The impacts of community-based cash management tools on smallholder rural farmers’ access to livelihood assets

Abstract

Smallholder rural farmers are exposed to diverse idiosyncratic and covariate shocks that lead to high income and consumption volatility. Formal cash management tools, which are important for managing risk and volatility, often break down due to high information asymmetries and the transaction costs of operating in rural areas. Given this, community-based cash management tools have continued to be a dominant means of managing risk in rural areas. Community-based cash management tools can be home grown or externally induced, e.g. NGO-initiated savings groups. This study finds that participation in such savings groups significantly expands access to the financial resources that can be used to purchase goods and services, as well as to the social networks that are needed to support smallholder farmer livelihoods. However, the impact on access to physical and natural capital (at least in the short to medium term) is not significant, thus calling for complementary development interventions to reduce smallholder farmers’ vulnerability.