Paper
Is Microinsurance a Priority for the Poor? Understanding the Demand for Risk-managing Financial Services
Factors influencing the demand of risk managing financial services
This paper explores the variables influencing the demand for a particular type of risk managing financial service.
The paper discusses the factors influencing demand for risk managing financial services including:
- Existence of alternative coping strategies;
- Type of risk;
- Willingness and ability to prepare for future risks;
- Poverty levels;
- Level of income and expense variability;
- Social pressure;
- Consumers level of education, biases and tolerance for risk.
The paper provides suggestions to microfinance institutions (MFIs) for improving three types of risk managing financial services:
- Offering savings services independent of their lending activities;
- Providing parallel or emergency loan products that allow existing borrowers to access money for their emergencies;
- Controlling the credit risk of emergency or parallel loan product by adopting any of the following three approaches:
- Accepting credit history as collateral substitute,
- Taking social collateral,
- Introducing pawn lending;
- Looking closely at informal funeral funds designed by low income people to understand the design features;
- Designing products alternative to the preventative risk pooling approach by paying for claims from savings account of customers.
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