Shocks, Coping Strategies and Consumption Smoothing of the Ultra Poor Households in Bangladesh: Can TUP Help?
Abstract: This chapter examines, using a panel data set from ultra poor households in Bangladesh, the ability of ultra poor households to insure food consumption against idiosyncratic and unanticipated health and non-health shocks. Is there a role for targeting the ultra poor (TUP) asset transfer programme in this respect? Findings reveal that non-health shocks dominate over health shocks in terms of frequency in the ultra poor households in Bangladesh. However, health shocks dominate over non-heath shocks in terms of damaging effects. Coping strategies triggered by health shocks reveal that costs due to health and non-health shocks are covered mainly by using savings, borrowing, asset depletion, relief and begging. Saving is found as one of most important and dominant strategies over others. This study reveals that health and non-health shocks decrease the food consumption expenditure from one period to the next. But participation in the TUP asset transfer programme enhances both ‘medium- and long-term mitigating effects’ in the face of long-term health and non-health shocks under consideration. Therefore, ‘direct mitigating effect’ of participation in asset transfer programme implies that the more the ultra poor household has the access to, the greater is the ability of the ultra poor household to insure food consumption against health and non-health shocks. The primary instrument through which ultra poor households insure is by using their savings. Ultra poor households that have access to TUP use more savings compared to the control ultra poor households. However, savings might not be sufficient to smooth consumption for the ultra poor. The other important instrument through which they smooth their food consumption is by ex post borrowing mechanism. It appears that ultra poor households in general use different borrowing sources to insure food consumption against health and non-health shocks. However, borrowing from different sources other than NGOs are very costly and such borrowings may fall the ultra poor into ‘vicious cycle of debt’, which results in ‘vicious cycle of ultra poverty’. Moreover, TUP aims to enhance treatment ultra poor to engage into the mainstream microfinance intervention after their graduation. This study finds some ‘indirect mitigating effects’ of participation in asset transfer programme: the more ultra poor household has the access to, the greater is the ability of the ultra poor household to insure against shocks by borrowing more from NGOs. Moreover, we could also argue that there are some ‘indirect mitigating effects’ of TUP as it helps to break the ‘vicious cycle of debt’: the more the ultra poor household has the access to, the less likelihood of the ultra poor to borrow from friends, relatives, neighbors, money lender and shop owners. Another important instrument through which ultra poor smooth their food consumption is by depleting livestock. Ultra poor households with access to TUP need to deplete more livestock to smooth food consumption expenditure against health and non-health shocks than their counterpart. This goes against the traditional findings. Therefore, the insurance role of the TUP does come at the cost of production efficiency.