Abstract: The wellbeing and livelihoods of people are two important aspects of poverty which in turn area dependent on the households' coping capabilities and their abilities to manage risks. The roles of institutions such as Non-Governmental Organizations (NGOs) and particularly the government are important in ensuring the welfare of the people. Empirically, little is known on the link between households' coping strategies, government policies and institutions. This study investigates and analyzes the role of people's risk management and coping strategies in building their capacities. Using a structured socio-economic questionnaire, 302 randomly selected farmers in both states were tested. Household income decreased by RM52, RM81 and RM102 due to illnesses, floods and economic recession respectively. In order to cope with these stressors, households implemented coping strategies rather than preparatory ones which can strengthen their capacities to manage against any unexpected threat. In some cases these strategies threatened households’ welfare. Less risky production activities, spending saving and out-migration looking for job led to decrease households’ monthly income by as high as RM123, RM139 and RM166, respectively. Although the results showed that institutions did not lead households to fall into poverty trap, their supports also made no difference. These institutions are active and provide the needed services to the communities only after a disaster have occurred. This observation is based on the positive relationship between households’ coping strategies and institutional supports (r = 0.310, p = 0.000). The relationship between households’ risk management and institutional support was not significant (r = 0.087, p = 0.067) based on this study.