MFI's Foray into Microinsurance

Publication Date: 2001
Published by: London, UK: Alternative Finance
Document Type: Paper

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Are MFIs capable of running the insurance business?

This paper examines the appropriateness and practicalities of microfinance institutions (MFIs) providing insurance. The article cites examples of established schemes highlighting the fact that when insurance is provided by MFIs, it does not often reach those who really need it.

The author discusses the problems faced by the MFIs and NGOs, in the insurance sector, which should be carefully looked into:

• Ability to obtain legal status and authorization to mobilize savings from the public;
• Viability and sustainability;
• Lack of financial management capability in weak MFIs;
• Competition from the grassroots level field agents/workers functioning for the formal players.

• It is too early for NGOs/MFIs to enter insurance activities; at best they may market the products as agents, not directly underwriting the risk.
• NGOs may concentrate on the capabilities of the poor through social empowerment rather than struggling with financial services.
• NGOs may explore possibilities to promote insurance schemes with a priority to health.
• Existing formal players in the insurance sector should be drawn through a linking program for effective participation in microfinance programs.