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The Role of Local Organizations in Risk Management: Some Evidence from Rural Chad

Author: R Weinberger and J Jütting
Date: 2005
Size: 18 pages (184 KB)

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Summary

Why do rural households join local organisations? Can local organisations help rural households manage risks? This paper published by the Institute of Statistical, Social and Economic Research, Ghana analyses the role of local organisations in Southern Chad in helping poor people deal with risk. Local organisations play an important role in risk management, but the middle classes tend to benefit the most from participation.

Risk can be defined as random events that have a negative impact on incomes and well-being. Rural households face production risks (such as natural disasters), health risks, social risks (like wars) and policy or institutional risks. Responses to risk can occur at the individual, community or national/public level. Local organisations can manage risk at the community level through three different strategies. First, they can reduce risk or the probability of the risk occurring. Second, they can mitigate risk, which means making investments beforehand like health insurance which pay-off when the risk occurs. Third, they can help to cope with risks through charity or mutual help.

Membership of a local organisation contributes to risk management, but while reducing risk is the main motive for joining, membership mainly leads to increased risk mitigation. The middle classes are most likely to participate in local organisations. The poor are excluded, as participation is too costly in terms of time and money. Other findings include:

The most important impacts of membership are improvement of social networks, access to credit, savings and access to information.
Some risk management activities, for example joint storage of grain and short-term credits, are not restricted to members.
Risk coping strategies based on mutual help and voluntary transfers are rather limited, particularly if the entire community is affected by the risk.
The number of organisations, networks and groups in a locality has a significant influence on the decision to participate.
Women participating in other formal and informal groups are more likely to participate in local organisations with a risk management function than other women.

The dominance of the middle classes in local organisations has important policy implications. Participation is often regarded as an instrument to reach the poorest. However, donors need to be aware when they set up or support local organisations that the poorest parts of the population are excluded. This implies that:

Action at the public level is required to reduce poor peoples’ production risks and risks to health and food security.
The costs of participation and the risks associated with participation in local organisations for the poor needs to be reduced.
The role of local organisations in managing risk can be enhanced by helping them improve their technical and organisational know-how and promoting the integration of other actors such as private business. Setting up a conducive legal framework is also necessary to allow local organisations to operate with greater flexibility.

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Source: Weinberger, K. and Jütting, J.P., n.d., 'The Role of Local Organizations in Risk Management: Some Evidence from Rural Chad', Institute of Statistical, Social and Economic Research, Accra
Author: Institute of Statistical, Social and Economic Research (ISSER), University of Ghana, http://www.isser.org/