Abstract
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 the innovative approach of community engagement for explaining financial products.
Highlights
Agricultural risks and limited access to credit are serious impediments to agricultural productivity, and remain two of the main sources of potential poverty traps in developing countries
The section discusses the evolution of risk-contingent credit. This is followed by an assessment of the productive investment potential and risks in pastoral and dairy farming in Kenya, followed by an overview of RCC and its theoretical justification in credit market structure
The Evolution of Risk-Contingent Credit The idea of RCC first appeared in a description of programs in the Philippines, Sri Lanka and India in which farmers pledged a portion of any crop insurance indemnities to cover loan losses (Adams and Vogel 1986)
Summary
Agricultural risks and limited access to credit are serious impediments to agricultural productivity, and remain two of the main sources of potential poverty traps in developing countries. The section discusses the evolution of risk-contingent credit This is followed by an assessment of the productive investment potential and risks in pastoral and dairy farming in Kenya, followed by an overview of RCC and its theoretical justification in credit market structure. The Evolution of Risk-Contingent Credit The idea of RCC first appeared in a description of programs in the Philippines, Sri Lanka and India in which farmers pledged a portion of any crop insurance indemnities to cover loan losses (Adams and Vogel 1986) This was based on an honor system with only an indirect linkage to credit. Pastoralists earn income from selling/trading milk, meat, and live animals
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