A new study from rural Nepal shows that when people have higher aspirations, up to a point, they tend to make greater investments toward a better future. However, when aspirations are too high compared to one's current status, those investments are most likely to fall.
The typical challenges of basis risk and low uptake have plagued index insurance products for years, but AMA Innovation Lab researchers are crafting solutions by designing innovations around the structure of the insurance contracts.
A deeper understanding of what causes the poor to be reluctant to plan, save and invest in their future may provide valuable insights into designing interventions that address the source of the problem, not just the symptoms, to create lasting change.
Because the VISA Model uses savings groups to aggregate small purchases into one larger purchase, and to pass on to the insurance company, the operating costs of the company are reduced and the sales increased.
In the wake of the earthquake, Heifer Nepal deployed a 3-fold response: immediate relief, livestock-related relief, and implementation of a revolving fund that established interest free loans to affected Heifer beneficiaries.
By adapting traditional financial products delivered by microfinance institutions, and making them more flexible to meet the needs of farmers and rural inhabitants, many of these challenges faced by index insurance can be overcome.
Our first round results have already shown that farmers switch to riskier, higher-yielding crops from droughtresistant crops after the formal insurance product is offered to them, indicating that index-based insurance may be a cost-effective and viable policy response to address this major constraint to growth