Risk, Insurance and the Family

Project Outcomes Statement

In the face of risk and hardship, poor and lower middle class families in developing countries often lack the tools to weather hard times and invest for their future. Drought, illness of a family member, and other adverse shocks to income can result in undue suffering and economic losses while credit constraints and inappropriate financial products deter investments in household enterprises.

To get a finely detailed view of these households, we conducted a 20-year panel survey of households across various distinct regions of Thailand. We began with annual resurveys and then extended to monthly resurveys of subsets in both rural and urban settings. Together with other secondary data, such as government surveys, the project provides extensive documentation of actual facts on the ground. It provides financial institutions and policymakers with better information on local environments, helping to to overcome misleading stereotypes, and to document what is currently working well or not. With this data we can assess household needs for insurance, borrowing, investing, and payments. This leads to blueprints for improved financial infrastructure, utilizing innovations in fintech. The project has had international impact beyond Thailand in measurement, parallel research in other countries, and interaction with policymakers.

These are some of our main findings:

Informal networks operating at the local village level are significant in the provision of social insurance, providing assistance to some households, particularly those with kin nearby. Policymakers should not equate informal arrangements with usurious money lending.

Yet even for insurance, some groups within villages are left out and remain vulnerable, and not all shocks are covered. Cross-village and inter-regional insurance is particularly limited, missing the opportunity to pool risks.

Currency is the overwhelming device for payments, and the management of petty cash in the villages of rural areas is poor. This is a first order problem. The welfare loss is large.

Though over-indebtedness is a problem for a fraction of the population, many households have low debt/asset ratios and some productive low-risk households lack credit.

Competition among financial service providers is imperfect. Even with the presence of government-owned development banks, there are gaps in coverage, limited financial access, and inappropriate products.

Obstacles to trade and transaction costs vary across regions and urban/rural status. Economic models show that this impacts growth and inequality in the distribution of income, not only at the individual level, but all the way up to the national level.

Improvements from policy interventions are possible. The benefit of a government-funded financial institution in villages was uneven due to the method of implementation and the effects of kinship networks and migration between villages.

A life cycle planner and financial training were implemented with a subset of households. There was a beneficial effect: increased knowledge of financial products. Through the lens of life cycle models, we establish that alleviating insurance and credit constraints through better access or improved products can impact within and across generations resulting in higher income growth and ultimately reducing inequality in the income distribution.