The poor and their management of shocks

Type Report
Title The poor and their management of shocks
Publication (Day/Month/Year) 2009
Publisher IRIS Center, University of Maryland
City College Park, MD
Country/State United States of America
This paper, based on a survey of 2,459 households in rural Malawi, documents the major types of negative shocks observed, and the determinants of the use of coping devices, to understand the roles played by external finance and social networks. Almost all households were exposed to some idiosyncratic shock. Access to savings was associated more with the use of savings as a coping device than with the access to loans for the use of loans as a coping device. Borrowing money, if used as a coping tactic, was almost exclusively from informal sources. There are some initial indications that with increased access to formal finance, especially savings services, the use of coping devices to deal with shocks could be increased and irreversible asset depletion, which may lead to reduced household welfare in the long run, could be averted. Also of note is that significant expenses were incurred to pay for education and funerals. These expenses were met through cash savings kept at home and/or with external agents.

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