Traditional Risk Coping Mechanisms and Microinsurance of Selected Rural SMES in Northern Ghana

Every misfortune such as illness, death, accident and natural disasters, no matter how minor, threatens the very existence of the poor, resulting in deeper poverty. According to World Bank 2013 annual report, more than 1 billion people worldwide are still destitute and victims of inequality and social exclusion. The poor in their attempt to cope with these vulnerabilities over the past have adopted some strategies to reduce its impact. Recently however, microinsurance has been identified as the best form of protection for the poor, with affordable insurance products. SMEs in Northern Ghana are identified to be vulnerable to all forms of risks ranging from robbery, fire to bad weather conditions. These risks in addition to the traditional coping mechanisms employed, result in their inability to break the poverty cycle, however, these coping mechanisms are still in more demand than microinsurance in the region. According to Trais Ghana, only five institutions in the region offer microinsurance with total coverage of 3.99% of the population.  This study, therefore sought to identify the best form of risk protection to ensure rural SMEs’ sustainability from the perspective of SMEs owners. Also, further analysis would give insight into the traditional mechanisms that would further inform future microinsurance policies to make them more acceptable to the working poor. Purposive sampling technique was used to select50 SME respondents and 3 microinsurance institutions. Data was collected through the administering of questionnaires and interviews. The findings of the study showed that, though comparatively, microinsurance was identified to be superior to traditional coping mechanisms especially in the area of reliability and sufficiency, SMEs still preferred the latter. This preference was attributed to most SMEs distrust for financial institutions and the perception of the complexity of insurance payments in general. It is therefore ideal for microinsurance providers to adopt the identified superior features of traditional coping mechanisms so as to roll out more acceptable microinsurance policies, thereby increasing microinsurance demand, which would further result in a long run break in the poverty cycle.