Risk Management for the Poor and Vulnerable
How can microfinance institutions help the poor in managing risk?
This paper reviews literature on the mechanisms available to the poor to manage risk. It argues that:
- The poor rely on informal mechanisms of risk management, built on existing social networks and trust;
- However, when they are affected by shocks that impact the entire community, these informal mechanisms may not be adequate;
- Some policy interventions are then necessary to help them manage risk.
The paper reviews the basic concepts of poverty, vulnerability and risk, and:
- Discusses the informal mechanisms available to the poor to manage risk;
- Presents policy options to help the poor in managing risk.
It concludes that:
- In the long run, policy objective should be to reduce the level of vulnerability to poverty by providing mechanisms to the poor to manage risk;
- Policy interventions should aim at providing access for the poor to savings, credit and insurance;
- Microfinance schemes are said to be successful in providing access to savings and credit;
- However, microfinance institutions (MFIs) still have some room for improvement by expanding their role by providing insurance.
About this Publication