Managing financial risks at household level: empirical evidence from Faisalabad, Pakistan

Raza Ullah, Abdul Moeed, Muhammad R. Muzammil, Syed M. Amir, Muhammad Usman, Tahir Mahmood

Abstract


The financial risks and uncertainties undermine the capabilities of households to evade poverty traps. These uncertainties and risks cause income fluctuations and may have consequences on their livelihoods and welfare status. The households must recognize and manage these risks and uncertainties to guarantee smooth consumption at the household level. This study used a dataset of 130 households collected through face-to-face interviews from the district of Faisalabad of Punjab province in Pakistan. A logit model was employed to assess the impact of various socio-economic attributes, respondents’ risk perceptions and risk attitudes on their decisions to adopt financial risk management tools at the household level. The results revealed that the socio-economic attributes including age, education and income of the sampled households significantly influenced the decisions to adopt both the ex-ante and ex-post risk coping strategies to manage financial risks. The findings also highlighted the role of respondents’ perceptions associated with loss in business and illness of the primary breadwinner that affected respondents’ decisions to adopt risk management strategies in dealing with financial risks at the household level. The study recommends that the government and NGOs should educate the residents on how to safeguard themselves from financial risks by enabling them to use the available risk management tools more effectively. 

Keywords


Adoption; Financial Risks; Risk Perception; Risk Attitude; Risk Management

References


Ashfaq, M., Hassan, S., Naseer, M. Z., Baig, I. A., and Asma, J. 2008. Factors Affecting Farm Diversification in Rice-Wheat. Pakistan Journal of Agricultural Sciences, 45(3): 91-94.

Bhattamishra, R., and Barrett, C. B. 2010. Community-Based Risk Management Arrangements: A Review. World Development, 38(7): 923-932.

Chantarat, S., A.G. Mude, C. B. Barrett, and M. R. Carter. 2013. Designing Index-Based Livestock Insurance for Managing Asset Risk in Northern Kenya, in: Journal of Risk and Insurance, 80(1): 205–237.

Cohen, M. and J. Sebstad. 2005. Reducing Vulnerability: The Demand for Microinsurance. Journal of International Development, 17(3): 397–474.

Cohen, M., M.J. McCord, and J. Sebstad. 2005. Reducing Vulnerability: Demand for and Supply of Microinsurance in East Africa. Journal of International Development, 17(3): 319–325.

Collins, J. M., Olive, P., & O’Rourke, C. (2013). Financial coaching’s potential for enhancing family financial security. Journal of Extension, 51(1): 1FEA8.

De Janvry, A., F. Finan, E. Sadoulet, R. Vakis. 2006. Can conditional cash transfer programs serve as safety nets in keeping children at school and from working when exposed to shocks? Journal of Development Economics, 79: 349 – 373.

Dercon, S., T. Bold, and C. Calvo. 2008. Insurance for the Poor? Barrientos, A. and Hulme, D. (eds.), Social Protection for the Poor and Poorest. Risk, Needs and Rights, Houndmills, Basingstoke, Hampshire: Palgrave Macmillan, 47–63.

Deressa, T. T., Ringler, C., and Hassan, R. M. 2010. Factors Affecting the Choices of Coping Strategies for Climate Extremes. The Case of Farmers in the Nile Basin of Ethiopia IFPRI Discussion Paper 01032.

GoP. 2017. Agricultural Statistics of Pakistan. Ministry of Food, Agriculture and Cooperative. Food and Agriculture Division. Economic Wing, Islamabad, Pakistan.

Kouame, E. B. H. 2010. Risk, risk aversion and choice of risk management Strategies by cocoa farmers in western Cote D’ivoire. University of Cocody-AERC Collaborative PHD Program.

Lu, W., Latif, A. and Ullah, R. 2017. Simultaneous adoption of contract farming and off-farm diversification for managing agricultural risks: The case of flue-cured Virginia tobacco in Pakistan. Natural Hazards, 86:1347-1361.

Mesfin, W., B. Fufa, J. Haji. 2011. Pattern, Trend and Determinants of Crop Diversification: Empirical Evidence from Smallholders in Eastern Ethiopia. Journal of Economics and Sustainable Development, 2(8): 78-89.

O’Donnel, I. 2009. Practice Review on Innovation in Finance for Disaster Risk Management. ISDR Global Assessment Report on Disaster Risk Reduction.

Rehima, M., Belay, K., Dawit, A., and Rashid, S. (2013) Factors affecting farmers’ crops diversification: Evidence from SNNPR, Ethiopia. International Journal of Agricultural Sciences, 3(6): 558-565.

Shah, A. A., Ye, J., Abid, M., and Ullah, R. 2017. Determinants of flood risk mitigation strategies at household level: a case of Khyber Pakhtunkhwa (KP) province, Pakistan. Natural Hazards, 88: 415-430.

Szumilas, M. 2010. Can Acad Child Adolesc Psychiatry. Journal of the Canadian Academy of Child and Adolescent Psychiatry, 19(3):227-229.

Tavernier, E. M., and B. M. Onyango. 2008. Utilization of farm management risk strategies at rural/urban fringe. African Journal of Agricultural Research, 3(8): 554-565.

Ullah, R., Shivakoti, G. P., Kamran, M. A., and Zulfiqar, F. 2016. Farmers vs. Nature: Managing Disaster Risks at Farm Level. Natural Hazards, 82(3): 1931-1945.

Ullah, R., Shivakoti, G. P., Zulfiqar, F. and Iqbal, M. N. 2017. Disaster Risk Management in Agriculture: Tragedies of the Smallholder. Natural Hazards, 87: 1361-1375.

Zulfiqar, F., Ullah, R., Abid, M., and Hussain, A. 2016. Cotton production under risk: a simultaneous adoption of risk coping tools. Natural Hazards, 84: 959–974.


Full Text: PDF

DOI: 10.33687/ijae.011.03.4953

Refbacks

  • There are currently no refbacks.


Copyright (c) 2023 Syed Muhammad Amir

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.