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Effect of index-based livestock insurance on loan uptake: Evidence from the Borena zone of Southern Ethiopia

Tnsue Gebrekidan (Chinese Academy of Agricultural Sciences, Beijing, China) (Ethiopian Civil Service University, Addis Ababa, Ethiopia)
Lyu Kaiyu (Chinese Academy of Agricultural Sciences, Beijing, China)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 25 July 2019

Issue publication date: 2 September 2019

Abstract

Purpose

The purpose of this paper is to weigh up the effect of index-based livestock insurance (IBLI) on loan take up behavior of the pastoral households in the Borena zone of Southern Ethiopia. Although the insurance was introduced over the last decade and it appears to have promising welfare benefit, there is a lack of pragmatic evidence on its effect in leveraging the household’s future wealth for the hope of better productivity in the present.

Design/methodology/approach

The authors analyze household-level unique panel data collected in three rounds using descriptive statistics and the fixed effect model estimated by least squares dummy variable analysis.

Findings

The authors found that the IBLI appears to have a positive and significant effect on the loan uptake behavior of the herding households.

Social implications

This increased likelihood of loan uptake suggests that the insurance can reduce the cognitive cost of loan default that would occur due to weather shocks and build-up of the household’s confidence to uptake loan. Consequently, this likelihood can promote the creditworthiness of the insured and reduce his/her fear and worry regarding the possibility of loan delinquency.

Originality/value

The paper is, except where otherwise stated, entirely new work.

Keywords

Acknowledgements

This paper was supported by the Programs “Research on Farmers’ Agricultural Insurance Purchasing Behavior and Risk Management under Climate Chang” (No. 71373264), “Research on Land Operation and Investment Behaviour and Soil Quality Improvement under Context of Land Transfer” (No. 71573262), both funded by the National Natural Science Foundation of China (NSFC), and The Agricultural Science and Technology Innovation Program (No. ASTIP-IAED-2018-03).

Citation

Gebrekidan, T. and Kaiyu, L. (2019), "Effect of index-based livestock insurance on loan uptake: Evidence from the Borena zone of Southern Ethiopia", Agricultural Finance Review, Vol. 79 No. 4, pp. 426-442. https://doi.org/10.1108/AFR-09-2018-0078

Publisher

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Emerald Publishing Limited

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