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New data explores financial risk management in African agriculture

How can we increase the ability of agricultural households to manage financial risk?

Governments and the private sector can offer schemes that bundle existing farm subsidies with insurance to encourage agricultural households to adopt such products. The World Bank’s Global Index Insurance Facility — which facilitates financial access for smallholder farmers through the provision of catastrophic risk transfer solutions and index-based insurance in developing economies — documents some of such efforts. For example, in Zambia, the government offered crop-yield insurance with seeds and fertilizers allowing nearly 1 million farmers to gain access to insurance in the season ending in March 2019.

Saving and credit are two other key ways to manage financial risk. Accounts provide the foundation for doing so: they provide a safe place to store money and build savings. Accounts also make it easier to access credit from a formal financial institution, receive or make payments, and pay bills.

In the paper we cross-tab our new data on financial risk management in agriculture with data on use of financial products from the Global Findex questionnaire. We find that most adults in agricultural households lack the financial tools — such as accounts, savings, and credit — that could help them manage financial risks.

One way to help these adults get access to formal financial services is to increase the use of digital payments in agricultural supply chains. Digitizing payments for the sale of agricultural products is a proven way of increasing account ownership. According to the 2017 edition of the database, 40 million adults with an account in developing economies opened their first one to receive payments for the sale of agricultural products.

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Our new working paper is available here and a note based on working paper here. The full methodology is posted at the Global Findex homepage. While our paper focuses on Sub-Saharan Africa, agricultural risk management data is also available for a few economies outside the region.

Paper citation:

Klapper, Leora, Dorothe Singer, Saniya Ansar, and Jake Hess. 2019. “Financial Risk Management in Agriculture: Analyzing Data from a New Module of the Global Findex Database.” Policy Research Working Paper 9078, World Bank, Washington, DC.

Source : blogs.worldbank.org

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