Current Science

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The present study discusses how formal risk management options (RMOs) have evolved in reducing agricultural income loss. It also considers the dependency of farm households on informal RMOs. Based on our analysis of a representative sample of 180 rural households, we conclude that the formal RMOs such as insurance and commercial credit markets need to improve. Addressing the complexity of claim assessment and the problem of information lop-sidedness in the insurance market should be a top priority for reducing inefficiency. Ascertaining the adequacy of claim amount in comparison to the loss is also important. The absence or underdevelopment of the formal market leads to efficient utilization of informal RMOs to reduce income risk. In this regard, informal ex-ante RMOs may be advantageous to the stable rise of farmers’ income and development of the rural financial system in the long run.

Keywords

Addressing Risk, Finance Markets, Finance Service, Income Risk.
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