Credit as insurance in agrarian economies

Eswaran, Mukesh; Kotwal, Ashok

doi:10.1016/0304-3878(89)90030-8

Cited by 130 publications

(82 citation statements)

References 8 publications

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“…As analysed by Eswaran and Kotwal (1989), credit can serve as insurance substitute but credit market imperfections usually imply collateralised lending. The consequence is that asset-poor households cannot enter into high-risk activities, since downside risks are too high, while asset rich households do not face this problem.…”

Section: Income Smoothing Strategiesmentioning

confidence: 99%

Income Risk, Coping Strategies, and Safety Nets

Dercon

2002

The World Bank Research Observer

774

545

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High income risk is part of life in developing countries. Climatic risks, economic fluctuations, but also a large number of individual-specific shocks make these households vulnerable to serious hardship. For example, details are given on the various shocks and events causing serious hardship to rural households in Ethiopia in the last twenty years. Not surprisingly for Ethiopia, climatic events are the most common cause of shocks, but many households suffer from other common or idiosyncratic shocks related to economic policy, labour or livestock.Rural and urban households in developing countries face substantial risk. Households in risky environments have developed sophisticated (ex ante) risk-management and (ex post) risk-coping strategies, including self-insurance via savings and informal insurance mechanisms while formal credit and insurance markets appear to contribute only little to reducing income risk and its consequences. Despite these strategies, vulnerability to poverty linked to risk remains high. In this paper, I focus on the opportunities available to households to use risk-management and risk-coping strategies, and on the constraints on their effectiveness, by reviewing some of the recent literature on savings as insurance, income diversification and smoothing, and informal risk-sharing arrangements. Risk and lumpiness limit the opportunities to use assets as insurance. Entry constraints limit the usefulness of income diversification. Informal risk-sharing only provides limited protection, especially for some of the poor and their sustainability during periods of change is in doubt. Public safety nets are likely to be beneficial, but their impact is at times limited while they may have negative externalities on households not covered by the safety net. The paper also discusses the implications for policy as well as the information requirements to increase our understanding of vulnerability and implement better vulnerability reducing policies.

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Section: Income Smoothing Strategiesmentioning

confidence: 99%

Income Risk, Coping Strategies, and Safety Nets

Dercon

2002

The World Bank Research Observer

774

545

View full text Add to dashboard Cite

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“…Alternatively, some poor farmers forego insurance plans yet mitigate risk by adopting technology to better manage their farms. In agrarian communities, consumption credit may serve as an insurance contract tool, thereby affecting risk behavior and decisions about what farmers can produce (Eswaran and Kotwal, 1989). One of the risk pooling practices in agrarian areas is the provision of loans that are distributed among relatives or small community farmers, as seen in Nigeria (Udry, 1990).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Consumption credit availability to agrarian communities can serve as an insurance contract and therefore, influence risk behavior and production decisions (e.g., technological innovation and investment levels) of farmers (Eswaran and Kotwal, 1989).…”

Section: Role Of Insurance Companies In Technological Adoptionmentioning

confidence: 99%

Managing Risk in Livestock Farming: The Role of Insurance Companies

Jokhio¹,

Abro²,

Alaali³

2016

International Journal of Financial Research

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This research analyses the risk associated with livestock farming in relation to the utilization of insurance policies and as a risk management mechanism. Ninety percent of the farmers in this study were unaware of the existence of insurance plans; the need for risk protection among vulnerable, low-income and poor farmers is crucial, especially for those who depend on livestock for their livelihood. Data was collected from insurance companies regarding their different plans for protecting farmers and commercial livestock farmers. Not only livestock farmers face risks, but insurance companies as well. Educating farmers about how to manage the risks associated with livestock business is absolutely necessary. In addition, farmers need social protection and interventions from public, private, or charitable organizations.

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“…Thus, we choose education variables, occupation dummies, the numbers of earners in the household, and the value of assets as instruments. 17 First, Table 2 presents the summary of the estimation results for four specifications, which are the same as those of Dynan.…”

Section: Ifpri Datamentioning

confidence: 99%

“…The findings could have significant implications on the role of precautionary saving in developing countries. 2 In particular, this paper attempts to contribute to the research on this sub-1 When facing a negative income shock, a household can utilize credit market transactions to smooth consumption by reallocating future resources for present use [Eswaran and Kotwal (1989); Besley (1995)]. Yet, there is a plenty of evidence that poor households have only limited access to the credit market and are therefore constrained from borrowing [Morduch (1990), Pender (1996)].…”

Section: Introductionmentioning

confidence: 99%

Precautionary saving under liquidity constraints: Evidence from rural Pakistan

Lee

Sawada

2010

Journal of Development Economics

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This paper investigates precautionary saving under liquidity constraints in Pakistan using household panel data. In particular, while we estimates Kimball's (1990) prudence parameter, we deviate from Dynan's (1993) framework by explicitly considering liquidity constraints, as in Zeldes (1989). By doing so, we attempt to differentiate the standard precautionary saving caused by uncertainty from the one due to liquidity constraints.Furthermore, endogenous liquidity constraints are considered to resolve issues of selection biases. In this study, we document substantial evidence of the presence of precautionary saving in Pakistan. More specifically, the estimated prudence is significantly higher for liquidity-constrained households as compared with unconstrained ones. The results support the emerging view that facilitating saving may often be more important than finding better ways of lending to the poor.JEL Classification: E210, O120

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Credit as insurance in agrarian economies

Cited by 130 publications

References 8 publications

Income Risk, Coping Strategies, and Safety Nets

Income Risk, Coping Strategies, and Safety Nets

Managing Risk in Livestock Farming: The Role of Insurance Companies

Precautionary saving under liquidity constraints: Evidence from rural Pakistan

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