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Is Microinsurance an important next step in Microfinance provision?
Microfinance is becoming incredibly popular in both international development circles as well as with the public at large. The popularity of organizations such as Kiva.org, Grameen Foundation, SKS and others make it seem like microfinance is a panacea for development, that it will solve global poverty.
But what happens if the loan recipient - a mother, for example, who used her loan to buy more cattle and successfully start a milk production microbusiness - unexpectedly dies? Or gets injured? The family is bound to fall back into poverty, right?
So why aren't more development practitioners and microfinance institutions concerned with providing insurance to these communities??
Do YOU think Microinsurance is an important next step to microfinance?? Why or Why not?
Would love to hear everyone's thoughts.
But what happens if the loan recipient - a mother, for example, who used her loan to buy more cattle and successfully start a milk production microbusiness - unexpectedly dies? Or gets injured? The family is bound to fall back into poverty, right?
So why aren't more development practitioners and microfinance institutions concerned with providing insurance to these communities??
Do YOU think Microinsurance is an important next step to microfinance?? Why or Why not?
Would love to hear everyone's thoughts.
Tags: development, enterprise, microfinance, microinsurance, propoor, business, social, social business
Views: 21
Replies to This Discussion
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Permalink Reply by Tom Murphy on -
I think it is an important step, but it seems like it is a hard sell to encourage people to set aside money in case something catastrophic goes wrong. To me, there needs to be education tied to savings in order to get it moving in a reasonable direction. Chris Udry did some research on rainfall insurance and came back with some relatively positive results. His findings will be published soon, but more work will have to be done to craft the right type of insurance that will benefit the buyer and the provider.
In the end, I see it as a secondary concern to savings. That is not at all to diminish the importance of insurance, but to say that that a shift has to occur where people will consider the future. This, to me, is daunting as we know that even in the United States the rate of savings is not nearly as high as it should be. Behavioral Psychology and Economics have shown that people are nearly always more inclined to meet short term desires over long term benefits. It is why we watch a comedy today and a more serious movie another, or eat a burger today and work out tomorrow, or buy a new house today and begin to save tomorrow. As long as the tomorrow mentality persists, an uphill battle to make meaningful changes that affect the future will continue.
Looking forward to the thoughts of others on this as well. This is a great question/topic. Thanks for getting this started, Nita.
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Permalink Reply by Nita Nehru on -
You bring up some great points, Tom. There is some literature out there that points to humans' thought process and our hesitance to consider catastrophe striking, whether we are rich or poor. I can point to my own reluctance to get renter's insurance, often thinking "how likely is it that my home will get robbed?" But the reality is that many of these so-called catastrophes are more common than we'd like to think.
I, for one, DID have my home broken into at a time when I did not have renter's insurance. I unfortunately waited for something to happen to get the insurance when I could have paid miniscule amounts to save myself from the financial loss I incurred when the thieves did strike.
On a similar note... what do you think it will take for microfinance borrowers to realize that instead of avoiding thinking about unfortunate events striking, it may be in their best interest to pay small premiums but have the peace of mind that, regardless of what happens, they are covered? Do you think having adequate savings can cover them in most cases?
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Permalink Reply by Tom Murphy on
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Well said, Liza. I complete agree with meeting the needs of the recipients of insurance/savings programs. Are you going to post something from the talk given by the authors of "Portfolios of the Poor?"
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Permalink Reply by Nita Nehru on
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Liza, I look forward to hearing from you regarding the book "Portfolios of the Poor."
Other SEEP members - please send your thoughts regarding microinsurance and microsavings. I am sure we are all very interested in hearing other perspectives from development practitioners, people in the field, academics and others interested in this cause.
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Permalink Reply by Tom Murphy on
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Maybe a SEEP book section could be added? Would be a fun way to learn about books that are related to microfinance and development. There could be pages for books as they are identified and people can type up reviews, discuss points on it and make suggestions for further reading. There is so much out there that it would be great to share some incite into what is being written in the formal sense.
Not sure if it is possible, but I figured I would toss out the idea. Might even be a fun way to organize a SEEP book club of sorts (increase engagement).
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Permalink Reply by Casey Gheen on -
You guys make some great points. Savings AND Insurance are key pillars of holistic microfinancial service delivery. Insurance can be a difficult "sell" where an insurance culture doesn't exist, which is why good insurance programs must be accompanied by an educational component that explains everything from the basics of "what is insurance" to the "how to's" of filing a claim etc. But, as Liza points out, great products, combined with innovative marketing strategies, can be tapped to reach this market. Unfortunately insurers for the most part haven't taken the initiative needed to cultivate those strategies and new channels, except in a very one-off fashion or where required by law (like in India).
We founded our social enterprise, Avana Microinsurance, to bridge these gaps and do so with the appropriate education and product features to really provide value to the newly insured. I'd love to hear from you if you know of an MFI (or other group serving the low income market) who wants to add insurance to their product offerings but hasn't figured out quite how to do so.
Thanks for all your insights!
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Permalink Reply by Dana Raj Panta on -
For reaching to ultra poor, First institution should target to service for ultra poor in numerical value. Loan size should be small & loan should provide in terms of commodity, credit plus scheme also required.
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