Many borrow, more save, and all insure: implications for food and micro-finance policy

Abstract

Among policy makers, researchers and micro-finance practitioners alike, there is much discussion on the role of micro-finance for alleviation of poverty. This paper focuses on the linkages between access to credit, savings and insurance services and household food security. What is the role of micro-finance in the overall mix of policy instruments? What types of financial services are demanded by the poor, and which are offered by micro-finance institutions (MFIs)? Hence, which are the gaps in financial products? We present a conceptual framework that addresses these questions, and provide a synthesis of the empirical results of a multi-country research program in ten African and Asian countries. We conclude that insurance can be considered as the missing third of micro-finance during the 1990s, and that the MFI's outreach to the poor can be improved by offering savings, credit and insurance products that enhance the poor's ability to bear risks. Applied research on the poor's preferences as well as bold experimentation with new financial products appear to be particularly promising in making progress towards that goal. Since insurance services are difficult to be offered except for easily observable idiosyncratic risks, precautionary savings services can be a valuable insurance substitute in particular for the poorest.