Impacts and synergies of weather index insurance and microcredit in rural areas: a systematic review

Lu, Yu / Lu Yu / Wen-Jun Li / Maria Aleksandrova
External Publications (2022)

in: Environmental Research Letters 17 (10), article 103002

Open access

Weather constitutes a major source of risks facing households in rural areas, which are being amplified under climate change. In this context, two main rural financial services, weather index insurance and microcredit, have been increasingly adopted by farmers worldwide. However, the understanding of the socioeconomic and ecological impacts of these rural finance schemes, including potential maladaptive outcomes, remains ambiguous. We review the recent literature on weather index insurance and microcredit for farmers and find that both rural financial services have positive economic impacts, though benefits to the poorest populations remain controversial. Moreover, their impacts on the ecological systems are less studied and are found to be mainly negative. In addition, considering that both financial instruments have strengths and limitations, we argue that combination schemes (e.g. a hybrid product) may generate positive synergistic effects on building socioeconomic resilience to climate risks in agricultural regions. However, this may also add new economic risk to local financial institutions. This comprehensive review provides a reference for the potential benefits and risks of agricultural finance innovations. Further studies on the ecological impacts of rural financial services and the synergistic effects of the combination on socioeconomic and ecosystem resilience in rural contexts are needed to fill the current research gap.

About the authors

Yu, Lu

Agricultural Economist

Aleksandrova, Mariya

Climate risk governance


Further experts

Bauer, Steffen

Political scientist 

Beck, Tanja

Political Science 

Brandi, Clara

Economy and Political Science 

Brüntrup, Michael

Agricultural Economy 

Dippel, Beatrice


Ekoh, Susan S.

Environmental Research 

Hägele, Ramona

Political Scientist 

Iacobuta, Gabriela

Climate and sustainable development policy 

Lehmann, Ina

Political Science 

Malerba, Daniele


Mathis, Okka Lou

Political Scientist 

Never, Babette

Political Scientist 

Pegels, Anna


Rukundo, Emmanuel Nshakira

Development Economics 

Sakketa, Tekalign Gutu

Agricultural / Development Economics 

Srigiri, Srinivasa Reddy

Agricultural Economist