The Demand for Risk-Managing Financial Services in Low-Income Communities: Evidence from Zambia

This paper analyzes the risks to which low-income entrepreneurs in Lusaka are vulnerable, and their coping strategies, based on a sample survey comprising of respondents primarily from Pulse, one of Zambia's oldest microfinance institutions (MFIs). The authors identify the following as the important causes of financial stress among the households surveyed:

• Deaths related expenses;
• Illnesses and hospitalization;
• Seasonal stress arising out of school fees and rent payments.

The households manage these risks by drawing on social, physical and financial assets:

• Social assets comprises of the network of friends and relatives;
• Physical assets include radios, televisions and other durables which can be sold during times of need;
• Financial assets include savings and loans and innovative associations like funeral funds.

The survey also find that risks arising out of businesses and social occasions, such as marriages, did not lead to high financial stress, and the respondents did not favor formal insurance because they are either wary or not sufficiently aware of it.