nep-mfd New Economics Papers
on Microfinance
Issue of 2016‒11‒13
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Financial Dollarization: Evidence from a Survey on Branches of Cambodian Financial Institutions By AIBA, Daiju
  2. Small Farmers’ Preferences for Weather Index Insurance: Insights from Kenya By Sibiko, Kenneth W.; Veettil, Prakashan C.; Qaim, Matin

  1. By: AIBA, Daiju
    Abstract: We conducted a survey on Cambodian financial institutions and collected financial data at bank- and branch-level, in order to reveal the actual situation of dollarization in Cambodian financial institutions. We found that there were differences in shares of FX currency deposit and loans between commercial banks (CBs) and microfinance institutions (MFIs). MFIs are likely to have more local currency in their cash on hand, loans, deposits, and borrowings, while CBs rely mostly on FX currency in intermediation. Furthermore, although it is subtle, it can be observed that the share of local currency in deposits has increased over the period of 2009-2013 in the cases both of CBs and MFIs. It might suggest that there is the potential that local currency deposits can be facilitated. However, commercial banks did not allocate KHR funds, although they had large excess KHR funds in Phnom Penh. Moreover, FX currency shares in MFIs' loans have been increasing despite the increase of KHR currency in their deposits. Finally, we found that there were regional differences in dollarization of deposits and loans. In particular, branches in rural areas tend to extend more local currency loans than in Phnom Penh area.
    Date: 2016–10
  2. By: Sibiko, Kenneth W.; Veettil, Prakashan C.; Qaim, Matin
    Abstract: Smallholder farmers are particularly vulnerable to climate shocks but often lack access to agricultural insurance. Weather index insurance (WII) could reduce some of the problems associated with traditional, indemnity-based insurance programs, but uptake has been lower than expected. One reason is that WII contracts are not yet sufficiently tailored to the needs and preferences of smallholders. This study combines survey and choice-experimental data from Kenya to analyse the experience with an existing WII program and how specific changes in contractual design might increase insurance uptake. Many smallholders struggle with fully understanding the functioning of the program, which undermines their confidence. Better training and communication are needed. Regular provision of relevant rainfall measurements and thresholds would significantly increase farmers’ willingness to pay for WII. Mechanisms to reduce basis risk are also valued by farmers, although not to the same extent as higher levels of transparency. Finally, offering contracts to small groups rather than individual farmers could increase insurance uptake. Group contracts may help to reduce transaction costs. Farmer groups can also be important platforms for learning about complex innovations, including novel risk transfer products. While the concrete results are specific to Kenya, they provide some broader policy-relevant insights into typical issues of WII in a small-farm context.
    Keywords: Climate risk, smallholder farmers, crop insurance, discrete choice experiment, Africa, Environmental Economics and Policy, Farm Management, Research and Development/Tech Change/Emerging Technologies,
    Date: 2016–09

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