Financial Services for Risk Management in Pastoral Systems

This paper highlights the role of microfinance in risk management for pastoral communities. It identifies difficulties in developing herder-focused microfinance programs and outlines an experimental herder microfinance strategy.

Factors such as lack of understanding of the herding economy and the nomadic nature of herders make it difficult for MFIs to target microfinance products and services to pastoral societies. The paper explores ways in which MFIs can provide services such as savings, microcredit, insurance, and community investment funds to herders. It identifies benefits and potential challenges for each service.

The paper suggests an experimental herder microfinance strategy. Its components include:

• Introducing attractive savings products;
• Broadening microcredit products from restocking to loans for enterprises related to pastoral products;
• Developing collateral alternatives;
• Evaluating restocking with attention to financial models and long-term sustainability;
• Experimenting with index insurance as alternative to livestock insurance, government or donor catastrophe insurance, and leasing of capital assets;
• Investigating need for money management and financial planning services;
• Developing institutional structure and provision of training;
• Piloting strategy.