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Bangladesh

Borrowing for a rainy day: emergency loans in Bangladesh

Gregory Lane's picture

Blog post by a student on the job market.

Weather shocks are a constant and growing threat to much of the world’s rural population whose livelihoods depend on agriculture (Dercon, 2002). The cost of being exposed to these shocks is high: households sell productive assets or reduce spending on essential goods and services that can have substantial negative long-run consequences on household wellbeing. Moreover, households often adopt agricultural production processes that are less risky but also less productive in order to limit their exposure to these types of shocks (Janzen and Carter, 2018). Unfortunately, it has proved challenging to develop financial tools that reduce exposure this risk. Traditional insurance is often absent in developing countries because of moral hazard and adverse selection. Furthermore, weather-index insurance, which was designed to help farmers increase their resilience to extreme weather events, has suffered from low demand (Cole and Xiong, 2017).