0
Ensuring Inclusive Insurances?
Index-based Crop Insurance for Small-scale Farmers and the Role of
Stakeholder Involvement in Insurance Provision in Senegal
written by
Lena A. Weingärtner
in partial fulfillment of the requirements of the MSc International Development Studies (research)
11 August 2016
First Supervisor: Dr. Nicky R.M. Pouw, University of Amsterdam
Local Supervisor: Dr. Ibrahima Hathie, Initiative Prospective Agricole et Rurale Second Reader: Prof. Dr. Joyeeta Gupta, University of Amsterdam
---
Lena A. Weingärtner | Student Nr: 10863834 | Correspondence: lena.a.weingaertner@gmail.com Graduate School of Social Sciences
i
Abstract
Index-based microinsurance in agriculture is an innovative risk transfer mechanism with the potential to enhance livelihood resilience and protect agricultural investments of farmers facing weather-related hazards such as rainfall variability or droughts. Large-scale insurance provision channels are still in the process of being established and farmers’ organizations have come to feature centrally as intermediaries within these channels in the context of index insurance provision in Senegal. What the particular implications of such provision mechanisms are with regards to insurance take-up and the inclusion of small-scale farmers who are particularly vulnerable to rainfall variabilities and droughts, however, is so far unclear. This thesis thus revolves around the question of how institutional partnerships and the integration of farmers’ organizations in product development and provision influence the inclusiveness of index-based agricultural microinsurance as a livelihood risk management strategy in Senegal.
A sequential mixed methods research design, entailing the collection and analysis of interview, focus group, and survey data, was used to address this question. Results indicate that farmers’ organizations, as well as other entities such as savings groups, function as central aggregators in insurance provision. Given the capacities and networks of their leadership, these organizations have a relatively strong position in the provision channels by representing the interests of their members and regrouping large numbers of potential customers for insurance products. Access to the aggregator organization, insurance provision and activities beyond the core membership, information and communication, indirect or direct mechanisms of representation and participation, as well as support with other financial services and the decrease of liquidity constraints for premium payments were identified as central organizational contributors to the inclusion of poor and vulnerable small-scale farmers in index-based microinsurance provision and development.
These results contribute to practical solutions and theoretical considerations by outlining factors for inclusion in access to index-insurance and by advocating for larger attention to the institutional context in insurance product design, implementation, and in further research. Keywords: index-based microinsurance; agriculture; financial inclusion; risk management; resilience; insurance take-up; farmers’ organizations; mixed methods; Senegal
iii
Acknowledgements
A great number of people have supported and shaped this research and it is my pleasure to express my gratitude to them.
First and foremost, I want to thank Dr. Nicky Pouw for her supervision, as well as the appreciated input and constructive comments that she contributed throughout the process. It was a great encouragement to work with her and to know that she was always so readily available for questions and discussions in support of this research.
I am also deeply grateful to Dr. Ibrahima Hathie for providing me with feedback, his longstanding expertise in academic research, and valuable insights into the Senegalese agricultural sector and its political context. Dr. Hathie, Dr. Ba, and the entire staff at IPAR were extremely welcoming, supportive, and always ready to share their advice and valued critical questions, for which I am very thankful. It was an immense pleasure to be part of such an excellent, driven, and dynamic team of people on a professional and personal level. I also greatly acknowledge the input from Dr. Maam Suwadu Sakho-Jimbira, Madické Niang, Boubacar Seydi, and Ahmadou Ly in enhancing the methodological quality of this research with their competence during questionnaire design and pre-testing.
A special thanks is expressed to Mame Mor Anta Syll, a fellow young researcher who I got to know as a colleague and who became a great friend over the past year. He tremendously enriched the research with advice, bright ideas, dedication, an incredible work ethic, humor, and fruitful discussions and I thank him for accompanying me on this journey.
I would like to greatly thank all key informants, interview partners, survey respondents, and focus group participants that were ready to share their honest opinions, valuable information, and much appreciated input. I profoundly acknowledge the support from Sébastien Weber, Amath Cobar, Mathieu Dubreuil, Yacine Fall, Souleymane Diallo, and Sadio Thiam in facilitating research activities in the study locations. Financial support to this research was granted by the Graduate School of Social Sciences at the University of Amsterdam and by University Meets Microfinance.
Furthermore, I thank my parents, who have unconditionally encouraged and supported me throughout this research. I am also grateful to my two Amsterdam families – the Socials and the Newtons – without whom the last two years would not have been the same. Tack to Eva M. Johansson and her creativity, coffee, and companionship. Finally, thanks to Hayaan for patience, love, and putting things into perspective.
iv
Content
1 Introduction ... 1
1.1 Problem Statement ... 2
1.2 Introduction to Index-based Microinsurance in Agriculture ... 3
1.3 Relevance of the Research Topic and Case Study for Theory and Practice ... 4
1.4 Outline of Chapters ... 5
2 Theoretical Framework ... 7
2.1 Microinsurance in the Context of Inclusive Rural Development ... 7
2.1.1 Inclusive Development ... 7
2.1.2 Agriculture and Inclusive Rural Development ... 9
2.1.3 Microinsurance Take-up and Financial Inclusion ... 10
2.1.4 The Role of Governance in Inclusive Rural Development and Microinsurance 15 2.2 Sustainable Rural Livelihoods and Risk Management ... 16
2.2.1 The Sustainable Livelihoods Approach ... 16
2.2.2 Vulnerability, Rural Household Risk Management Strategies and Resilience to Weather Variability ... 17
2.3 The Role of Farmers Organizations in Microinsurance Provision ... 18
2.3.1 Farmers’ Organizations as Local Partners... 19
2.3.2 Farmers’ Organizations as Insurance Shareholders ... 20
2.4 Conclusion and Inferences ... 20
3 Research Methodology ... 21
3.1 Research Questions ... 21
3.2 Conceptual Scheme and Operationalization ... 22
3.3 Ontological and Epistemological Position ... 23
3.4 Research Location ... 24
3.5 Unit of Analysis ... 25
3.6 Mixed-Methods Research Framework ... 25
3.6.1 Data Collection ... 26
3.6.2 Data Analysis ... 28
3.7 Limitations and Ethics ... 29
3.7.1 Data Limitations and Biases ... 29
v
4 The Context of Agricultural Production and Policies in Senegal ... 33
4.1 Agricultural Production and Livelihoods in Senegal ... 33
4.2 Senegalese Policies in Agriculture, Adaptation to Climate Change, and Agricultural Insurance ... 34
4.3 Index Insurance Regulations ... 36
5 Results ... 39
5.1 Mechanisms for Index-Based Agricultural Microinsurance Provision ... 39
5.1.1 Organizations in Insurance Provision ... 39
5.1.2 Farmers’ organizations as Shareholders in the Insurance Company ... 45
5.2 Inclusiveness of Index-Based Agricultural Microinsurance ... 46
5.2.1 Factors Related to Take-up of Index-Based Agricultural Microinsurance ... 46
5.2.2 Outcomes: Factors for Inclusion in and Exclusion from Access to Coverage of Index-Based Agricultural Microinsurance ... 52
5.2.3 Processes: Inclusion in Index Insurance Development and Provision ... 57
5.3 Potential and Constraints of Index-Based Microinsurance Provision for Enhancing Risk Management and Resilience ... 61
5.4 Summary of Results ... 67
6 Discussion: Implications & Outlook ... 69
6.1 Review of the Conceptual Framework ... 69
6.2 Methodological Reflection and Outlook for Further Research on Index-Based Microinsurance ... 70
6.3 Implications for Policy-making and Implementation ... 72
7 Conclusion ... 75
References ... 79
Annex 1: International Frameworks ... 87
Annex 2: Operationalization ... 89
Annex 3: Interview & Focus Group Respondents ... 95
Annex 4: Coded Documents for Qualitative Analysis ... 97
Annex 5: Coding Table ... 99
Annex 6: Insurance Provision Systems ... 102
Annex 7: Margins Table ... 103
vi
List of Figures
Figure 1: Index microinsurance mechanisms ... 3
Figure 2: Research question and sub-questions ... 21
Figure 3: Conceptual Scheme ... 22
Figure 4: Research Locations ... 24
Figure 5: Livelihood Zones ... 34
Figure 6: Agricultural policy framework for insurance development in Senegal ... 36
Figure 7: Actors in the provision of index-based microinsurance in Senegal ... 40
Figure 8: Margins plot for trust in product Figure 9: Margins plot for product value ... 52
Figure 10: Activities for enhanced outreach and inclusion in index insurance... 59
Figure 11: Updated Conceptual Framework ... 70
List of Tables
Table 1: CNAAS index insurance portfolio 2012-2015 ... 4Table 2: Motivation for farmers to purchase index-insurance ... 49
Table 3: Reasons for not subscribing to index insurance ... 50
Table 4: Logistic regression analysis of factors related to insurance take-up ... 51
Table 5: Bivariate relation between organization membership and understanding ... 55
Table 6: Bivariate relation between location and participation in insurance processes ... 59
Table 7: Farmers’ livelihood risk management strategies for rainfall-related shocks ... 61
Table 8: Operationalization structure ... 89
Table 9: Key informant respondents ... 95
Table 10: Interview respondents (leading figures in FOs) ... 95
Table 11: Focus group respondents ... 96
Table 12: Mechanisms for index-based microinsurance provision in study locations... 102
Table 13: Marginal effects for factors related to insurance subscription ... 103
Table 14: Insurance subscription by membership in AO for Méréto ... 104
Table 15: Insurance subscription by understanding of product in Méréto ... 104
Table 16: Source of information about index insurance by membership in AO in Guinté Khaye ... 104
vii
Table 17: Source of information about index-insurance for non-members of the AO in Guinté
Khaye ... 105
Table 18: Information about index insurance by membership in Guinté Khaye ... 105
Table 19: Information about index insurance by AO membership in Méréto ... 105
Table 20: Bivariate relationship of participation in expert consultations with AO membership ... 106
Table 21: Bivariate relationship between participation in expert consultation and leadership position in AO in Guinté Khaye ... 106
Table 22: Most detrimental rainfall-related shocks experienced by respondents ... 106
Table 23: Most important livelihood risk management strategy by location ... 107
ix
Acronyms
AO Aggregator Organization
ANACIM Agence Nationale de l’Aviation Civile et de la Météorologie (National Agency of Civil Aviation and Meteorology)
CIMA Conférence Interafricaine des Marchés d’Assurances (Inter-African Conference of Insurance Markets)
CIRAD Centre de Coopération Internationale en Recherche Agronomique pour le Développenent (Center of International Cooperation in Agricultural Research for Development)
CNAAS Compagnie Nationale d’Assurance Agricole du Sénégal (Senegalese National Agricultural Insurance Company)
COPROSA Coopérative de Producteurs de Semences d’Arachide (Cooperative of Groundnut Seed Producers)
FO Farmers’ Organization
GIIF Global Index Insurance Facility
IFW Insurance for Work
IFC International Finance Corporation IRD Integrated Rural Development
LOASP Loi d’Orientation Agro-Sylvo-Pastorale (Law of Agriculture, Forestry, and Pastoralism)
MFI Micro Finance Institution
NASAN Nouvelle Alliance pour la Sécurité Alimentaire et la Nutrition (New Alliance for Food Security and Nutrition)
PANA Plan d’Action National d’Adaptation au Changement Climatique (National Action Plan for Climate Change Adaptation)
PNIA Programme National d’Investissement Agricole (National Program for Agricultural Investment)
PPP Public Private Partnership
PRACAS Programme de Relance et d’Accélération de la Cadence de l’Agriculture Sénégalaise (Program for the Acceleration of Senegalese Agriculture)
PSE Plan Sénégal Emergent
SLA Sustainable Livelihoods Approach
USAID United States Agency for International Development
1
1 Introduction
Extreme weather events have presented major challenges to agricultural livelihoods around the world. In this context, floods and droughts are amongst the most dominating natural hazards in sub-Saharan Africa (Dilley, Chen, Deichmann, Lerner-Lam, & Arnold, 2005). In Senegal, floods have been the most frequent natural disasters, while droughts have been the ones with the largest detrimental impacts in terms of the number of affected people and the value of total economic damage between 1965 and 2014 (Centre for Research on the Epidemiology of Disasters, 2016). Rainfall variability with regards to geographic differences, as well as concerning the timing between and within seasons, is thus the major concern for farmers as well as for governments viewing the agricultural sector, food security issues, and the national economy on a larger scale.
The question of how to manage these weather-related risks is crucial for farmers, as well as for actors on different levels, such as local entities, regional and national governments, and the global community. Concerns around agricultural risk management in the realms of weather and climate hence have increasingly become recognized in international agreements and recently gained momentum. In 2015, the Sustainable Development Goals highlighted the importance of enhancing resilience, particularly of vulnerable and poor populations, to environmental disasters and shocks in goals 1.5 and 13.1. Furthermore, they stated a need to focus on increasing agricultural incomes and productivity of small-scale farmers, for which access to financial services plays an important role. The Paris Agreement later that year explicitly acknowledged climate and weather-related loss and damage as an topic for attention and continued the mandate of the Warsaw International Mechanism for Loss and Damage. Potential areas of support under the Agreement entail comprehensive risk management approaches, including risk transfer through insurance or risk pooling instruments, which had also previously been outlined as important on national and local level for a decrease of disaster impacts in the Sendai Framework for Disaster Risk Reduction1. While the importance of integrated approaches to risk management, as well as mitigation, adaptation, and risk prevention, which feature centrally in the aforementioned frameworks, are recognized here, this research focuses particularly on risk insurance as one instrument that can contribute to enhancing the resilience of agricultural livelihoods, particularly concerning rural small-scale farmers through transferring weather-related risks.
1 For an overview of Agreements and their text as far as it directly addresses the topic of this thesis see Annex 1: International Frameworks.
2
1.1 Problem Statement
Considerations on practical, as well as on theoretical level are underlying and driving this research. In Senegal, agriculture is the primary activity for over 60 percent of the working population. More than 95 percent of that agriculture is rain-fed, which makes it highly vulnerable to spatial and temporal rainfall variability and droughts (Ndiaye, 2014). Small-scale farmers, especially the most societally marginalized and poorest, are generally most affected and vulnerable to such shocks, because they often have fewer resources to buffer risks, may have an overall lower level of off-farm livelihood diversification to ensure additional sources of income, often lack access to social safety nets and live in hazardous areas (Clarke & Grenham, 2012; Cooper, Dimes, Rao, Shapiro, et al., 2008; Dercon, 2006; Devereux, 2001; Levin & Reinhard, 2007; Wilkinson & Peters, 2015). Furthermore, the covariant nature of rainfall-related risks constrains entirely community-based risk management solutions. New innovative approaches, such as insurance, that are available to, and inclusive of, small scale farmers therefore have the potential to decrease the vulnerability to rainfall-related shocks and to strengthen the resilience of agricultural livelihoods. Nevertheless, there is a large gap in agricultural insurance coverage in many developing countries.
In Senegal, rural insurance markets had been difficult to establish because of lacking insurance infrastructure, generally low levels of access to financial services, and the resulting high costs of providing insurance. Index insurance lowers these costs by covering a larger amount of farmers under an index that can be captured and analyzed from a central location, instead of assessing each insurance claim on an individual basis. Nevertheless, the issue of establishing effective, sustainable, and efficient provision channels remains and may even require more support, since index insurance is not necessarily tangible and easy to understand at first contact for potential customers (see Chapter 1.2). In Senegal, community institutions, in particular Farmers’ Organizations (FOs) and savings groups, are thus integrated within the insurance provision and development mechanisms. The particular roles and implications on take-up and inclusiveness of index insurance, however, have not been extensively researched yet.
Most existing literature and theoretical approaches to index insurance and product take-up focus on either micro-, meso-, or macro-level approaches, while the role and impact of intermediary organizations in microinsurance provision requires further conceptualization and empirical analysis. Therefore, this research focuses particularly on the role of such organizations as opposed to concentrating only on individuals in microinsurance approaches.
Based on the previously introduced context, the following research question is formulated and addressed in this thesis: How do institutional partnerships and the participation of FOs in product development and provision influence the inclusiveness of index-based agricultural microinsurance as a livelihood risk management strategy in Senegal?
3
1.2 Introduction to Index-based Microinsurance in Agriculture
Traditional crop insurance for small-scale farmers has proven difficult to establish and maintain in many developing countries, partially due to the high costs of loss assessments on individual farmer level. Recently, the introduction of new innovative index insurance products, however, significantly lowered transaction costs and reduced problems of information asymmetry and moral hazard (Sandmark, Debar, & Tatin-Jaleran, 2013). Index insurance has thus increasingly provided an additional option to enhancing weather risk management for farmers in developing countries. Area yield and weather-based index insurances are triggered through a contractually predetermined threshold that correlates with farmers’ losses and that is assessed on the basis of average area yields or weather indicators in relation to a base value. The focus of this research lies particularly on weather-based index insurance that uses rainfall or vegetation data (see Figure 1).
Figure 1: Index microinsurance mechanisms
Source: Adjusted figure based on infographic by CGIAR-CCASP (Consultative Group on International Agricultural Research (CGIAR), 2015)
Despite other significant pitfalls of weather index insurance, such as relatively high needs for education and training or basis risk2, the reduced costs are expected to make index insurance more affordable for small-scale farmers (The World Bank, 2009). Besides these product innovations, the establishment of Public Private Partnerships (PPP) for insurance development and scale-up and the increasing distribution of information and communication technologies have enhanced the accessibility and availability of crop insurance for small-scale farmers in developing countries (Ferroni & Castle, 2011; Levin & Reinhard, 2007; Miranda & Farrin, 2012; Skees, 2008; White & Kane, 2012).
In Senegal, index based crop insurance has been available in specific pilot areas since 2012. Within the African context, the country is a specific case in index based crop microinsurance for two reasons. Firstly, FOs are involved as shareholders in the Compagnie Nationale d’Assurance Agricole du Senegal (CNAAS), the PPP for insurance provision. Thus they are represented in insurance outreach, as well as in the further development of the institution and its products. Secondly, the Senegalese Government grants extensive financial support through tax exemptions for the insurer and premium subsidies of 50 percent (Muller et al., 2012; Ndiaye,
2 Basis risk in weather index-based insurance represents the potential for discrepancy between index predictions
and triggers and the actual loss that a farmer experiences.
Protection of agricultural livelihood & investment
Rainfall-based
measured at stationsSatellite-based
determined by vegetation levels Pre-determined threshold triggers payouts to farmers4
2014; Sandmark et al., 2013), which is exceptional within the West African region. The subsidies are mainly intended to make insurance products more affordable for small-scale farmers and to increase their chances of taking out credit at a lower risk and thus enhancing investments in agriculture (Karlan, Osei, Osei-Akoto, & Urdry, 2014; The World Bank, 2009). Table 1 describes the development of index insurance coverage since its introduction in Senegal.
Table 1: CNAAS index insurance portfolio 2012-2015
2012 2013 2014 09/2015 Objective 2015 Number of insured farmers 2,103 8,251 12,359 18,540 20,000 Total insured value (F CFA) 6,254,300 186,395,000 397,227,700 718,419,365 750,000,000 Source: CNAAS (2016)
In an effort to increase outreach and facilitate insurance coverage, partnerships between CNAAS and microfinance institutions, community institutions such as FOs or savings groups, and developing programs have been initiated.
1.3 Relevance of the Research Topic and Case Study for Theory and
Practice
The empirical evidence and application of theoretical frameworks to the topic of index-based agricultural microinsurance, especially in a West African context, is still scarce due to the novelty of this specific type of insurance. Research findings are thus expected to generate a deeper theoretical and practical understanding on who purchases insurance and why, or why not, in order to find out whether formal microinsurance is a valid, salient, and legitimate concept (Cash et al., 2003) to assist the management of weather risks for small-scale farmers in Senegal. The thesis is thus aimed to contribute to theoretical approaches concerning risk management strategies within a larger sustainable livelihoods framework. Additionally, it adds to the broader discourse on Inclusive Development in the sense that it provides insight on the roles and functions of intermediary and aggregator organizations, in this case especially FOs, to enhance the outreach of publicly supported social security schemes as well as the inclusion of small-scale farmers’ views and needs within them.
In relation to index-based insurance in agriculture, one of the most pressing current questions is what role there is to play for the government in ensuring inclusive social security to strengthen Inclusive Development which benefits the rural small-scale farming population (Mahul & Stutley, 2010). This thesis addresses this debate through its focus on the Senegalese case, which is exceptional for Sub-Saharan Africa due to large government involvement, intensive cooperation with partner institutions and the public-private nature of the insurer (Muller et al.,
5
2012; Ndiaye, 2014; Sandmark et al., 2013). Finally, research outcomes are foreseen to provide concrete lessons for practitioners on potentials and pitfalls of collaboration between insurance providers and locally integrated organizations to strengthen the take-up and inclusiveness of index based crop insurance for small-scale farmers.
1.4 Outline of Chapters
Following this introduction, Chapter 2 introduces the theoretical framework and previous literature with regards to microinsurance in the context of inclusive rural development, sustainable rural livelihoods and risk management, and farmers’ organizations as boundary actors in microinsurance provision as a foundation for this thesis.
Subsequently, Chapter 3 focuses on methodology. It starts by introducing six research sub-questions that guide data collection, analysis, and presentation of results, as well as by showing the conceptual framework that emerged from the theory and literature review. The chapter then goes on to clarify the ontological and epistemological positioning of this research and to introduce the sequential mixed-methods design that was employed. It finishes by discussing the unit of analysis, research location, limitations and ethical considerations related to the research. Chapter 4 outlines the agricultural and policy context in which index insurance operates in Senegal. In addition, it discusses recent regulations on index insurance and their implications as relevant to this thesis.
Following the methodological foundation and relating to context, theory, and previous literature, Chapter 5 presents analysis results on mechanism for index-based agricultural microinsurance provision, on take-up and inclusiveness of insurance, and on its potentials and constraints with regards to livelihood risk management in agriculture.
Chapter 6 draws on these results to review and suggest an updated version of the conceptual framework. Furthermore, suggestions for further research, as well as for policy making and implementation, in index-based microinsurance are offered.
Finally, the concluding Chapter 7 provides a brief summary of the research, results, and recommendations.
7
2 Theoretical Framework
2.1 Microinsurance in the Context of Inclusive Rural Development
Inclusiveness, as it is used in this research, operates in two theoretical functions. The first function revolves around the concept of Inclusive Development as an outcome, while the second concerns inclusion in microinsurance as an instrument within an Inclusive Development process (Johnson & Anderson, 2012). Both aspects of Inclusive Development are discussed on a theoretical level in this chapter before addressing them analytically and empirically. The following sections introduce Inclusive Development as an approach on both levels and discuss their interrelations. Furthermore, the conceptualization and significance of agriculture and finance within Inclusive Development theory are introduced and the role of government in inclusive rural development, specifically in microinsurance provision, is theoretically framed.2.1.1 Inclusive Development
Inclusive Development emerged as an opposition to neoliberal worldviews and policies which focus on a unidimensional conception of individual human development in the form of income growth. The notion of Inclusive Development departs from an emphasis on income growth along two lines. On the one side, it rejects the unidimensional focus on economic outcomes and advocates a multi-dimensional development approach to human wellbeing. On the other side it emphasizes the importance of sustainability and social equity of development (de Haan & Thorat, 2013; Gupta, Pouw, & Ros-Tonen, 2015; Pouw & Gupta, 2015) which is manifested in the term inclusiveness. Both lines – the transition from growth to development and the increasing focus on inclusiveness in development outcomes and processes – are discussed in the following paragraphs.
Development as part of the Inclusive Development concept is based on the theoretical and empirical understanding that economic growth alone cannot adequately represent the wellbeing of a larger entity of people on macro-level or of an individual or household on micro-level. Wellbeing dimensions beyond income have broadly been acknowledged and manifested in development theory and practice, for instance in the Human Development Index (Kanbur & Rauniyar, 2010; Stiglitz, Sen, & Fitoussi, 2009). Advocates of such a broader approach to wellbeing regard its meaning as wider than this focus on material, often publicly provided, and fairly quantifiable indicators of income as well as partially education and health (Alkire, 2002). In Amartya Sen’s perspective, “development is defined as an expansion of capability, whereby capability refers to a person’s freedom to promote or achieve valuable functionings” (ibid., p. 184). Functionings, according to Sen, are beings and doings that serve as a tool or means which can be employed to enhance one’s own quality of life, while simultaneously representing an end with regards to self-fulfillment and empowerment (Sen, 2000). Development, therefore, is not understood as only an instrument to achieve certain outcomes such as for instance a certain
8
level of income or minimum education, but additionally as a process with intrinsic value in which individuals can take part to meaningfully pursue their personal aims.
Inclusiveness adds to the concept of Inclusive Development in the sense that it emphasizes the distribution of wellbeing and participation in development processes across society and over time. It builds on longer established conceptualizations of inclusive economic growth but advances it along the lines of multi-dimensional wellbeing and development concepts discussed in the previous paragraph. Inclusive economic growth as a concept addresses the issue of distribution and inequality. It thus expands on pro-poor growth approaches which postulate an increase in growth for the poor but not necessarily a decrease in inequality (Kanbur & Rauniyar, 2010). Critical economists such as Stiglitz, Chang, Fitoussi, or Rajan have argued, however, that the notion of inclusive growth according to these definitions remains within the realms of neoclassical growth theory. Instead, they have demanded more attention for sustainability and social equity, a focus on multi-dimensional wellbeing rather than on the mere creation of income growth, attention to local circumstances and an emphasis on inclusion. With regards to development, an inclusiveness approach thus entails considerations on the redistribution of outcomes as well as opportunities for participation in processes of more broadly conceived wellbeing within a range of different economic, social, and institutional domains (Quak, 2012; Rauniyar & Kanbur, 2010).
Next to human wellbeing, the theoretical grounding of Inclusive Development builds on governance and empowerment theories. Governance as a basis to Inclusive Development reaches beyond government to entail additional stakeholders such as market players and societal organizations in interactive and complex governance processes (Kooiman, 2003). Aspects of governance and wellbeing are thus closely related to theories of voice and empowerment in terms of enabling people to make free choices, to create or access opportunities, to control their lives and livelihoods and to participate meaningfully in society (Gupta et al., 2015). A precondition to empowerment is the responsiveness and accountability of institutions towards vulnerable and poor people, as well as people’s participation in processes of governance and decision-making. In this view, the capacity of local organizations, access to information, and accountable institutions constitute the potential for constraining or enhancing the agency and opportunity structures of poor and marginalized people. Inclusive Development, in turn, supports empowerment through expanding people’s capabilities and assets for strengthened self-determination, as well as societal participation and interaction with institutions (Narayan, 2002).
Inclusive Development is therefore defined as “development that includes marginalized people, sectors and countries in social, political and economic processes for increased human wellbeing, social and environmental sustainability, and empowerment” (Gupta, Pouw & Ros-Tonen, 2015, p. 546). In a similar understanding, Johnson & Anderson (2012) relate Inclusive Development to social exclusion as its counterpart. Following their conceptualization, socially excluded, or marginalized, people are placed at the center of attention for inclusion within Inclusive Development approaches. Social exclusion is understood as one dimension of poverty and thus a capability deprivation that is instrumental as well as constitutive (Johnson & Anderson, 2012; Sen, 1999, 2000) and therefore represents mechanisms and outcomes running contrary to that
9
of Inclusive Development. The emphasis on social exclusion as a counterpart therefore raises questions on who is excluded from development processes and outcomes and on which grounds (Johnson & Anderson, 2012).
To enhance theoretical and analytical understanding in this regard, Sen (2000) suggests a classification of types and mechanisms of social exclusion along two dimensions – firstly instrumental and constitutive or intrinsic exclusion, which corresponds with the constitutive and instrumental value of capabilities, and secondly active and passive exclusion. Active exclusion describes the deliberate suspension from development processes and outcomes, while social processes without deliberate exclusion attempts result in passive exclusion. Thus social exclusion and inclusion are relational, which means that they emerge to large parts from social interactions and relations that fundamentally depend on formal and informal institutions. The type of existing institution, as well as the ways and means by which they themselves include or exclude people, are thus crucial for Inclusive Development more generally (Johnson & Anderson, 2012; Mosse, 2010).
2.1.2 Agriculture and Inclusive Rural Development
Many developing countries, including Senegal, feature agricultural sectors that employ large parts of the population, especially in rural areas. Recent theoretical and empirical literature has emphasized the important role of agricultural progress for absolute and relative poverty alleviation and (rural) development, especially amongst the poorest population shares, with important implications for livelihoods, local food security, and enhanced possibilities for income diversification (Byerlee, de Janvry, & Sadoulet, 2010; Christiaensen, Demery, & Kuhl, 2010; Cooper, Dimes, Rao, & Shapiro, 2008; Datt & Ravallion, 1998; Dethier & Effenberger, 2012; Mellor, 2001; Ravallion & Datt, 1996). Consequently, the advancement and resilience of agriculture has a large potential to increase Inclusive Development more broadly. This is most directly the case for rural areas, while large-scale and long-term development effects of agricultural growth through intensification and structural transformation and their dependence on linkages between modern and traditional sectors and macroeconomic policies are more contested within existing literature3. Nevertheless, the role ascribed to agriculture within rural development theory generally largely depends on specific theoretical and practical approaches to rural development as well as on the conceptualization of larger macroeconomic circumstances and policies such as comparative advantages and openness to trade (Christopher B. Barrett, Carter, & Timmer, 2010; Dethier & Effenberger, 2012).
These approaches, and thus the role of agriculture within them, have immensely changed during the past decades. In the 1950s and 1960s, community based strategies for rural development, including the joint responsibility for the management of community resources based on the diffusion of technology and decentralization to promote self-help approaches were the dominant concept and strategy to enhance rural development. Issues such as limited community resources, persisting power structures and traditional elites, however, restricted the effect of
3 For a more detailed review and discussion of the literature see Dethier & Effenberger (2012) and Barrett et al.
10
community programs on more Inclusive Development. Disillusion with expected trickle-down effects in the 1970s, triggered by decreasing economic growth in developing countries, led to a shifting focus on active poverty reduction efforts in Integrated Rural Development (IRD) approaches. IRD programs, however, were largely unsuccessful due to their neglect of locally specific contexts, power structures, and constrains of small farmers, a lack in participation, as well as their unsustainably high costs. During the 1980s, support for IRD programs thus sharply decreased and shifted towards more isolated sectoral development approaches and higher market orientation accompanied by a decrease in government intervention. These approaches presented severe obstacles to small-scale farmers because they struggled to integrate in the new markets and faced difficulties in privatized service provision due to small or missing service markets and high costs of provision to rural areas. These issues thus raise questions on the role and governance of government, the private sector, and civil society in enhancing Inclusive Development within agriculturally dominated rural societies and economies today (Dethier & Effenberger, 2012).
The following sections therefore discuss inclusion in microinsurance as a livelihood risk management strategy in the context of inclusive rural development and subsequently conceptualize the role of governance in advancing Inclusive Development more generally as well as with regards to risk management and microinsurance provision more specifically.
2.1.3 Microinsurance Take-up and Financial Inclusion
In conceptualizing different scales of index insurance provision, Miranda and Farrin (2012) classify index insurance products into micro, meso, and macro4 approaches. Micro-level index insurance is held by individual farmers and supports production risk management on farm-level. Meso-level index insurance is directed at “businesses that provide financial intermediation to large groups of farmers (such as banks, input suppliers, processors, and cooperatives) who wish to protect the integrity of the loans or other financial and marketing arrangements that exist between them and their farmer clients” (ibid., 393). The central distinction between both products is thus whether individuals are insured to protect his or her own production and agricultural investment, or whether an institution aims to protect its portfolio.
Micro-level index insurance as a risk transfer mechanism in agriculture is related to a range of particular issues that affect its functioning and the take-up of insurance on a larger scale. Very prominent amongst these issues is basis risk, the potential discrepancy between a farmer’s actual losses and the index-based indemnities. In addition, market development for index insurance products in agriculture require intensive education and training efforts in order to inform farmers about the relative benefits, costs, and limitations of index insurance products. Furthermore, in the absence of efficient pre-existing financial service structures, the development of insurance delivery channels poses a challenge to market development and insurance take-up. As Miranda and Farrin (2012) note, the strength of the relationship of insurance marketing with farmers “(…) can be quite varied, raising questions about the general
4 Due to their distinctive character resulting from the large scale and central management of the contract, premium
11
applicability of market development strategies that rely on established marketing channels” (ibid., p. 410). Partially related to these issues, many index insurance programs have noted take-up rates far below their initial expectations and experienced difficulties to scale-take-up insurance provision (de Bock & Gelade, 2012).
Meso-level index insurance is affected to a smaller extent by most of these issues. Basis risk and idiosyncratic risks are less pronounced in this context, especially if the financial institutions or organizations are large, because they can diversify their portfolio to include farmers in different geographic and micro-climatic areas with various products and production methods. Furthermore, institutions with previous experience as a financial intermediary may have lower requirements as compared to individual farmers with regards to education and training on the functioning and issues of index insurance. At the same time, meso-level insurance is much more complex than individual contracts and the holistic management of loan portfolio risks can represent a challenge to Microfinance Institutions (MFIs), because “many rural lenders in developing countries lack a culture of active risk management practices that employ insurance, reinsurance, and derivative products” (Miranda & Farrin, 2012, p. 411).
While this distinction between the micro and meso levels is useful for the classification of index-insurance approaches, it misses an additional form of insurance provision that has been applied already within pilot programs in practice. In more hybrid forms of index insurance, certain institutions such as FOs, informal financial groups, or MFIs act as aggregators for individual insurance policies that they manage for farmers. Instead of directly covering their own portfolio, the institutions thus provide insurance policies to their individual members or customers. Nevertheless, the institution can cover agricultural production and investments of individual farmers, while at the same time indirectly enhancing the management of its own organizational or financial risks. This is for instance the case when an insurance payout increases the capacity of farmers to repay their loans from MFIs in an agricultural season with inadequate rainfall or when farmers’ contributions to an organization or a cooperative can be paid due to indemnifications, thus supporting the organizations’ stability.
At the same time, the integration of aggregators into insurance provision can make use of some of the advantages of meso level approaches and overcome issues of the micro products. This concerns particularly the establishment of efficient insurance distribution mechanisms and the potential to train and educate individuals on index insurance through the structures of the organizations. Institutions such as MFIs, FOs, other NGOs, or community organizations can thus be considered as aggregators in microinsurance, when they bundle and manage insurance contracts and carry out or facilitate education and trainings on index insurance, provided that the individual farmer remains the policy holder.
Churchill (2007) defines microinsurance as insurance that is specifically targeted at low-income populations or more generally at people who do not have access to appropriate mainstream insurance products, which generally applies to the Senegalese agricultural sector. The concept of inclusiveness introduced in the previous sections entails the specific enhancement of capabilities for marginal and deprived parts of society, thus overlapping with this conceptualization of microinsurance. In the Senegalese agriculture and microinsurance policy
12
context there is a specific focus on small-scale farmers (The World Bank, 2009), which entails commercial as well as subsistence farmers and therefore large parts of the low-income population. Building on the theoretical discussion in Chapter 2.1.1, inclusion of small-scale farmers in crop microinsurance in this research is regarded as an expected outcome from two interrelated components, which both give prominence to organizations as intermediaries between small-scale farmers and the insurance provider. The first component focuses on insurance provision outcomes in terms of coverage and delivery of index insurance and inclusiveness in outreach, use, and thus potential benefits of agricultural insurance products in terms of enhanced wellbeing and resilience through the involvement of organizations in insurance provision. The second component highlights inclusion in processes, that is participation and responsiveness for product development and provision in order to more directly address small-scale farmers’ needs for support with regards to resilient livelihoods (see conceptual scheme in Chapter 3.2). Especially the latter component thus strongly relates to the voice and empowerment string of theory within Inclusive Development (Gupta et al., 2015). Existing literature on take-up, access, and impact of index-based agricultural microinsurance on farmers and rural communities is concentrated mainly within one of two broader perspectives. The first focuses on small-scale farmer households, their understanding of and behavior towards climate risks, and the livelihood strategies that they employ to manage them (Clarke & Grenham, 2012; A. G. Patt & Schröter, 2008). The second perspective emphasizes the distribution of and access to insurance by building on Prahalad´s (2014) “bottom of the pyramid” concept to reaching a new market of potentially profitable low-income customers from a commercial angle (Prahalad, 2014). These two approaches represent what Churchill (2006) names “the two faces of microinsurance” (p. 16) – on the one side the focus on social protection and benefits for local individuals, households, and communities, and on the other side the commercial focus from a private sector perspective. Both approaches have been applied to address and study the inclusiveness of marginalized groups in microinsurance.
Previous research that focuses particularly on index microinsurance in agriculture generally regards the take-up of insurance products as a function of (financial and physical) accessibility, understanding, value, trust, or a combination of those factors (Clarke & Grenham, 2012; Dercon, Kirchberger, Gunning, & Platteau, 2008; Patt, Suarez, & Hess, 2010; Sandmark et al., 2013). Large shares of the existing literature thus assume that insurance is freely available on the market and that the decision for insurance take-up is subject to the individual farmer. The most common theoretical approaches to explain demand for insurance under this assumption in the academic field are the theory of expected utility, prospect theory, and behavioral theories (de Bock & Gelade, 2012).
Expected utility theory assumes that maximizing utilities is the motivation for people “when deciding whether or not to purchase the insurance product” (ibid., p. 3). In this classical framework, risk aversion increases the value of insurance to clients and is thus a driver for insurance demand. Based on this reasoning, Patt et al. (2009) argue that poorer people are more risk averse, because their certainty equivalents are lower and are situated on a level where peoples’ basic needs for food consumption and existence depend on them. The perceived value of insurance, and hence demand, is thus expected to be higher for poorer individuals. When
13
farmers perceive a risk of failure to payout due to default by the insurer, distrust between farmers and the insurance provider or basis risk, however, this expectation does not hold. Risk averse individuals, in these cases, are thus less likely to purchase microinsurance products because of the related uncertainties (Clarke, 2011a; de Bock & Gelade, 2012; Dercon, Gunning, & Zeitlin, 2011). Furthermore, poorer households are more affected by liquidity constraints and related issues concerning premium payments, which may increase the demand for insurance by wealthier individuals in relation to poorer ones. There is thus no clear inference from expected utility with regards to the effect of wealth on microinsurance take-up (de Bock & Gelade, 2012). Prospect theory departs from the rational utility maximization and takes behavioral explanations into account. It implies that “in the domain of losses – which is the relevant domain in the context of insurance – individuals are risk averse for the worst outcomes and risk-seeking otherwise. (…) [I]t is the overweighting of the worst events which makes insurance valuable” (ibid. p.10-11; Wakker, Thaler, & Tversky, 1997). In prospect theory, perceptions of risks and the level of protection from insurance coverage are thus crucial and decisive for insurance take-up. Furthermore, the overweighting of worst losses means that, “unlike in expected utility theory, the framing of a change in wealth matters: feeling that a loss of a certain amount has been avoided gives more utility than simply gaining the same amount” (de Bock & Gelade, 2012: p.10).
Additional behavioral explanations beyond prospect theory and loss aversion revolve around ambiguity aversion, that is a tendency to avoid uncertainties related to purchasing insurance, preferences for present consumption, and mental accounting (de Bock & Gelade, 2012). Furthermore, individuals may have a bias towards preserving the status quo, meaning that people tend to maintain situations when they have to take decisions, for instance concerning insurance take-up (McCord, Magnoni, & Zimmerman, 2012). As Cai, de Janvry, and Sadoulet (2011) find, changes in the status quo, such as switching from a mechanism where farmers have to decide to buy insurance to a mechanism where they have to decide not to purchase it, thus influence the demand for microinsurance. Reduced transaction costs for insurance subscription can further increase demand in this context (de Bock & Gelade, 2012; Thornton et al., 2010). Empirical literature supports potential limitations for insurance demand resulting from risk aversion (Cole, Stein, & Tobacman, 2011; Dercon et al., 2011). “When insurance is considered risky in itself, its usefulness as a risk-coping instrument is limited, and the most risk-averse who should benefit most from insurance do not even purchase it. Nonetheless, by reducing ambiguity about the product and increasing trust in the insurer, it seems possible to recover the basic result that insurance is valued, and purchased, most by more risk-averse individuals” (de Bock & Gelade, 2012: p. 13). Trust is conceptualized by Patt et al. (2009) on three different levels: trust in the insuring institutions, trust in the product, and trust among agents. With regards to institutions, Patt et al. (2009) find that those organizations which farmers themselves are members of are also the ones they trust the most. This trust increases with the time that a farmer has made experiences with the respective organization.
In this context, Trærup (2012) also emphasizes the importance of integrating index insurance into previously existing formal and informal structures and strategies to increase trust,
14
understanding and the inclusion of marginalized populations in risk management in developing countries. Furthermore, integration and stakeholder collaboration can enhance credibility, salience, and legitimacy with regards to scientific adequacy, meeting local farmers’ needs, complex livelihood structures, and divergent beliefs and values (Cash et al., 2003). The conducive role of stakeholder networks to the dissemination and understanding of climate forecasts, as well as enhanced trust and risk perception through institutional farmer-stakeholder relationships, has been supported by previous research (Patt et al., 2010; Ziervogel & Downing, 2004). Nevertheless, insurance diverges from climatic information in the sense that farmers need to trust the institution in order to pay premiums without experiencing an immediate return. Furthermore, an understanding of the probability that they will experience a loss is crucial and thus poses additional challenges to policy makers, insurance providers, and stakeholders when addressing people with lower levels of education and limited financial literacy (Patt et al., 2010).
The previous discussion of literature demonstrates the relevance of applying Sen’s (2000) dimensions of social exclusion to the case of microinsurance and its implications in an Inclusive Development framework. Exclusion from microinsurance in agriculture as part of a larger development process and a tool to secure farmers’ livelihoods can thus be understood as the result of active or passive exclusion. In the case of index-based agricultural microinsurance, active exclusion can for instance be caused by the restriction of insurance to certain crop varieties, specific geographical areas, or limitations regarding farm sizes. Passive exclusion concerns for example a lack of monetary assets to pay insurance premiums or low levels of available information and education that prevent an understanding of the insurance product and its efficient use (Patt et al., 2010). In addition to these structural modes of non-voluntary exclusion, people might choose to voluntarily exclude themselves from insurance schemes for a range of reasons. These include, for instance, the utilization of alternative risk management strategies and networks and thus irrelevance of the insurance service or cultural and religious institutions that provide alternative rules and values for dealing with livelihood risks (Beck & Demirgüç-Kunt, 2008). Understanding the nature of social exclusion regarding microinsurance is additionally important in Sen’s (2000) second dimension concerning the instrumental or constitutive role of inclusion. Microinsurance serves an instrumental function for example as a tool to enhance the management of livelihood risks emerging from climatic variability (see also section 2.2.2) and as a means to prevent credit default thus allowing for higher investments in agricultural inputs or livelihood diversification. Index-based agricultural insurance is thus a means to decreasing vulnerabilities and enhancing livelihood resilience for small-scale farmers – representing a safety net against falling into (deeper) poverty – while at the same time covering and enabling agricultural investments – providing a means for moving out of poverty and freeing up assets to increase chances for higher financial return in the future (Ali & Zhuang, 2007; Barrett, Reardon, & Webb, 2001; Sandmark et al., 2013).
Being involuntarily excluded from access to and use of microinsurance therefore limits a person’s opportunities to directly enhance his or her financial wellbeing and capabilities and consequentially possibly restricts quality of life in other dimensions. Additionally, exclusion means a restriction on the inherent value of participation in microinsurance through outsourcing
15
risks and empowerment. Such inherent values can for instance be reduced psychological strains through lower existential fears or higher independence from moneylenders or acquaintances. The preceding discussion indicates at the multilevel factors that relate to inclusion in, and exclusion from, insurance in the sense that these can derive from broader environmental, institutional, and structural contexts, as well as from community or individual characteristics. Furthermore, the multidimensionality of inclusion in index insurance was outlined.
2.1.4 The Role of Governance in Inclusive Rural Development and
Microinsurance
It remains highly contested in the field of Inclusive Development how sustainability and an increased social equality can be achieved and what role governments need to play in the context of governance for resilience and risk management. The inclusive growth literature suggests investment in human capital, promotion of institutions and policies to advance economic and social justice and equal opportunities, and social safety nets for the prevention of extreme deprivation as government points of intervention (Ali & Zhuang, 2007). These notions are equally relevant for more broadly conceived wellbeing and this research specifically revolves around the latter suggested government action. Social protection or safety nets can be broadly categorized into short-term non-universal relief projects addressed to specifically vulnerable groups, longer-term and non-universal social protection policies, and long-term redistributive mechanisms with universal coverage (Pouw & Gupta, 2015). The typology thus covers the spectrum from unidimensional growth focused approaches with ex-ante temporary income reallocating politics towards long-term societal inclusion through redistribution and enhanced equity aimed at empowerment and increased multidimensional wellbeing of marginalized shares of the population. In this typology, publicly provisioned or subsidized index-based agricultural microinsurance represents long-term social protection which is non-universal in the sense that it is directed specifically at farmers of certain crops in certain regions, may be subsidized to reach higher affordability for the poorer amongst them and thus actively promotes social equity. How and why governments can strengthen Inclusive Development, which benefits the rural small-scale farming population, through support to microinsurance is extensively discussed by Mahul & Stutley (2010). They specifically emphasize a range of reasons why government should support the provision of agricultural insurance in developing countries. These include a lack of existing insurance markets and infrastructure support, especially with regards to agriculture, on the supply side of insurance. Governments may contribute such infrastructure in the form of databases or agricultural risk models for enhanced risk assessments and product provision by insurers (Mahul & Stutley, 2010). As Dethier and Effenberger (2012) note with regards to agricultural innovation more generally, “[p]rivate expenditure for agricultural [Research and Development] is very low in developing countries and public provision of research and extension services is essential if innovative new technologies are to reach smallolders” (p. 193). Provision of infrastructure can additionally help to reduce information asymmetries faced by insurers as well as issues of moral hazard. Consequently, transaction costs are reduced, making insurance more affordable and sustainable. Furthermore, governments can function to cover systemic risks and help to attract or
16
supplement international reinsurance markets. On the demand side, governments can enhance risk awareness and understanding of insurance products through market support, education, and promotion, making insurance more attractive compared to less efficient post-disaster relief programs. In order to further increase demand, lowering insurance premium prices for farmers through public subsidies is an additional key role for government in index insurance provision. As Clarke (2011) argues, many index insurance products that are not subsidized, are indeed too expensive when farmers aim to maximize utilities. Finally, governments need to set a regulatory framework enabling the development and implementation of innovative insurance products in agriculture (Mahul & Stutley, 2010). Beyond government, the roles of private sector actors and civil society are crucial in the governance of agricultural risk management, which is manifested in PPP approaches for risk transfer in the Senegalese context (Ndiaye, 2014).
2.2 Sustainable Rural Livelihoods and Risk Management
2.2.1 The Sustainable Livelihoods Approach
5The Sustainable Livelihoods Approach (SLA) is closely linked to the notion of Inclusive Development. It focuses on the concepts of capability, social equity, and sustainability in a similar way and draws heavily on writings by Amartya Sen (1999) as well as Robert Chambers and Gordon Conway (1991). Chambers and Conway define a livelihood as comprising “(…) the capabilities, assets (stores, resources, claims and access) and activities required for a means of living: a livelihood is sustainable which can cope with and recover from stress and shocks, maintain or enhance its capabilities and assets, and provide sustainable livelihood opportunities for the next generation; and which contributes net benefits to other livelihoods at the global levels and in the short and long term” (Chambers & Conway, 1991, p. 6). This definition implies the complexity of the SLA and emphasizes the diversity of interactions and activities that people combine in their portfolios in order to make and keep a living (Scoones, 2009). What a broader livelihood perspective thus adds to the inclusiveness focus is specific attention to the question of what kinds and combination of actions people undertake on a micro-scale level, i.e. as individuals or households, in order to enhance their quality of life on multiple dimensions and to manage risks that threaten the sustainability and resilience of these livelihoods. It highlights the agency of people to meaningfully make use of opportunities, capabilities and assets at their disposal, and devotes relatively less attention to structural factors and constraints which are central for inclusiveness approaches. The SLA, especially its sustainability and risk management dimension, is a valuable additional theoretical and analytical lens to research on index-based agricultural microinsurance for the rural poor because it is based on considerations of capabilities and opportunities which are available to individuals or households in order to manage livelihood risks. In relation to microinsurance, it emphasizes the agency of the rural poor to use the service according to their needs when they have access to it, to integrate it within
5 Parts of this sub-chapter are excerpted from my own work in “Mobile Banking and the Livelihoods of the Rural
Poor: Analyzing financial inclusion and the use of mobile financial services in the case of Kenya”, Final Paper for the course Theories, Issues, and Debates in International Development Studies, submitted on 24 April 2015.
17
their larger risk management portfolio, and to use it as a tool for empowerment, allowing for the intensification or diversification of livelihood strategies through freed assets.
2.2.2 Vulnerability, Rural Household Risk Management Strategies and Resilience
to Weather Variability
Of particular relevance for this research is the risk management dimension within the SLA and the question what portfolio of strategies rural households, especially farmers, employ to enhance the resilience of their livelihoods. The concept of resilient livelihoods focuses on complex, diversified and dynamic strategies that individuals or households employ to make and keep a living, taking into account the uncertainty that results from future shocks, stresses and possible lasting changes (Scoones, 2009). It thus emphasizes the capability to employ livelihood opportunities as well as to cope with shocks and stress (Chambers & Conway, 1991; Sen, 1999). In the context of this research, resilience is defined as the ability of a socio-ecological system, i.e. rural agricultural society and production, to undergo changes and mitigate external stress and shocks while preserving its essential properties (Scoones, 2009). A specific focus is here placed on the social, rather than the ecological, dimension of resilience and sustainability. Concerning the case study in Senegal, this implies primarily a social, economic, and institutional adaptation to the local context of high spatial and temporal variability of weather, including rainfall, which small-scale farmers have been undertaking through the means of extensive but resistant agricultural production and livelihood diversification (Muller et al., 2013). Over the previous decades, however, weather conditions have become increasingly challenging to farmers, confronting them with higher frequencies of within or between season rainfall variability, including periods of drought (Muller et al., 2012). Crop production risks have thus increased for rain-fed farming.
A major strategy that people have employed to cope with such conditions is livelihood diversification, i.e. an expansion of the range of actions a household or an individual pursues to generate assets and to handle insecurities and the variability of income related to rain-fed small-scale farming (Devereux, 2001; Narayan, Pritchett, & Kapoor, 2009; Scoones, 1998). Generally, livelihood risk management strategies in agriculture entail personal ex-ante risk mitigation, which includes off-farm income diversification or the cultivation of crops with low returns but low risk at the same time. The latter strategy, although effective, is often economically inefficient and thus potentially constrains farmers’ livelihoods opportunities (Dercon, 1996; Devereux, 2001). Additionally, people engage in ex-post coping strategies in response to shocks or harmful events, presenting a trade-off between long-term personal and economic viability and short-term consumption. Such responses include immediate action as for instance limiting consumption or using up liquid savings in the form of cash or lumpy assets, such as livestock, and later draw on selling existing material goods or resorting to distress migration in the case of a failure to cope through other means.
Furthermore, community support systems can help rural populations to deal with risks through informal safety nets that bundle financial as well as social capital. In case of environment related shocks, however, such informal networks often have limited impact, because “informal
18
transfers are heavily concentrated among the poor themselves and they are not robust in the face of covariant shocks” (Devereux, 2001, p. 513; Narayan et al., 2009). Market-based as well as public social protection (as discussed in Chapter 2.1.4) can overcome these issues and pool risks on a larger level. In this framing, index-based crop insurance is therefore understood as an additional innovative service which can be used by farmers to diversify their risk management strategies. On a larger scale, it is thus expected to enhance the resilience of rural livelihoods more generally. Most crucially, however, this effect depends on the capacity to include small-scale farmers within microinsurance services.
