Do Microfinance Programs Help Families Insure Consumption Against Illness?

Families in developing countries face enormous financial risks from major illness both in terms of the cost of medical care and the loss in income associated with reduced labour supply and productivity

The authors test whether access to microfinancial savings and lending institutions helps Indonesian families smooth consumption after declines in adult health. In general, results support that:

• Access to financial institutions helps families deal with adverse health shocks;
• Families that live far from a financial institution will suffer greater losses in consumption than will families living nearer the institutions.

Therefore, the paper concludes that governments should promote microfinance and microsavings programmes in addition to traditional tools such as subsidies, mandates, or direct government provision of health insurance and disability insurance.