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AbstractRural microfinance must contend with the triple challenges of isolation, small‐scale transactions, and risk. These challenges result in information asymmetries and transaction costs that render markets for financial services costly or missing. This paper examines how emerging digital technologies (e.g., mobile money, digital credit scoring, and earth observation) can reshape rural markets for savings, credit, and insurance services, especially in developing countries. Although our synthesis of the literature suggests reason for hope in all three domains, the imperfections of these digital technologies require evaluation and oversight if the resulting rural financial system is to be more efficient and equitable than its predecessor.JEL CLASSIFICATIOND14; F63; R51

AbstractThis paper builds a multi-generation household model of consumption, accumulation, and risk management to assess the dynamic consequences of climate risk exposure. The model incorporates long-term impacts of consumption shortfalls, induced by optimal 'asset smoothing' coping behavior of the vulnerable, on poverty. The analysis shows the long-term level and depth of poverty can be improved by incorporating 'vulnerability-targeted social protection' into a conventional social protection system. The paper further shows insurance-based vulnerability-targeted social protection dominates (in economic growth and poverty reduction measures) both in-kind transfers and asset-based vulnerability-targeted protection. We then stress test social protection mechanisms and find the relative performance of insurance-based vulnerability-targeted social protection improves when subjected to current pessimistic projections about increasing drought risk. However, if drought risk increases beyond current climate change projections, then even the vulnerability-targeted policy loses its ability to stabilize the extent and depth of poverty.

Climate risk is an important driver of long-term poverty dynamics, especially in rural regions. This paper builds a dynamic, multi-generation household model of consumption, accumulation, and risk management to draw out the full consequences of exposure to climate risk. The model incorporates the long-term impacts of consumption shortfalls, induced by the optimal "asset smoothing" coping behavior of the vulnerable, on the human capital and long-term wellbeing of families. The analysis shows that the long-term level and depth of poverty can be improved by incorporating elements of "vulnerability-targeted social protection" into a conventional system of social protection. The paper also explores the degree to which vulnerability-targeted social protection can be implemented through a subsidized insurance mechanism. The analysis shows that insurance-based vulnerability-targeted social protection dominates (in economic growth and poverty reduction measures) both in-kind transfer mechanisms and vulnerability-targeted protection paid for using a public budget. The relative gains brought about by this scheme of insurance-augmented social protection increase—at least for a while—under climate change scenarios. However, if climate change becomes too severe, then even this novel form of social protection loses its ability to stabilize the extent and depth of poverty.