The Effect of Microinsurance on Investment Levels among Farmers

Abstract: Variable incomes and under-investment due to risks of economic loss is an often overlooked aspect of poverty. Affordable insurance against risks such as loss of harvest due to low rainfall may be a key factor in reducing poverty. This study aims to examine the relationship between microinsurance against weather-related risks and levels of investment among covered farmers. The analysis is done by reviewing relevant literature, by developing a model of a farmer’s investment decisions and by distributing a survey among farmers in and around Choma in Zambia. The analysis finds that provision of microinsurance is positively correlated with investment in farmland and new types of crops. The findings support the view that farmers are more inclined to allocate resources into more productive assets when some risks are mitigated.