Using Microinsurance and Financial Education to Protect and Accumulate Assets

The paper presents microinsurance as a solution for the poor to cope with risk and their shortcomings, and proposes financial education as a way to increase its understanding and adoption. This paper also examines various ex ante and ex post coping strategies by low income households to reduce financial burdens. They are:

• Self insurance measures, which comprise accumulated savings, purchased assets, diversifying income sources, reciprocal lending, borrowing from friends, family, money lenders, MFIs or banks, and liquidating assets;
• Group based insurance, which includes community based savings clubs or welfare groups, borrowing from church groups etc.;
• Social protection measures such as preventive public health services, commodity price stabilizations, food aid etc.;
• Formal insurance through schemes provided by regulated financial institutions.

The paper states that simply designing the right product is seldom enough. It stresses the need for financial education, as it provides a link between financial services and clients, enabling them not only to use microinsurance well but also manage money more effectively.