The research team work within the supply chain of a large multinational corporation. The experiment tests the efficacy of several alternative contracts designed to allow self-employed micro-distributors to purchase lumpy fixed assets (such as a bicycle). In particular, researchers test the consequences of linking asset repayments to client performance, through a contingent-repayment model. The team’s collaborating partner is one of the largest manufacturers of food products in the world, and owns a large chewing gum producer in Kenya. This corporation is referred to pseudonymously as ‘FoodCo’. Like UberEats, Deliveroo, GoJek and many other companies around the world, ‘FoodCo’ relies in Kenya on a network of ‘micro-distributors’: self-employed individuals who provide ‘route-to-market’ services, moving product from a stock-point to customers. Specifically, ‘FoodCo’ uses two kinds of micro-distributor:
- individuals who move confectionery products from stock-points to retailers;
- and individuals who move products from stock-points for direct sale to consumers.
Both forms of micro-distributor need to transport stock – and, traditionally, most do so without the help of a vehicle.
In this experiment, researchers partner with a local microfinance institution in order to provide new bicycles for micro-distributors. The purpose is to understand whether it is profitable for large corporations to finance the acquisition of productive assets by gig-type workers through novel performance-contingent microfinance contracts that more effectively share risk and reward. Specifically, the team test four alternative contracts; these differ in the means in which repayment obligations are linked to performance:
- Traditional debt contract
In this group, the team test a traditional debt contract, in which micro-distributors agree to repay the value of the asset, plus 15%, spread evenly over 12 fixed monthly payments. This contract deliberately does not involve any linking between repayment obligations and performance.
- Equity-like contact
In this group, the team test an equity-like contract, in which, over the course of 12 months, clients agreed to pay half of the fixed monthly payment of the debt contract, plus a 10% share of their monthly profits from micro-distribution work. This contract represents the first innovation in our experiment: by working directly with ‘FoodCo’, we offer clients the option of making their repayment obligations contingent upon their self-employment performance.
- Hybrid contract
In this group, the team test a hybrid contract, in which monthly payments are calculated in the same way as the equity contract, but where repayments end once the total payments reach the level required under the debt contract (that is, the value of the asset plus 15%).
- Insurance contract
In this group, the team offer an insurance contract. This has the same basic structure as the equity contract, but the sharing payments are based on 10% of an index constructed from the profits of other microdistributors in the region.
The team also added a control group, who are not offered any of the new contracts but maintain full ‘business as usual’ access to the ‘FoodCo’ microdistribution programme.