Roth. "Keeping the Little Guy Down: A Debt Trap for Lending with Limited Pledgeability." Working Paper, March 2019.  View Details

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• Article | American Economic Review: Insights | June 2019

  Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines

  Dean Karlan, Sendhil Mullainathan and Benjamin Roth

  A debt trap occurs when someone takes on a high-interest rate loan and is barely able to pay back the interest, and thus perpetually finds themselves in debt (often by refinancing). Studying such practices is important for understanding financial decision-making of households in dire circumstances as well as for setting appropriate consumer protection policies. We conduct a simple experiment in three sites in which we paid off high-interest moneylender debt of individuals. Most borrowers returned to debt within six weeks. One to two years after intervention, treatment individuals were borrowing at the same rate as control households.

  Keywords: Borrowing and Debt; Household; Personal Finance; Decision Making; Behavior; India; Philippines;

  Citation:

  Karlan, Dean, Sendhil Mullainathan, and Benjamin Roth. "Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines." American Economic Review: Insights 1, no. 1 (June 2019): 27–42.  View Details

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• Case | HBS Case Collection | December 2018

  Husk Power: Scaling the Venture

  Benjamin N. Roth, Joseph B. Lassiter III and Natalia Rigol

  In January 2018, Husk Power had just raised $20 million to scale operations for a second time. From 2007 through 2013, Husk built 80 biomass waste (primarily rice husk from rice mills) plants that provided electricity to 250,000 villagers and shop owners spread across 350 villages in India and Africa.
  By 2015, Husk underwent a major pivot. Rather than a rural electrification vision aimed at providing power to rural households through biomass gasification alone, Sinha envisioned plants organized around village commercial customers that used biomass gasification, solar energy, and battery power in tandem, allowing for power generation nearly 24-7. To bring this vision to reality, Sinha ceased operations of nearly all of the existing plant locations and began the conversion to new locations built around the “new” hybrid plant. Thus in 2015, Husk was operating a mere 10 power plants and serving roughly 2,000 customers, down from the 80 plants and roughly 250,000 customers they had prior to this shift.
  After downsizing and reorganizing operations, was Husk Power once again ready to scale?

  Keywords: scaling; Energy; Entrepreneurship; Emerging Markets; Growth and Development; Energy Industry; India;

  Citation:

  Roth, Benjamin N., Joseph B. Lassiter III, and Natalia Rigol. "Husk Power: Scaling the Venture." Harvard Business School Case 819-069, December 2018.  View Details

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