Managing Agricultural Risk At The Country Level : The Case Of Index-Based Livestock Insurance In Mongolia

Mahul, Olivier; Skees, Jerry R.

doi:10.1596/1813-9450-4325

Cited by 65 publications

(53 citation statements)

References 10 publications

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“…while the risk associated with using the loan for consumption stays constant or might even 45 increase as the households pays for the premium but do not invest. that while absence of insurance may be a sufficient condition for risk rationing it may not be a 7 necessary condition.…”

mentioning

confidence: 99%

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Marr

Winkel

Asseldonk³

et al. 2016

Agricultural Finance Review

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Purpose – The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance and the existing links between insurance and credit. In this meta-analysis, the authors identify key discoveries on the potential of index-insurance in enhancing credit supply for smallholders and thus farm productivity. Design/methodology/approach – Following a systematic literature search in Scopus and Web of Science, relevant empirical articles were identified by using the following criteria search algorithm: “insurance” and (“weather” or “micro” or “area?based” or “rain*” or “livestock” or “index”), and ((“empiric*” or “experiment” or “trial” or “RCT” or “impact”) or (“credit” or “loan*” or “debt” or “finance”)). The authors identified 1,133 related papers, 110 of which were selected as closely matching the study criteria. After removing duplicates and analysing each document, 45 papers were included in the current analysis. The framework for addressing insurance and credit issues, in the paper, entails three subsequent themes, namely, adoption of insurance, impact of insurance and links between insurance and credit. Findings – It is not confirmed yet that demand for insurance is indeed hump-shaped in risk aversion and the functional form of this relationship should be tested in more detail. This also holds for the magnitude of the effect of trust and education on actual demand. Furthermore, it is unclear to what extent other risk mitigation strategies form complements or substitutes to index-insurance. Lastly, the interaction between basis risk and price is important to the design of index-insurance products. If basis risk and price elasticity are indeed highly correlated, products that diminish basis risk are crucial in increasing demand. On the impact of bundled products, e.g. combination of insurance and credit, limited empirical research has been conducted. For example, it is unknown to what extent credit suppliers would react to the insured status of farmers or what the preferences of farmers are when it comes to a mix of financial products. In addition, several researchers have suggested that microfinance institutions or banks could insure themselves against covariate risk, yet no empirical evidence about this insurance mechanism has been conducted so far. Research limitations/implications – The authors based the research on scientific literature uploaded in Scopus and Web of Science. Other potentially insightful grey literature was not included due to lack of accessibility. Given the research findings, there is plenty of opportunity for further research particularly with regard to the effects of bundled products, e.g. insurance plus credit, on demand for index-insurance, supply of credit, loan conditions and impact on farm productivity and farmers’ well-being. Practical implications – Microfinance institutions, insurance companies, NGOs, research institutions and universities, particularly in developing countries, will be interested to learn about the systematic review of scientific research done in the area of insurance and credit for agriculture and the possibilities for application in their own practice of supplying these financial products. Social implications – A rigorous understanding of the potential of index-insurance and credit is essential for identifying the right mix of financial products that help smallholder farmers to increase farm productivity and their own well-being. Originality/value – The paper is valuable due to its rigorous evaluation of existing theoretical and empirical research around issues explaining the degree of adoption and impact of index-insurance and that of bundled financial products (i.e. index-insurance plus credit). The paper has the potential to become essential reading for academics, practitioners and policy-makers interested in researching and putting in practice the best options leading to greater farm productivity and well-being in developing countries.

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mentioning

confidence: 99%

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Marr

Winkel

Asseldonk³

et al. 2016

Agricultural Finance Review

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“…Half of the Mongolian population depends on livestock husbandry ( Johnson et al, 2006), especially in rural areas where herders' income mainly depends on livestock husbandry (Mahul and Skees, 2007). In rural areas livestock husbandry plays an important role in herders household economy (Dovie et al, 2006;Simela et al, 2006).…”

Section: Discussionmentioning

confidence: 99%

“…Especially in rural areas herders income mainly depends on livestock husbandry (Mahul and Skees, 2007). Livestock sector is the back bone of Mongolian economy and 50% of Mongolian population depends on livestock husbandry ( Johnson et al, 2006).…”

mentioning

confidence: 99%

Effect of Hypothermia and Droughts on Livestock Mortality in Southern and Eastern Mongolia

Bilegjargal¹,

Lu²,

Ahmad³

et al. 2017

J. Anim. Health Prod.

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“…Index based livestock insurance (IBLI) is a financial tool that has the potential to be used in managing the risk of asset loss , Chantarat et al 2009a, Barnett and Mahul 2007, Mahul and Skees 2005. In the case of northern Kenya, IBLI triggers insurance payout at the end of the coverage season (long rain -long dry or short rain -short dry seasons) based on a well defined predicted livestock mortality index, which is established from a strong predictive relationship between historical data on household Insurance contracts are written with a trigger strike point of predicted livestock mortality rate (%), above which insurance payout will be made to the insured.…”

Section: Index Based Livestock Insurancementioning

confidence: 99%

Explaining index‐based livestock insurance to pastoralists

McPeak

Chantarat

Mude

2010

Agricultural Finance Review

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Livestock production in arid and semi-arid rangelands is a risky enterprise. Covariate risk of catastrophic livestock loss due to drought is the most critical uninsured risk facing livestock producers. These losses can lead to persistent poverty. We are trying to design an index based livestock insurance (IBLI) program as a viable means to help pastoralists in northern Kenya manage such covariate risk of livestock losses due to drought. A predicted livestock mortality index -established from a statistical relationship between satellite-generated vegetation imagery and historical records of community level livestock losses -represents an objectively, cost effectively measured and non-human manipulable index that triggers insurance payout. The insurance is offered by private insurance companies. The advantages of reduced transaction costs and asymmetric information problems, however, come at the cost of increased basis risk, which refers to the imperfect correlation between an insured"s loss experience and the index. We have developed a game that explains to pastoralists how such an insurance product could work. We built in the game both covariate and idiosyncratic shocks, and use a subsistence constraint to generate bifurcating asset dynamics, observed empirically in the targeted communities. This paper describes how the game was designed, how it was used in the field, and presents findings on how individuals played the game. The paper concludes by discussing how these findings are being used in the design and broader extension of the index based insurance product.3 Introduction:

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Managing Agricultural Risk At The Country Level : The Case Of Index-Based Livestock Insurance In Mongolia

Cited by 65 publications

References 10 publications

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Effect of Hypothermia and Droughts on Livestock Mortality in Southern and Eastern Mongolia

Explaining index‐based livestock insurance to pastoralists

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