Date: 2010
Type: Working Paper
Adverse Shocks and Social Protection in Africa: What Role for Formal and Informal Financial Institutions?
Working Paper, EUI RSCAS, 2010/31, European Report on Development
ODURO, Abena D., Adverse Shocks and Social Protection in Africa: What Role for Formal and Informal Financial Institutions?, EUI RSCAS, 2010/31, European Report on Development - https://hdl.handle.net/1814/13866
Retrieved from Cadmus, EUI Research Repository
This paper presents evidence on the wide range of adverse shocks reported by African households.
The current financial and economic crisis adds another layer of risk to al-ready vulnerable households
and firms. In responding to an adverse shock, households are involved in a balancing act that is aimed
at maintaining consumption and/or assets above critical levels. Households mainly use coping
mechanisms that depend on family and other networks and self-insurance. There is limited recourse to
public social protection and formal credit and insurance markets. The paper examines some informal
financial arrangements. Some of these are not designed to smooth consumption when there is an
adverse shock. These informal mechanisms have the potential to be the platform to expand access and
utilisation of formal finance particularly in rural communities. There is a clear role for publicly
provided interventions. This is because informal risk sharing mechanisms do not cover all shocks. The
premium paid may not be adequate to cover the entire financial implications of the shock. Finally, the
design of the risk-sharing institutions can result in the very poor being excluded.
Additional information:
European Report on Development
Cadmus permanent link: https://hdl.handle.net/1814/13866
ISSN: 1028-3625
Series/Number: EUI RSCAS; 2010/31; European Report on Development
Keyword(s): Shocks Coping strategies Financial institutions