Peer-to-Peer Before Fintech: Informal Risk Pooling and the Missing Tier of Climate Adaptation Finance

Peer-to-peer finance is usually dated to the platform lending experiments of the mid-2000s, a dating that inverts the actual chronology. Rotating savings associations, burial societies, tontines and village pools have carried the risk of illness, death and income loss for centuries without disintermediating, and many households that lack formal insurance rely on them. The paper treats such arrangements as an unrecognised tier of climate adaptation finance whose binding constraint is the correlation of member losses rather than trust, transaction cost or informality. In the symmetric equicorrelated pooling model the gain from membership is bounded above by 1 − √ρ, a ceiling of 29% at an illustrative correlation of 0.5, whatever the pool size. The paper also argues that repeated correlated shocks deplete the pool’s capital, a proposition labelled the correlation ratchet. The demand shortfall in index insurance is attributed, as an untested hypothesis, to placement rather than product design, as contracts were sold to households at the tier where pooling works instead of to aggregators at the tier where it fails. The paper proposes a tiered architecture, in which parametric cover is written to the aggregator under governance safeguards and digital transfer rails extend reciprocity beyond the hazard footprint.