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Risk Management among the Poor: The Case of Microfinancial Services

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Author Info

  • Arun, Thankom Gopinath

    ()
    (University of Central Lancashire)

  • Bendig, Mirko

    ()
    (German Institute for Global and Area Studies)

Abstract

This paper argues that the level of financial services provision determines the risk management strategies among the poor. The paper estimates the determinants of the household’s use of one, two or all three types of microfinancial services applying ordered probit models and additionally probit models for combinations of them. By doing this on household survey data from Sri Lanka, there is empirical evidence that household's probability to participate in microfinancial services increases with rising self perception towards risk. Further, we find that it depends highly on the type of risk, if a household is more or less likely to use microfinancial services in Sri Lanka, whereas the accessibility to one, two or three microfinancial services is determined by the experience of specific hazards in the past. The study finds that the poor are less likely to use microfinancial services than their better off counterparts.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5174.

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Length: 29 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5174

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Keywords: financial markets; financial services; microinsurance; Sri Lanka; South Asia;

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References

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  1. Xavier Giné & Robert Townsend & James Vickery, 2007. "Patterns of rainfall insurance participation in rural India," Staff Reports 302, Federal Reserve Bank of New York.
  2. Sarmistha Pal, 2002. "Household sectoral choice and effective demand for rural credit in India," Applied Economics, Taylor & Francis Journals, vol. 34(14), pages 1743-1755.
  3. Marcel Fafchamps & Chris Udry & Katherine Czukas, . "Drought and Saving in West Africa: Are Livestock a Buffer Stock?," Working Papers 97013, Stanford University, Department of Economics.
  4. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
  5. Mikkel Barslund & Finn Tarp, 2008. "Formal and Informal Rural Credit in Four Provinces of Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 44(4), pages 485-503.
  6. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
  7. Mirko Bendig & Lena Giesbert & Susan Steiner, 2009. "Savings, Credit and Insurance: Household Demand for Formal Financial Services in Rural Ghana," GIGA Working Paper Series 94, GIGA German Institute of Global and Area Studies.
  8. M. M. Pitt & S. R. Khandker, 2002. "Credit Programmes for the Poor and Seasonality in Rural Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 39(2), pages 1-24.
  9. Ranjula Bali Swain, 2002. "Credit Rationing In Rural India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 1-20, December.
  10. Gulnur MURADOGLU & Fatma TASKIN, 1996. "Differences In Household Savings Behavior: Evidence From Industrial And Developing Countries," The Developing Economies, Institute of Developing Economies, vol. 34(2), pages 138-153, 06.
  11. Sharma, Manohar, 2000. "Microfinance," MP05 briefs 0, International Food Policy Research Institute (IFPRI).
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Cited by:
  1. David Hulme & Thankom Arun, 2011. "What’s wrong and right with microfinance – missing an angle on responsible finance?," Brooks World Poverty Institute Working Paper Series 15511, BWPI, The University of Manchester.

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