New data explores financial risk management in African agriculture!

The opportunity to manage financial risk is particularly essential for people earning their coping with agriculture. Many maqui berry farmers only get compensated a couple of times yearly, and households have to stretch their earnings over the year by saving or borrowing money. Cost fluctuations, extreme weather, and crop or animals illnesses threaten their livelihoods. Households involved in agriculture may thus take advantage of formal financial services, which could facilitate farm investments making it simpler to handle financial emergencies.

Within our latest World Bank working paper we explore how adults who depend on growing crops or raising animals his or her household’s primary supply of earnings manage financial risk and employ financial services. We all do so by analyzing data from the new module on farming risk management put into the 2017 Global Findex questionnaire in 15 lower-middle- and occasional-earnings Sub-Saharan African economies. Data derive from a across the country representative survey of approximately 1,000 adults in every economy and reported averages are population weighted. Listed here are three key findings:

1. Another of surveyed adults depend on agriculture by growing crops or raising animals because the primary supply of their household’s earnings (map 1). Ethiopia has got the greatest share at 63 percent. Mali is really a close second at 55 percent. In Malawi, Mozambique and Tanzania, about 40 % of adults reported agriculture to become their household’s primary supply of earnings, adopted by in regards to a third to some quarter of adults in many other economies.

Map 1: Another of surveyed adults depend on agriculture by growing crops or raising animals because the primary supply of household earnings

2. About two-thirds of those adults reported their household possessed a bad harvest or significant lack of animals previously 5 years, and many bore the whole financial risk by themselves (figure 1). Less than 10 % adults residing in these households reported their household received any compensation – for example with an insurance payout or government assistance – for his or her losses.

Figure 1: Among farming households experiencing a poor harvest or significant lack of animals, most bear all of the financial risk themselves

3. Utilization of crop or animals insurance coverage is low (figure 2). Insurance is an excellent method for households to handle the financial chance of a poor harvest or lack of animals and also to get a potential payout within the situation of the loss. However, insurance take-up is low across surveyed economies. Typically, five percent of adults residing in households involved in agriculture because the primary supply of earnings reported their household has become any crop or animals insurance previously 5 years.

Figure 2: Utilization of crop or animals insurance coverage is low

Exactly how should we increase ale farming households to handle financial risk?

Governments and also the private sector can provide schemes that bundle existing farm subsidies with insurance to inspire farming households to consider such products. The Planet Bank’s Global Index Insurance Facility – which facilitates financial access for smallholder maqui berry farmers with the provision of catastrophic risk transfer solutions and index-based insurance in developing economies – documents a number of such efforts. For instance, in Zambia, the federal government offered crop-yield insurance with seeds and fertilizers allowing nearly a million maqui berry farmers to get into insurance within the season ending in March 2019.

Saving and credit are a couple of other key methods to manage financial risk. Accounts supply the foundation for doing this: they offer a secure spot to store money and make savings. Accounts also allow it to be simpler to gain access to credit from the formal lender, receive or make payments, and settle payments.

Within the paper we mix-tab our new data on financial risk management in agriculture with data on utilization of lending options in the Global Findex questionnaire. We discover that many adults in farming households don’t have the financial tools – for example accounts, savings, and credit – that may enable them to manage financial risks.

One method to help these adults obtain access to formal financial services would be to increase using digital payments in farming supply chains. Digitizing payments for that purchase of farming products is really a proven method of growing account possession. Based on the 2017 edition from the database, 40 million adults by having an account in developing economies opened up their first to get payments for that purchase of farming products.

Our new working paper can be obtained here along with a note according to working paper here. The entire methodology is published in the Global Findex homepage. While our paper concentrates on Sub-Saharan Africa, farming risk management information is available too for any couple of economies outdoors the location.

Paper citation:

Klapper, Leora, Dorothe Singer, Saniya Ansar, and Mike Hess. 2019. “Financial Risk Management in Agriculture: Analyzing Data from the New Module from the Global Findex Database.” Policy Research Working Paper 9078, World Bank, Washington, Electricity.

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