The Demand for Crop Insurance Bundled with Micro-Credit

Abstract

Access to financial services is challenging for small farmers in developing countries. This paper studies the demand for micro-insurance when it is bundled with micro-credit in the context of rain-fed agriculture. It presents the conditions under which linking micro-insurance with micro-credit can be beneficial for small producers who cannot access agricultural credit due to lack of collateral. The results show that if crop insurance and agricultural loans are bundled, the demand for crop insurance increases with the profitability of the investment made through the agricultural credit, and it decreases with the level of collateral required during the application for credit.