Tropentag, October 5 - 7, 2004 in Berlin "Rural Poverty Reduction through Research for Development and Transformation"

New Ways for Rural Finance: Livestock Insurance Schemes in Vietnam

University of Hohenheim, Institute of Agricultural Economics and Social Sciences in the Tropics and Subtropics, Germany

Abstract

Livelihood systems of poor rural households are often so fragile that a small misfortune can destabilize the households for years. Risk coping strategies include informal mutual aid agreements and/or formal micro-insurance schemes. In developing countries, insurance markets are usually underdeveloped. Nevertheless, if the development path is supported by strong structures and institutions, anonymous markets will over time replace informal insurance networks as they are more efficient. In Vietnam, livestock is an important household income source and has additional non-economic functions in the households. Rural financial institutes in Vietnam financed for a long time only a small array of agricultural investments, but frequently including livestock purchase. The absence of off-farm investment possibilities further promotes the investment into livestock production. Failure of an investment, especially when loan-funded, can leave a household in an extremely vulnerable position.

Livestock death is considered to be a main factor contributing to poverty. Farmers using credit to purchase livestock face two risks at once: 1. loosing the livestock due to disease and subsequently 2. failure of investment. Farmers would like to reduce the uncertainty. Nevertheless, a formal agricultural insurance market hardly exists in Vietnam and farm households have to rely mainly on informal mutual aid schemes of social networks to reduce their risks. The objective of this paper is to contribute to the discussion on the general feasibility of a livestock insurance scheme in Vietnam. In this context the supply of livestock insurance schemes is discussed. Qualitative data collection took place between 2001 and 2004. Four different types of insurance providers were selected for analyzing the supply side: 1. Insurance tied to credit within a state owned company, 2. Insurance tied to credit within a development project, 3. A state owned insurance company, 4. A private insurance company. By selection of these different insurance providers the variance of livestock insurances offered in Vietnam was covered. The main result is that offering sustainable livestock insurance is mostly hampered by unreliable data on livestock mortality and by politically low set premiums.

Keywords: Livestock insurance, micro-insurance, rural finance, Vietnam

Contact Address: Thomas Dufhues, University of Hohenheim, Institute of Agricultural Economics and Social Sciences in the Tropics and Subtropics, Germany, e-mail: tdufhuesuni-hohenheim.de