Strengthening Public Safety Nets from the Bottom Up

This paper examines safety nets and:

• Why policy makers are turning to ways to help low-income households cope with income fluctuations;
• Important places for public action, as well as its limits;
• Systematises trade-offs that arise when evaluating policy options.

Drawing on recent experience, it describes ways to build public safety nets to complement and extend informal and private institutions. It says that although the existence of private and non-formal mechanisms raises some questions, the private commercial sector and market-driven NGOs have potentially valuable roles to play in helping low-income households to insure, particularly with regard to building up savings and obtaining life and weather insurance. Hence, the most effective policies combine both transfer systems that are sensitive to existing mechanisms and new institutions for providing insurance and credit that generate savings. The paper recommends that policy action should build on and around existing mechanisms and concludes that to build from the bottom up, having the right top-down institutions in place is clearly a big help.