There are decades of evidence that risk:
- Makes people poor by reducing incomes & destroying assets & creditworthiness
- Keeps people poor by discouraging investment in risky but profitable activities
Can well designed risk transfer mechanisms reverse this situation?
- Directly offset the impacts of shocks on the assets of the current (& future) generation
- Indirectly allow households to prudentially invest more in risky, but high returning agricultural activities by protecting them against the worst consequences of shocks
- That is, if insurance protects farmers assets & capital after the drought, it should also enable farmers to safely invest more before the drought (the “risk reduction dividend”)
