An article written by Dr Bhagwan Chowdhry, professor of finance and faculty director of the UCLA Anderson School [2], appeared on the Huffington Post on September 8, 2010 making the case that microcredit and microinsurance are effective ways of spreading risks in the developing world.
He argues that traditional, formal risk -sharing schemes suffer from high transaction costs and information asymmetries. On the other hand, informal risk – sharing schemes were only feasible among people who know each other well and are thus limited in scalability. Dr Chowdhry argues that through the integration of financial services such as microcredit and microinsurance, “transaction costs are reduced because poor clients’ needs for all their financial services can be taken care of under one roof.” He also adds that as microfinance institutions (MFIs) interact more with their clients, they would gradually overcome information asymmetry problems.
By Trevor Kwong, Research Assistant
Sources and Additional Resources:
[1] Source Article: The Huffington Post: Microinsurance, Microsavings and Microcredit Under One Roof:
http://www.huffingtonpost.com/bhagwan-chowdry/microcredit-microinsuranc_b_709135.html
[2] UCLA Faculty Profiles: Bhagwan Chowdhry:
http://www.anderson.ucla.edu/x1931.xml
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