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Poverty and Shocks: why insurance/safety nets can be an answer

Poverty and Shocks: why insurance/safety nets can be an answer. LEAP* Workshop Jan 21, 2008 Ulrich Hess, Chief of Business Risk Planning. * L ivelihoods + E arly A ssessment + P rotection. AGENDA. Poverty and Shocks Getting out of poverty Peoples approaches

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Poverty and Shocks: why insurance/safety nets can be an answer

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  1. Poverty and Shocks: why insurance/safety nets can be an answer LEAP* Workshop Jan 21, 2008 Ulrich Hess, Chief of Business Risk Planning *Livelihoods + Early Assessment + Protection

  2. AGENDA • Poverty and Shocks • Getting out of poverty • Peoples approaches • Roles of social protection and insurance

  3. Poverty and Shocks • Poverty is about lack of • means • access • opportunities • Shocks can be • Independent: health, life • Correlated: weather, price • Recurrent yet unpredictable • Pervasive: one event puts livelihood at risk • Persistent shocks can trap people in poverty

  4. Getting out of Poverty means… • Generating surpluses • For capital and/or skill accumulation to achieve sustainable income growth • How do people get there? Two archetypical approaches: • The Entrepreneur • The Security seeker

  5. The Entrepreneur(“Where is profit?”) • Foregoes consumption • Saves start-up capital • Invests in education or information • Takes measured risks • Applies fertilizer/quality seed • Makes deals by transforming information and/or stuff

  6. The Security Seeker(“Where is pain?”) • Foregoes consumption • saves for tomorrow • Invests in social networks • Avoids risk • Applies the more drought resistant local seed • Diversifies crops and income sources

  7. Social Protection • Protects both from destitution risk and therefore reduces peoples’ “insurance savings” = less foregone consumption • Allows security seeker to balance his portfolio of activities • Enables entrepreneur to put more capital at risk

  8. Insurance • Protects against losses = more measured risk taking: • Allows the security seeker to take out small weather risk free loans for seed (WI helps supplier) • Allows the entrepreneur to invest in new technology and businesses (WI helps banker)

  9. Conclusion: Protect people and their profits against recurrent shocks • People are both entrepreneurs and security seekers • Social Protection against pain, insurance for profit • People need both instruments to get out of poverty!

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