Strengthening Social Security Systems in Rural Areas of Developing Countries

It is now generally accepted that the approach of enlarging state-based social security systems in developing countries in order to achieve universal coverage has failed. It is the poor and rural population in particular who are largely excluded from any kind of social insurance. This paper reviews the literature to identify the major reasons for state and market failure, describes the existing systems and their institutional strengths and weaknesses and analyses the possibilities for a public-private partnership. To this end, the paper identifies four main providers of social security, namely the state, the market, member-based organisations, and the private households.Whereas the reasons for state failure – inadequate and inefficient programmes to deal with the socio-economic realities – and market failure - information problems and high transaction costs- have been analysed in great detail, there is controversy over how adequately member and private household-based systems can protect members against basic risks such as illness, disability, accidents and death. Several empirical studies in rural areas have shown the limits of traditional insurance arrangements, which basically provide insufficient coverage against co-variate risks while entailing high costs in terms of pursuing less risky activities. Moreover, these systems are under heavy pressure from change in the socio-economic environment, such as market penetration and population growth. Given this situation, the paper explores the possibilities of a public-private partnership that are created by exploiting local information, on the one hand, while enhancing the possibilities of risk pooling, reinsurance and better access to risk capital, on the other. However, a successful partnership depends on several factors. The ones identified and discussed here are the willingness of the state to withdraw from certain activities and the political and economic environment required for wider private engagement in general. The paper concludes by introducing a preliminary agenda for policy action and research. Then literature survey has shown that a lot of questions about the appropriate institutional design of social security systems in rural areas remain unanswered. More research is needed to identify the population’s actual needs and its demand for insurance in a specific socio-economic context and agro-ecological zone, to analyse the economic and social impact of innovative insurance schemes recently evolving in many countries, to identify conditions for a successful private-public partnership for social security provision and finally, to find appropriate ways of translating the findings into adequate policy measures.