On rural poor risk management, practices of protection and necessities

Emerging Project Lessons

There is a predominance of informal financial practices to prevent and attend the shocks. In order to answer the key question of risks management of low-income population, the AMUCSS conducted a survey about Vulnerability of Rural Families in 1000 households at the beginning of 2009. This research demonstrated that the use of formal financial practices is a minor tendency. 78% of the surveyed households declared that they had never used formal financial services. 65% said that it is better to save with crops or animals while only 35% preferred cash. This is linked to the multi-functionality of animals and crops: they can be eaten or sold. Indeed, from the households who declared to save (in kind and cash), 56% of them did it to prevent a daily life risk. Only 3% had insurance and 73% had never heard about insurance products. Even if informal practices to prevent the risks were identified, only a minority of families were prepared to soften the shocks. Generally, rural families react when the events occur: in that case, 39% of the households declared having asked for a loan (most of them in the informal sector: more than 90%) and 26% said they consumed crops they had planned to eat or sell later. It is important to point out the combination of practices since using only one solution is barely enough.

Risks related to agriculture and health are the most important and recurrent risks faced by the rural households.The survey showed that shocks related to agriculture and health are the tougher risks faced by rural households: 52% declared that the most important risk they had faced in the last three years was connected with agricultural activity and 46% with health.

An important proportion of low-income people who ask for formal loans, do it to deal with financial shocks. The survey revealed that in rural poor areas, the use of formal credits is frequently connected with the occurrence of a shock. 34% of formal loans are used to react to a shock (health, agriculture, death, repayment of another loan) while only 27% of them are used for an economic investment and 20% for housing.

Formal savings are not enough to respond to the shocks faced by the rural households. Even for those with formal savings accounts (5% of the sample), the average cost of a shock (150 USD[1]) faced by rural families is generally higher than their available cash savings. Families used a combination of different mechanisms to face the most serious problem the household faced in the past 3 years including: consumption of crops (31%), loan (29%), unplanned sale (15%), interruption of livestock farming (7%) labor migration (5%), pawning (3%), interruption of a credit repayment (3%) and school desertion (2%).