Strengthening local credit markets through lender-level...

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Artículos Artículos Strengthening local credit markets through lender-level index insurance - Collier, Benjamin L.

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Título: Strengthening local credit markets through lender-level index insurance / Benjamin L. Collier

Notas: Sumario: This article considers lender-level index insurance as a means of expanding access to credit in disaster-prone communities. In this approach, the lender transfers the disaster risk of loans in its portfolio by contracting on an observable measure of the catastrophe. I develop and calibrate a dynamic, stochastic model using data from a community lender in Peru that is vulnerable to El Niñorelated flooding. The modeled lender can insure against El Niño using an index-based product that is available for purchase by financial intermediaries in Peru. I examine how premium rates, basis risk, and background risk may influence the lender's insurance decision and credit supply. Overall, the results suggest that lender-level index insurance holds promise for reducing disaster-related credit supply shocks and expanding credit access in vulnerable communities.

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