Targeting Credit through Community Members

Abstract Locally targeted programs may exploit available information transmitted through local networks to improve the selection of beneficiaries, but effective use this is not granted when beneficiaries entails balancing multiple targeting criteria that are costly verify. This paper analyzes how committees balance issues neediness, productivity, risk, and favoritism allocate subsidized loans Thai villagers. Local in charge managing village funds provided credit richer, less-productive, elite-connected villagers threatening program’s sustainability. Informal markets partially attenuated distortions by redirecting from connected unconnected households, albeit at high interest rates. Counterfactual exercises show eliminating connection-based would reduce within-village inequality 9.7% modestly increase village-level output 0.9%–1.5%.