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This exercise is designed to stimulate thinking and discussion about how risks and costs are shared through mutual guarantee mechanisms used in microfinance. It illustrates that risks and costs are transferred to neighbors, friends, and the most economically active (but also poor) members of the community. Moreover, the lesson illustrates vividly how the risks and costs facing borrowers increases in an HIV/AIDS-affected environment, where households face extreme and often unanticipated changes in their financial capabilities and needs.

This training packet contains the following sections:

Section I provides a brief description of the Simulation: its structure, lessons, and required preparation.

Section II provides the trainer with important background information needed to prepare for the Simulation.

Section III describes how the Simulation is actually conducted: it outlines the facilitator tasks from start to finish, and provides a view of what happens in each round of play.

Section IV provides suggested information for the facilitator to use in introducing the Simulation, and then in leading a discussion after the Simulation ends.

Section V briefly describes modifications and extensions to the Simulation.

Section VI provides the “hardware” for the Simulation: instructions in preparing player envelopes, scripts for each part in the simulation, money templates needed to create the player envelopes, and the master math worksheet.

Anyone who chooses to invest in a business activity knows that the outcome of his or her enterprise is affected by risks.  Investment decisions always involve expectations about future prices, costs, yields and other factors, which may or may not come to fruition.  People vary in their ability to cope with poor outcomes.  If a business makes losses it becomes difficult to meet family needs and may lead to a reduction in the capital available to continue the business.  This effect is much more marked when borrowed capital is used to run the business.

This book shows people how to identify the main sources of risk to which they are exposed and how they can reduce that exposure, for example by adopting good husbandry practices or gathering market information to improve sales and prices.  Financial risks can be reduced by asking “what if..?” questions and assessing the effect of different yields and prices on a cash flow plan. 

The book goes on to explain the role of insurance in helping people overcome the effects of more devastating losses.  The language and principles of insurance are explained and examples of mutual and commercial schemes are described.  The final section introduces people to the idea of developing a risk management strategy and when insurance might form part of that strategy.  A checklist of questions to ask when considering an insurance policy is included at the end.