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Membership Based Indigenous Insurance Associationsin Ethiopia and Tanzania

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  • Stefan Dercon (QEH), Joachim De Weerdt, Tessa Bold, Alula Pankhurst

Abstract

Indigenous insurance associations are a prevalent form of membership based organisations of the poor, at least in the rural areas in Ethiopia and Tanzania surveyed by the authors. Results show how villagers with few links to any formal kind of insurance market have established membership-based indigenous insurance associations to protect themselves against unexpected expenditures, mainly for funerals and hospitalisation. Many of these institutions tend to co-exist within the same community and are based on well-defined rules and regulations, well beyond informal reciprocal relations. They tend to offer premium-based insurance for funeral expenses, as well as, in many cases, other forms of insurance and credit to help address hardship. These groups are completely owned and managed by their members. They were locally initiated and have been continually developing through the actions of their own members, without involvement from the government or donors. Using detailed group membership data linked to household survey data we show that (i) these institutions are widely prevalent in the surveyed areas, (ii) households typically belong to several groups at the same time, (iii) they display a large degree of inclusiveness and (iv) they insure an important part of some shocks, but still leave households prone to the effects of risk

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Paper provided by Queen Elizabeth House, University of Oxford in its series QEH Working Papers with number qehwps126.

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Handle: RePEc:qeh:qehwps:qehwps126

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  1. Mogues, Tewodaj, 2006. "Shocks, livestock asset dynamics and social capital in Ethiopia:," DSGD discussion papers 38, International Food Policy Research Institute (IFPRI).
  2. Stefan Dercon, 2000. "Income risk, coping strategies and safety nets," Economics Series Working Papers WPS/2000-26, University of Oxford, Department of Economics.
  3. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
  4. Morduch, J., 1995. "Income Smoothing and Consumption Smoothing," Papers 512, Harvard - Institute for International Development.
  5. Marcel Fafchamps & Susan Lund, . "Risk Sharing Networks in Rural Philippines," Working Papers 97014, Stanford University, Department of Economics.
  6. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
  7. Mariam, Damen Haile, 2003. "Indigenous social insurance as an alternative financing mechanism for health care in Ethiopia (the case of eders)," Social Science & Medicine, Elsevier, vol. 56(8), pages 1719-1726, April.
  8. Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 209-44, January.
  9. Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
  10. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
  11. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  12. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
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