Paper: The Impact of Index Insurance on Risk Taking Under Individual and Joint Liability Loan Contracts

Index insurance backed contingent credit offers considerable advantages over standalone insurance policies in improving farmers’ access to agricultural credit. However, research on demand for such products and their impact on profitable investment decisions has been limited and has yielded conflicting results to date.

This article investigates the impact of insurance backed contingent credit on demand for credit and investment decisions using a framed field experiment conducted in rural Tanzania. The results show that insurance-backed contingent credit increases demand for credit as well as increases high-return investments significantly. Furthermore, these effects hold under both individual and joint liability loan contracts and increase in borrowers’ degree of risk aversion.

See the most recent version of this paper.