Study Overview
Families in developing countries face enormous financial risks from major illness both in terms of the cost of medical care and the loss in income associated with reduced labor supply and productivity. We test whether access to microfinancial savings and lending institutions helps Indonesian families smooth consumption after declines in adult health. In general, results support the importance of these institutions in helping families to self-insure consumption against health shocks.
Study Results
In this study, families that live far from a financial institution will suffer greater losses in consumption than will families living nearer the institutions. Importantly, this result does not appear to be due to financial institutions locating themselves near the advantaged, as the microfinance provider BRI does not follow that pattern. Several tests indicate that these correlations are probably not due to state-dependent preferences where people who become disabled prefer to consume less. In contrast, we find effects for both those engaged in work with and without physical labor before the health shock. Moreover, we see no effects of health on consumption for those with high initial assets and those living near a financial institutions.