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Economic Strengthening for the Very Poor (ES4VP)

Loss Management Strategies

Loss Management Strategies to Smooth Consumption after a Shock

Stage 1

Using insurance and reversible mechanisms

  • Increasing wage labor and temporary migration for employment
  • Liquidating self-insurance assets such as cash savings and physical assets accumulated for their value (typically food stocks and livestock)
  • Borrowing from formal and informal credit markets
  • Using social and kinship networks
  • Reducing consumption and investments in health and education

Stage 2

Disposing of key productive assets

  • Selling land, tools, equipment, and other assets that generate income for the household
  • Borrowing at extremely high interest rates
  • Further reducing consumption and investments in health and education

Stage 3

Destitution

  • Relying on charity
  • Breaking up the household
  • Migrating

 

Economic strengthening interventions need to acknowledge the role that vulnerability and risk perceptions play in influencing household livelihood decisions. Expecting income maximizing behavior from vulnerable households may not be appropriate. At the same time, however, interventions that mitigate risk and expand the household’s coping options do not necessarily lead to income growth and stable food security. Reconciling risk-sensitive and growth-oriented strategies is one of the central challenges in livelihood interventions. (source: Livelihoods and Food Security Conceptual Framework)

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