Heterogeneous Demand and Supply for an Insurance-linked Credit Product in Kenya: A Stated Choice Experiment Approach

• Main Authors: Marr, A. (Author), Shee, A. (Author), Turvey, C.G (Author)
• Format: Article
• Language: English
• Published: Blackwell Publishing Ltd 2021
• Subjects: Bayesian analysis; Bayesian estimation; choice experiment; credit provision; insurance system; insurance-linked credit; Kenya; maximum likelihood analysis; maximum simulated likelihood; random parameter logit; smallholder; willingness to pay
• Online Access: View Fulltext in Publisher

 We employ a discrete choice experiment to elicit demand and supply side preferences for insurance-linked credit, a promising market-based tool for managing agricultural weather risks and providing access to credit for farmers. We estimate preference heterogeneity using primary data from smallholder farmers and managers of lenders/insurers combined with household socio-economic survey data in Kenya. We analyse the choice data using maximum simulated likelihood and Hierarchical Bayes estimation of a mixed logit model. Although there are some similarities, we find that there is conflicting demand and supply side preferences for credit terms, collateral requirements, and loan use flexibility. We also analyse willingness to buy and willingness to offer for farmers and suppliers, respectively, for the risk premium for different attributes and their levels. Identifying the preferred attributes and levels for both farmers and financial institutions can guide optimal packaging of insurance and credit providing market participation and adoption motivation for insurance-bundled credit product. © 2020 The Authors. Journal of Agricultural Economics published by John Wiley & Sons Ltd on behalf of Agricultural Economics Society