<Articles>Informal Network Finance as a Risk Coping Device in Mountainous Laos

Abstract

Rural households in developing countries face difficulty in no small part in managing emergent expenditures on various events. It is commonly observed that rural households put up money for each other and swap small amounts of rice or other food stuffs with neighbors to cope with idiosyncratic shocks. This network finance plays an important role in supporting rural households facing an emergency with little or no administrative cost, especially in the society where formal safety-net mechanisms are de facto absent. As network finance is likely to function within a narrow range of blood and geographical proximity, the households tend to form a network in similar economic circumstances. Then, it can be assumed that the effectiveness of network finance will be vulnerable for the poor households whose network members belong to a similar stratum. This paper examines the accessibility of the poor to network finance, using household data collected in the hinterlands of Luang Prabang, Laos. We found that the poor can resort feebly to network finance. Therefore, the role of savings groups to mitigate shocks is more important for the poorer households