Insurance as a Microfinance Product

There is an attractive development logic for the provision of insurance to low-income households. One can easily create a compelling story of how a microinsurance product will protect the poor against devastating losses or smooth the volatile cash flow of low-income households, while generating increased profits for the microfinance institution (MFI). Today’s microfinance industry abounds with such stories, and dozens of MFIs are rolling out microinsurance products in a rush to meet both client and institutional needs.

While there is no doubt that low income households are highly vulnerable to risks—nor that MFIs are in need of increased profits—microinsurance is only a partial response. It is also a response that most MFIs will find difficult to implement, because they have not yet had cause to create the specialized skills and institutional structures that commercial insurers have developed over decades, in order to underwrite risks prudently.

This brief describes the parameters of microinsurance in the range of risk management products and tools typically used by microfinance clients. Additionally, it describes the main types of insurance being offered by MFIs today, and highlights the resources MFIs require to manage insurance premiums and products profitably. It concludes with a suggested approach to microinsurance that is built on partnerships between MFIs and licensed insurers.

This is a very helpful brief that explains clearly the implications of introducing insurance products as a microfinance service. It is based on a conference presentation by Craig Churchill, Calmeadow, at the February 2000 conference on “Advancing Microfinance in Rural West Africa” in Mali.

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