Agricultural Microcredit and Household Vulnerability in Rural Malawi

Abstract this paper evaluates the impact of agricultural microcredit on household consumption and vulnerability. empirical analysis based on our paired-site sampling survey in rural malawi reveals that, while the credit uptake leads to an increase in non-food consumption, it does not significantly affect food consumption. the analysis also shows that shocks with adverse effects such as health-related shocks and agricultural shocks reduce household consumption, although food consumption is insured. the households who have taken credit better cope with health-related shocks in terms of consumption smoothing. it thus seems that participation in the agricultural microcredit program strengthens coping capability with idiosyncratic shocks. in contrast, the agricultural microcredit program appears to be unable to ameliorate the adverse effects of agricultural shocks, which implies that for co-variant shocks different types of mitigating institutions such as microinsurance programs may be more desirable