Willingness to Pay for Insured Loans in Northern Ghana

Index insurance has been heralded as a potential solution to risk management problems faced by smallholder farmers in developing countries. Despite its potential, demand for standalone index insurance contracts has remained low in early field trials. We investigate the willingness to pay for drought index insurance-backed loans in northern Ghana using contingent valuation. We find that index insurance lowers overall demand for agricultural loans. We also compare micro-level index insurance, provided directly to farmers, with meso-level insurance, provided to the credit agency and find that farmers appear to prefer micro-level insurance. Finally, farmers are willing to pay to avoid basis risk.