• Commercialisation of microfinance

Commercialisation of microfinance

This briefing paper is an output from a conference held in 2005 on microfinance and microinsurance, attended by several international stakeholders, including DFID, the ILO and CGAP.

For the purpose of the conference, microinsurance was defined as: "the protection of low income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved". The starting point of the conference was the issue that in many countries there are no formal mechanisms to protect workers, particularly those who are poor; there are no employer contributions; and there is a lack of infrastructure to provide appropriate services. The conference focused on ways to deal with these challenges, through discussions that will shape the development and growth of microinsurance.

The mian body of this document reports on different models of microinsurance presented at the conference. These are:

• the partner-agent model, whereby an established insurance company works with a distribution channel, such as a microfinance instituion (MFI), as a means to actively reach poor clients. This was described as a "win-win" situation, facilitating the insurance company's access and widening its portfolio, while enabling the MFI to provide better services at lower risk
• credit unions and co-operatives: these often offer loan protection insurance to ensure that family members are not left with a debt in the case of death. One benefit of this model is that the member's status as a 'company' stakeholder leads to more say in the planning and running of the insurance programme
• direct sales model, where insurance is sold through individual agents: however, this may incurr higher costs and risks for the insurer
• community-based model: plicyholders pay premiums into a fund and are entitled to specific benefits. The community plays an important role in running the programme. One problem of this model is that many of the poorest people may be beyond its outreach.

Some key conclusions were:

• health insurance stands out as the most critical area to address
• more innovation is required in the area of agricultural insurance
• donors need to facilitate linkages and share knowledge
• governments need to: provide coverage through social protection, create a suitable regulatory environment, and promote formal sector entry of insurance comapanies into the low-income market.

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