Experimenting with a Micro-health Insurance System in Cambodia: The EMT Example

Publication Date: 2000
Published by: GRET - Groupe de recherche et d'echanges technologiques
Document Type: Paper

Online version of this document is not available at the moment. To get a personal copy, please view Ordering Information.

Exploring the possibilities of health insurance provision.

EMT (Ennatien Moulethan Tchonebatt, Khmer for "rural lending") is a microfinance institution set up by GRET in 1991 in Cambodia. Nearly ten years after its creation, EMT has more than 65,000 clients with a loan portfolio of approximately 2 million US dollars. Founded on a strategy of rapid growth, EMT reached the break-even point in 1998 and is currently in the process of becoming a private limited company. EMT's growth was based on a single product: solidarity group lending (average loan $40)

A microcredit impact study in 1996 showed that medical expenses are a determining factor in endangering household budgets in Cambodia. GRET and EMT therefore decided to test a health insurance system, based on the observation that while credit makes it possible to generate income, it is also important that one act to safeguard income.

The first test experiment with two loan officers revealed just how difficult it was for loan officers to manage this additional activity while being subjected to strict productivity and loan-monitoring imperatives in their normal work-load. Even when a "new product management" bonus was added, the level of work required of these agents remained too high in relation to their primary activities. Even more fundamentally, EMT realised that its goal of qickly reaching financial viability through rapid geographical expansion is not very compatible with the investment needed to perfect an innovation of this sort.

EMT concluded that the experiment should be run externally. An autonomous health insurance project was therefore implemented starting in 1998.

This experiment raised two questions:

What makes health insurance a new product and profession in the field of microfinance?
In the case of loan insurance, with Grameen Bank for example, the profession is very similar to traditional microfinance activities. Borrowers pay a subscription to an insurance fund that is used to repay a client's loan in the case of his or her death and also covers funeral expenses. In the case of health insurance, the profession is very different because the risks involved are different. In the insurance field, the two main types of risks are statistical risk (which needs to be taken into account in order to reach financial viability) and the risk of fraud. Health and illness statistics in Cambodia are of poor quality which makes risk management all the more difficult for the first type. Furthermore, a health insurance system can only function if it is based on a health care system that functions properly, that is that provides quality care according to a stable scale of fees known to both beneficiaries and insurers alike. As local health care is little developed in Cambodia, the project chose to develop health care services to go along with with the insurance product.

To what extent can an MFI, already weakened by the need to manage rapid growth and by the relative inexperience of its staff, diversify and evolve towards a new profession?
For EMT, who still has few competitors, the appeal of diversifying into the health insurance sector lies in better meeting the needs of its existing clientele, though insurance is in no way an essential short-term strategic necessity for the institution's growth. This said, it is however possible that EMT will offer an insurance product after the end of the experimental project if it proves appropriate and profitable. In a highly competitive environment, as is the case in certain Latin American countries, the diversification of products can become strategically vital. The EMT experience shows that, in order to prepare for diversification, it is important to be aware of customer demands and create an internal climate favourable to innovation.