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The Effects of Catastrophic Risk on the Performance of the Thailand National Village and Urban Community Fund Program and Prospects for Managing it Through the Use of Weather Index Insurance

Bangwan, Sureewan, Bangwan
http://rave.ohiolink.edu/etdc/view?acc_num=osu1534508998871764

Abstract Details

2018, Doctor of Philosophy, Ohio State University, Agricultural, Environmental and Developmental Economics.
This dissertation is generally devoted to gaining a better understanding of how catastrophic weather risk undermines access to credit among smallholder farmers in developing countries, and how weather index insurance might be used to manage this risk to promote access to credit, technical transformation, and poverty reduction among them. As my case study, I focus on the Thailand rice sector and the Thailand National Village and Urban Community Fund Program (VFP), a microfinance initiative instituted by the Government of Thailand in 2001 to promote access to credit, particularly among the rural poor. The majority of rural borrowers participating in the VFP are farmers whose agricultural production relies on rainfall. Rural VFP loan portfolios are especially vulnerable to catastrophic droughts and floods, which can simultaneously subject most if not all of its borrowers to financial stresses that make it difficult for them to repay their loans and to meet their obligations under the joint collateral liability provisions of VFP loans. Catastrophic drought and floods can cause VFPs to fail financially, or otherwise severely restrict their ability to extend credit in the future. Index insurance offers a possible solution to the catastrophic risk problems that undermine the performance of the VFP. Unlike conventional insurance, which indemnifies the insured based on verifiable losses, index insurance indemnifies the insured based on the realized value of an underlying “index” that is highly correlated with losses but that cannot be influenced by the insured. In this dissertation, I examine weather-related risk faced by Thai rice farmers, focusing on borrowers participating in the Thailand National VFP. I also examine how weather index insurance could support a VFP’s operations by safeguarding it against widespread defaults caused by catastrophic droughts and floods. The dissertation consists of four distinct, but closely related, chapters. In my first chapter, I review how the VFP works, and report the basic characteristics of the VFP. In my second chapter, I perform a comprehensive qualitative analysis of how catastrophic weather events, such as droughts and floods, disrupt the rice value chain in Northeast Thailand. Specifically, I focus on how they undermine access to smallholder credit provided through the Thailand National VFP. I find that flood risk has the most severe impact on farmers and undermines access to credit provided by the VFP. In my third chapter, I formulate, solve, and analyze a dynamic stochastic optimization model to study how joint collateral group lending works and how its performance might be enhanced using weather index insurance. I find that, first, when the collateral is relatively low, collateralized group credit tends to reduce loan performance and willingness to pay (WTP) for the credit, compared to the collateralized individual credit. Second, collateralized group credit with index insurance can raise loan performance, especially, when percent of systemic risk increases. In my fourth chapter, I perform an econometric assessment of the VFP employing the Townsend Thai datasets, which are based on field surveys of microfinance managers and clients in Thailand, to understand the primary drivers of VFP loan repayment and how weather index insurance could be used to reduce them. I find that, first, having VFP savings increases the VFP loan repayment. Second, controlling for endogeneity, increases in loan size and interest rate tend to increase loan repayment. Finally, I find that although the result is statistically insignificant, the effect of changes in rainfall on farmer VFP loan repayment is negative. This might indicate that index insurance might be useful to improve farmer VFP loan repayment due to unreliable rainfall.
Mario Miranda (Advisor)
Ani Katchova (Committee Member)
Wuyang Hu (Committee Member)
119 p.
Agricultural Economics
microfinance; index insurance

Recommended Citations

Citations

  • Bangwan, Bangwan, S. (2018). The Effects of Catastrophic Risk on the Performance of the Thailand National Village and Urban Community Fund Program and Prospects for Managing it Through the Use of Weather Index Insurance [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1534508998871764

    APA Style (7th edition)

  • Bangwan, Bangwan, Sureewan. The Effects of Catastrophic Risk on the Performance of the Thailand National Village and Urban Community Fund Program and Prospects for Managing it Through the Use of Weather Index Insurance. 2018. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1534508998871764.

    MLA Style (8th edition)

  • Bangwan, Bangwan, Sureewan. "The Effects of Catastrophic Risk on the Performance of the Thailand National Village and Urban Community Fund Program and Prospects for Managing it Through the Use of Weather Index Insurance." Doctoral dissertation, Ohio State University, 2018. http://rave.ohiolink.edu/etdc/view?acc_num=osu1534508998871764

    Chicago Manual of Style (17th edition)

osu1534508998871764
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This open access ETD is published by The Ohio State University and OhioLINK.