And Now Why Not Micro-Insurance
Inter Press Service, 7 December 2004 – In the International Year of Microcredit someone should think also of micro-insurance for the poor, experts say.
That banking with the poor is possible and profitable is known around much of the world – small lendings for the poor, or microcredits, have been a success story for a while. Thirty years have passed since Muhammad Yunus, professor of economics at Chittagong University came up with the idea of lending small amounts of money to groups of women.
The example of his celebrated Grameen Bank has been followed by thousands of institutions and non-governmental organisations (NGOs) in more than a hundred countries. “Together we reach out to 70 million people, with an average of $ 100 per loan,” Yunus said on a visit to Brussels. “We have a turnover of about $ 7 billion.”
But now it is time to look beyond microcredit, experts say. Governments and NGOs must persuade finance institutions to consider other forms of microfinance. Poor people need access to savings and insurance products, and transfer of migrant earnings sent home needs to become less costly.
Microcredits are the best known, but by no means the only form of microfinance. One of the aims in the International Year is to promote also insurance, remittances and savings products.
“In Africa for example, there is often more demand for savings than for credit,” says Bart de Bruyne from Trias, a Belgian NGO that provides about 1.8 million dollars in annual grants to microfinance institutions (MFIs). “Farmers have very little or no means to protect their families against bad harvests or natural disasters.”
It could make a great difference if poor people were given access to insurance, says Dr Johan Bastiaensen, an expert on microfinance at the department of development policy at the University of Antwerp. “Theft or a minor illness can be a life threatening accident for someone struggling to make ends meet,” he told IPS. “Insurance is arguably the most wanted financial product in developing countries.”
Microsavings already exist in Africa and at many other places at the informal level. “And they are much older that the Grameen Bank,” adds Bastiaensen. “A classical example is the ‘systeme des cartes’ in Congo (Democratic Republic of Congo) where female sellers on the market entrust their money to a merchant (often a Lebanese outsider) at the end of the day.”
But insurance and savings remain as yet a distant dream for most of the poor, he said. “In most countries success stories can be told in microcredits but insurance and savings are still very exceptional.”
Prof Bastiaensen believes that governments, NGOs and MFIs can make a quicker headway with a third form of microfinance, remittances, than with savings and insurance.
Funds transferred by migrants to families back home are a vast, reliable and useful income for developing countries, he says. They exceed the level of official development aid (ODA), which stood at $ 68 billion in 2003.
International money transfer agencies like Western Union and Money Gram provide quick and reliable transfers, but charge a juicy commission. “It is one of the most blatant injustices in today’s world that poor immigrants need to pay a 15 to 20 percent commission on remittances to their families back home,” Bastiaensen argues.
“It cannot be too difficult for MFIs to offer more favourable rates,” he says. “In El Salvador, for example, there is already a network that is working for a commission of 5 to 8 percent. That will be the way forward.”
Microfinance can deliver success in these new areas as it has in microcredit, experts say. The sheer size of the potential market suggests that MFIs can make a lot of money. MFIs record much better repayment than a commercial bank: more than nine in ten clients on average meet their (often weekly) repayment terms. The interest rates are also much higher: they average around 40 percent of the borrowed amount.
“That might seem a lot by western standards, but usurers in poor countries demand interest rates between about 100 and 300 percent,” said de Bruyne. “That is what microcredits do: they provide a sustainable solution for these kind of practices that prey on people entangled in the daily struggle for survival.”
Microcredits provide a fast track to the first of the eight millennium development goals (MDGs) of the United Nations, which is to halve the number of people living below the poverty line by 2015. They are also a powerful means for goal three – to promote gender equality and empower women — as most clients are women. And they contribute to goal eight in the international consensus framework of the MDGs: develop a global partnership for development.
The achievement so far has been impressive, says de Bruyne. “A survey of clients with Ashi, one of the Trias partners in Asia which works with the poorest half of women living below the poverty in the Philippines shows that after four years a fifth of them reached an income level that outstripped the poverty.”
Copyright 2004 IPS-Inter Press Service/Global Information Network
IPS-Inter Press Service