Will Urban Migrants Formally Insure their Rural Relatives? Family Networks and Rainfall Index Insurance in Burkina Faso

Large segments of the population in developing countries, especially in rural areas, have a high level of vulnerability to weather-related shocks but have limited means to insure themselves against them. In recent years, microfinance institutions have experimented with micro-insurance products, including rainfall index insurance, but the uptake of these products has generally been very low. We present findings from a pilot study exploring whether and how existing ties between urban migrants and rural farmers may be used to provide the latter improved access to formal insurance. Urban migrants in Ouagadougou (the capital of Burkina Faso) originating from nearby villages were offered, at the prevailing market price, a rainfall index insurance product that can potentially protect their rural relatives from adverse weather shocks. The product had an uptake of 22% during the two-week subscription window. Half the urban migrants in the study were randomly offered an insurance policy in which payouts would be made, not to the subscriber, but directly to the intended beneficiary. This feature increased uptake rates by 17–22 percentage points. We argue that rainfall index insurance can complement informal risk-sharing networks by mitigating problems of informational asymmetry and self-control issues.