Health Shocks and Consumption Smoothing in Rural Households: Does Microcredit have a Role to Play?

Potential of microcredit in insuring consumption against health shocks
Download 35 pages

This paper uses a large panel data set from rural Bangladesh to estimate the effects of health shocks on household consumption. It also examines how access to microcredit affects households' response to such shocks.

Health shocks have a severe effect on households in developing countries, as these households are typically unable to access formal insurance markets to help insure consumption against such shocks. Study results suggest that:

  • Consumption remains stable in many cases when households are exposed to health shock;
  • Households that have access to microcredit, however, appear to cope slightly better;
  • Households mostly cope by selling productive assets, such as livestock;
  • Households with access to microcredit do not seem to need to sell livestock to the extent that households without access to microcredit do.

Study results suggest that microcredit and microcredit organizations have an insurance role to play, an aspect that has not been analyzed previously.