Systemic Risk, Index Insurance, and Optimal Management of Agricultural Loan Portfolios in Developing Countries

Miranda, Mario J.; González-Vega, Claudio

doi:10.1093/ajae/aaq109

Cited by 72 publications

(75 citation statements)

References 9 publications

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“…Linkages to farmer producers under a meso-scheme are designed to make indemnity payments based on actual losses (Skees and Barnett 2006). The El-nino was followed up by Collier et al (2011) and Miranda andGonzalez-Vega (2011), andWeber et al (2015) who discuss a meso-insurance scheme based on rainfall for cotton producers in Tajikistan. At the micro-level, Shee and Turvey (2012) showed how risk-contingent instruments can be priced in practice using simulated field data.…”

Section: The Evolution Of Risk-contingent Creditmentioning

confidence: 99%

A field study for assessing risk-contingent credit for Kenyan pastoralists and dairy farmers

Shee¹,

Turvey

Woodard

2015

Agricultural Finance Review

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Purpose -The purpose of this paper is to assess the feasibility of risk-contingent credit (RCC) by presenting an experimental and participatory game designed to explain the concept of RCC to Kenyan pastoralists and dairy farmers. The paper investigates the uptake potential of RCC through qualitative assessment of field experiments and focus groups. Design/methodology/approach -The paper presents a method of community engagement through a participatory game played in a series of Focus Group Discussions (FGDs). The paper also presents theoretical justification of RCC in credit market structure. Findings -The game effectively explains the concept and mechanism of RCC by reflecting local situation and production potential. Participatory exercises within focus group discussions indicate that there exists a strong interest and support for RCC. Research limitations/ implications -The methodology described in this paper can be used in extension programs for promoting innovative rural microcredit in developing countries but should be modified according to the local production and associated weather and market risks. Originality/value -Micro-insurance and credit program delivery can be improved by our innovative approach of community engagement for explaining financial products.

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Section: The Evolution Of Risk-contingent Creditmentioning

confidence: 99%

A field study for assessing risk-contingent credit for Kenyan pastoralists and dairy farmers

Shee¹,

Turvey

Woodard

2015

Agricultural Finance Review

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“…At the time of our surveys agricultural insurance in China and Mexico was limited so we use a broader characterization of insurance. Although BCG discuss insurance markets generally, and not agricultural markets specifically, it is quite reasonable to assume that what they had in mind was an insurance product that would pay off in states that would be highly correlated with insolvency or collateral risk as discussed in Shee and Turvey (2012), Weber and Musshoff (2013), Carter et al (2011), Karlan et al (2011), Miranda and Gonzalez-Vega (2011.…”

Section: Insurance Marketsmentioning

confidence: 99%

Risk rationing and the demand for agricultural credit: a comparative investigation of Mexico and China

Chiu

Khantachavana²,

Turvey

2014

Agricultural Finance Review

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Purpose -The purpose of this paper is to determine the extent of risk rationing among potential rural borrowers in Mexico and China. Design/methodology/approach -Using primary survey data from 730 farm households in the Shaanxi province of China and from 372 farmers in northeastern Mexico, the authors investigate factors associated with risk rationed, price rationed and quantity rationed farmers. The survey was instrumented to self-identify borrower typologies. In addition the authors created within the survey a discrete-choice credit demand build to determine borrower credit demand elasticities. The analysis applies a linear probability which the authors found to be consistent with multinomial and binary logit models. Findings -The authors find in China the incidence of risk rationing in farmers to be 6.5, 14 percent for quantity rationed and 80 percent for price rationed. In Mexico, 35 percent of the sample is risk rationed, 10 percent quantity rationed and 55 percent price rationed. The results from China support the hypothesis that the financially poor are more likely to be quantity rationed; in Mexico, however, the level of education is found to be important in determining quantity rationed. In both countries, asset wealthy farmers are less likely to be risk rationed; however, income does not appear to have an impact. The paper provides evidence that the elasticity of demand for credit is different among the three credit rationed groups: risk rationed, price rationed and quantity rationed. Risk aversion and prudence are significantly correlated with risk rationing in China, while only risk aversion is significant in Mexico. The results suggest that efforts to enhance credit access must also deal with risk and risk perceptions. Practical implications -Risk rationing is an important concept in the understanding of rural credit markets. The findings that only 6.5 and 35 percent of Chinese and Mexican farmers are in stark contrast to each other. For agricultural economies such as Mexico with a significant number of farmers being risk rationing, more effort should be put into financial education and financial practices, The current issue and full text archive of this journal is available at AFR 74,2 including perhaps the use of risk-contingent credit to remove collateral risk. As property rights in China evolve, and new laws are promulgated to permit borrowing against land use rights, the collateralization issue will become much more important in rural credit markets. Originality/value -This paper is the first to investigate risk rationing in China and Mexico and one of the few research studies empirically investigating risk rationing. A comparative analysis of Mexico and China is enlightening because of the structural differences in the respective agricultural economies. The use of a credit demand build and the enumeration of individual credit demand elasticities is an original contribution to this literature.

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“…dwd.de/pub/CDC/grids_germany/daily/radolan/]. Moreover, these datasets can stimulate the further development of index insurance at the farm level, as there is a tendency in index insurance literature to concentrate on the ''meso'' level or agribusiness firms instead of focusing on single farms (Miranda and Gonzalez-Vega 2010;Farrin and Miranda 2015;Weber et al 2015). …”

Section: Discussionmentioning

confidence: 99%

Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index–Based Insurance?

Dalhaus

Finger

2016

Weather, Climate, and Society

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Adverse weather events occurring at sensitive stages of plant growth can cause substantial yield losses in crop production. Agricultural insurance schemes can help farmers to protect their income against downside risks. While traditional indemnity-based insurance schemes need governmental support to overcome market failure caused by asymmetric information problems, weather index–based insurance (WII) products represent a promising alternative. In WII the payout depends on a weather index serving as a proxy for yield losses. However, the nonperfect correlation of yield losses and the underlying index, the so-called basis risk, constitutes a key challenge for these products. This study aims to contribute to the reduction of basis risk and thus to the addition of risk-reducing properties of WII. More specifically, the study tests whether grid data for precipitation (vs weather station data) and phenological observations (vs fixed time windows for index determination) that are provided by public institutions can reduce spatial and temporal basis risk and thus improve the performance of WII. An empirical example of wheat production in Germany is used. No differences were found between using gridded and weather station precipitation, whereas the use of phenological observations significantly increases expected utility. However, even if grid data do not yet reduce basis risk, they enable overcoming several disadvantages of using station data and are thus useful for WII applications. Based on the study’s findings and the availability of these data in other countries, a massive potential for improving WII can be concluded.

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Systemic Risk, Index Insurance, and Optimal Management of Agricultural Loan Portfolios in Developing Countries

Cited by 72 publications

References 9 publications

A field study for assessing risk-contingent credit for Kenyan pastoralists and dairy farmers

A field study for assessing risk-contingent credit for Kenyan pastoralists and dairy farmers

Risk rationing and the demand for agricultural credit: a comparative investigation of Mexico and China

Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index–Based Insurance?

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