Publication: Macroinsurance for Microenterprises: A Randomized Experiment in Post-Revolution Egypt
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Date
2015-08-24
ISSN
0304-3878
Published
2015-08-24
Author(s)
Groh, Matthew
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Abstract
Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. We conduct a randomized experiment in post-revolution Egypt to measure the impact of insuring microenterprises against this uncertainty. Demand for macroeconomic shock insurance was high, with a take-up rate of 36.7 percent. However, purchasing insurance does not change the likelihood a business takes a new loan, the size of the loan, or how they invest this loan. We attribute this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment, suggesting that macroeconomic and political risk is not inhibiting their investment behavior. The challenges of introducing an innovative insurance product in an environment where microentrepreneurs had little previous insurance exposure are particularly evident in a second year, where take-up was extremely low following political events that came close to, but did not, trigger insurance pay-outs.
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Publication Macroinsurance for Microenterprises : A Randomized Experiment in Post-Revolution Egypt(World Bank Group, Washington, DC, 2014-09)Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. Economic theory suggests uncertainty can cause firms to delay investments until uncertainty is resolved. A randomized experiment was conducted in post-revolution Egypt to measure the impact of insuring microenterprises against macroeconomic and political uncertainty. Demand for macroeconomic shock insurance was high; 36.7 percent of microentrepreneurs in the treatment group purchased insurance. However, purchasing insurance does not change the likelihood that a business takes a new loan, the size of the loan, or how the loan is invested. This lack of effect is attributed to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what some firms profess, macroeconomic and political risk is not inhibiting the investment behavior of microenterprises. However, insurance may still be of value to help firms cope with shocks when they do occur, but the paper is unable to examine this dimension, because the insurance product did not pay out over the course of the pilot.Publication Piloting Macroinsurance for Microenterprises in Post-Revolution Egypt(World Bank, Washington, DC, 2014-10)This note discusses the results of a pilot of an innovative insurance product, which aims to protect small firms from macroeconomic and political risk that might inhibit them from investing.Publication Are Women More Credit Constrained? Experimental Evidence on Gender and Microenterprise Returns(World Bank, Washington, DC, 2008-10)This paper analyzes data from a randomized experiment on mean returns to capital in Sri Lankan micro-enterprises. 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