| Abstract: |
In developing countries, most poor households experience extremely variable
in-come because of a large exposure to climatic, economic and policy shocks,
combined with a lack of appropriate insurance devices. Extreme weather events,
in particular, are projected to become more frequent in a warming climate,
leaving rainfed agriculture and large populations in developing countries at
risk. In this context, reliable access to finance in general and credit in
particular can potentially bring welfare-improving opportunities to smooth
household consumption. This paper documents the extent and the nature of the
reactions to rainfall shocks that can be attributed to the participation to
informal savings and credit groups in villages of Northern India. I exploit
first-hand panel data measuring the living standards of member and control
households, coupled with meteorological data at the district-level. I find
that agricultural production and income are very dependent on the monsoon
quality. Interestingly, while the access to credit collapses for control
households after a bad monsoon, Self-Help Groups (SHGs) appear to be robust
credit sources that offer to member households the possibility to increase
borrowing in order to cope with shocks, even when those are largely covariate
within the village. This in turn implies a higher degree of food security over
the year and a lower need for temporary migration following a large negative
shock. Finally, I review some noteworthy features that allow SHGs to withstand
covariate shocks, though potentially at a cost in terms of longer-term
insurance. |