PhD candidate Sikandra Christian presented a summary of her current research about the use of store credit as informal insurance in rural Yemen during a public lecture at the School of Public Policy at CEU on February 9.
In her presentation, Christian noted that her research is particularly relevant because of concerns among many in the policy community that the introduction of cash transfers will lead to inflation. “My research in rural Yemen,” she explained, “demonstrates that in certain situations the introduction of cash transfers can actually lead to a decrease in prices.”
Christian said that the reason for this is that the storekeepers she studied are “selling” not just commodities but also informal insurance, offering store credit to their customers for anywhere from two months to two years. Although they tend to charge above-market prices, customers are willing to pay these prices knowing that they will be able to get store credit when they need it. Christian noted that because Islam forbids the charging of interest, storekeepers offer their customers only interest-free loans.
When people receive cash transfers, they tend to use this money to pay back the money they owe local storekeepers. In order to ensure that customers remain loyal and repay their debts rather than switching to purchasing at the cheaper anonymous market, storekeepers reduce their prices. “This makes sense to these shopkeepers,” explained Christian, “because they are selling not only goods like wheat, sugar, rice, and oil, but also insurance in the form of store credit.” While demand for goods increases with the increase in incomes, demand for the insurance component falls.