Understanding weather index-insurance adoption among smallholder farmers in Mali: The role of financial and insurance literacy

Weather-related shocks pose a considerable threat to the livelihoods of smallholder farmers in the Global South. While index-insurance offers a promising solution to mitigate these risks, its adoption rates among potential clients have remained low in practice. This study examines the associations of financial and insurance literacy on weather index-insurance uptake among maize farmers in Mali using cross-sectional data. A probit model is employed, followed by the Lewbel instrumental variable method to address endogeneity, and a double-selection lasso logistic regression. Results indicate that index-insurance literacy increases index-insurance adoption statistically significant, with the magnitude of index-insurance literacy being substantially large. Quantile regression revealed statistically significant heterogeneity in index-insurance adoption across the income distribution for index-insurance and financial literacy. These findings highlight the crucial role of index-insurance specific literacy in driving index-insurance uptake, informing policy efforts to enhance financial education.