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> Posted by Susy Cheston, Financial Inclusion Consultant

This post accompanies the release of “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” a new joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.

I have been an inclusive insurance enthusiast ever since I worked for Opportunity International and witnessed the experiments that later became MicroEnsure. In those early days, Richard Leftley framed insurance as the missing piece in the game of Chutes & Ladders (Snakes & Ladders for those outside the U.S.). He likened credit and savings to ladders that could provide a way up for those with lower incomes –but without insurance, each borrower or saver was just one disaster away from slipping back down into destitution. I remember his—at the time—revolutionary concept of paying insurance claims within 10 days or less. He would say that days-to-payout was the only report he wanted on his desk every morning. (Today, of course, payouts can be automatic or even come pre-loss.)

As is often the case with breakthroughs, Richard, of course, was not alone. Thanks to many innovators, an entire industry has emerged with profitable models reaching millions of people, and there is a growing understanding around the world, across social strata of the impact that insurance can have for families, communities and societies. The NGOs that pioneered microinsurance spurred the interest of commercial giants such as Allianz, AXA, MetLife, Swiss Re and Zurich, which have lent their considerable weight to solving the business challenges of extending insurance to underserved and unserved customers. Market catalysts such as A2ii, MicroInsurance Centre, MicroInsurance Network, ILO’s Impact Insurance Facility, and Cenfri have offered insights on everything from the customer experience, to good product design, to proving the business case, to creating an enabling regulatory environment for reaching new insurance markets.

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> Posted by Center Staff

The latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are: the United Nations (U.N.) General Assembly held a side event last week on youth financial inclusion; the Microfinance Gateway spotlighted resilience, for both households and financial institutions, in the realm of financial inclusion; and the Global Banking Alliance for Women (GBA), in collaboration with the Inter-American Development Bank (IDB) and Data2XCARE, released a report on the value of data to women’s financial inclusion. Here are a few more details:

  • The U.N. General Assembly side event focused on the importance of financial inclusion for youth, including youth entrepreneurs, and it was asserted that the energy and dynamism of young people will be integral in achieving the newly adopted 2030 Sustainable Development Goals. Fifty-four percent of youth between 15-24 don’t have a bank account.
  • Resilience, or the ability to anticipate, adapt to, and/or recover from adverse situations, is a key lens for considering financial inclusion. Microfinance Gateway’s spotlight shares industry work on resilience from Freedom from Hunger, ILO, IMF, Making Finance Work for Africa, Microinsurance Network, and MicroSave.
  • GBA, IDB, and Data2XCARE’s new report, based on interviews with over 50 financial inclusion stakeholders, makes the case for sex-disaggregated data – how this data could inform better policies and private sector action – and discusses the challenges to its collection and use.

For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at ezuehlke@accion.org.

> Posted by Sonja Kelly, CFI, and Thierry van Bastelaer, Abt Associates, American University, and the Microinsurance Network

Even 10 years ago, most of us would never have thought that the words “insurance” and “low-income households in the developing world” would be heard in the same sentence. It would have been as strange as, say, hearing the words “really good coffee” and “Washington, D.C.” in the same sentence.

But times have changed. Thanks to tremendous innovation in product design, pricing, and distribution systems, insurance is increasingly affordable to low-income households that are looking for ways to protect themselves from daily risky events. We should take a few moments to stop and celebrate this development. (Pause for celebration.) Thank you.

At the same time, we should learn from the history of the broader financial inclusion field. It took many years for the majority of the field to admit that credit alone can’t meet all the financial needs of poor families. Hopefully the excitement over insurance will not similarly delay the realization that it alone can’t address all the financial protection needs of these families. A great variety of financial products is needed to address an even greater diversity of needs.

So, over a cup of really good coffee one afternoon in Washington, D.C., we sketched out a possible framework that articulates where insurance fits into the product spectrum for financial risk protection vis-a-vis savings and loans.¹

We thought of risk protection expenses along two axes: frequency and size, and plotted expenses on a 2×2 table (forgive our back-of-the-napkin scribble).

Financially inclusive products are best designed to finance risk management expenses in the top left and bottom right quadrants of the graph. High-frequency inexpensive outlays can, when accumulating over time, significantly disrupt the cash flows of low-income families. Similarly, low-frequency expensive payments can ruin years of carefully planned asset accumulation. Low-frequency and inexpensive events (bottom left) can usually be covered by cash, and high-frequency expensive events (top right) are usually beyond the reach of most financial inclusion products.

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> Posted by Annalisa Bianchessi, Microinsurance Network

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.

Although Africa has 17 percent of the world’s pastures and arable land, the value of premiums for agricultural insurance in Africa represents less than 0.7 percent of the world’s total. This remarkably low figure is deplorable when one considers that about 60 percent of the active population in Africa is working in the agricultural sector and that with the advent of climate change the risks in agricultural activities are becoming even more frequent and severe. The agriculture insurance sector in Africa is also unevenly distributed, with sector development in West Africa restricted to a handful of countries such as Nigeria, Benin, Senegal, Burkina Faso, Mali, and Ghana. Should governments intervene to support the development of the agricultural insurance sector in Africa?

For smallholder farmers, agriculture insurance offsets risks associated with weather fluctuations. This risk reduction can make it more likely that a farmer will qualify for credit and thus invest in the tools and resources (e.g. seed, fertilizer, labor) needed prior to harvest that would potentially increase crop yields. Furthermore, it also provides farmers with the peace of mind required to invest savings into businesses and increases their confidence to engage in contracts with buyers and processors.

According to Ismaïla Diakité, President of COPROCUMA, a farmer cooperative in Mali, and spokesperson for a network of 500 cooperatives representing over 500,000 Malian farmers, “Microinsurance is an avenue for the people of Mali to develop our country.” Ismaïla recalls that a few years back, COPROCUMA had taken out a loan to sow 10,000 hectares of sesame seed. However due to bad weather the crop failed, and the cooperative and farmers ended up in debt. It was then that they realized the value of insurance. While very lucky (the lending institution cancelled their debt), the farmers embarked on an agriculture insurance scheme, which today is compulsory for all members of their cooperative. Ismaïla says, “Our main objective is to ensure the survival of our farmers, their life and their livelihood.” To this end, he believes that insurance is an essential part of the benefits that the cooperative needs to offer the farmers. When asked whether all farmers are happy with the compulsory insurance scheme he says, “A farmer cannot see the importance of microinsurance until he can see the bigger picture. In the sector I work in there will never be unanimous agreement on anything. However a few years into the insurance scheme, 80 percent of farmers in Mali are now convinced of the importance of agriculture microinsurance.” Read the rest of this entry »

> Posted by Jeffrey Riecke, Communications Associate, CFI

On Thursday NASA and the Japan Aerospace Exploration Agency launched a new weather and climate satellite that generates a near-global view of precipitation, closing previous large observation gaps. This development has the potential to inform an array of important weather-related activities, including weather index insurance.

The satellite, known as the Global Precipitation Measurement (GPM) satellite, uses a radiometer and dual-frequency radar to measure the presence and even the intensity of rain, snow, and ice, to a time window of three hours, across a geographic range of 65 degrees north to 65 degrees south latitude. Data generated by the satellite will be publicly available to anyone around the world.

A Japanese H-IIA rocket launching the GPM satellite from the Tanegashima Space Center in Tanegashima, Japan.

NASA’s predecessor satellite was only able to detect rain, and not to varying intensities. It also covered a more limited geographic area of 35 degrees north to 35 degrees south. The new NASA satellite could prove an invaluable resource for weather-related initiatives like disaster response and relief.

Weather index insurance is well-positioned to benefit from the newly detailed precipitation data. Weather index insurance offers a payout to farmers in the event of extreme weather, such as drought or a hurricane. The financial support helps farmers sustain their families while their source of livelihood, their land, recovers. This safeguard also makes it less risky to take out loans to invest in the productivity of land. The payout is triggered by weather index readings that register as extreme weather. This mechanism yields low transaction costs – a necessity as it rarely is practical for insurance agents to travel to smallholder farmers and verify the weather and land conditions.

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> Posted by Jeffrey Riecke, Communications Assistant, CFI

There are endless ways to measure the successes of a given year. Number of clients reached. Total new stakeholder endorsement. Amount of capital invested… Though when assessing almost anything, it’s important to think holistically and not be biased by the numbers. That said, I think I can speak for most of the Center in saying that we are excited to share that several CFI-affiliated publications were among the Microfinance Gateway’s Most Popular Publications of 2012. No small feat considering 546 new resources were added to the Gateway this past year. Here’s a brief listing of the CFI pubs that made this top cut:

Over-Indebtedness in Microfinance: An Empirical Analysis of Related Factors on the Borrower Level

This paper by Jessica Schicks analyses the over-indebtedness of microborrowers in Ghana, examining its relationship with poverty, adverse shocks, loan returns, and financial literacy. In defining over-indebtedness, the paper adopts a client perspective, taking into account clients’ repayment struggles and the sacrifices they make to fulfill payment obligations. Some of the paper’s findings are the following: Read the rest of this entry »

> Posted by Adriana Magdas, Senior Associate, CFI

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.” 

Low-income individuals need insurance at least as much as those with higher incomes, due to higher vulnerability and a smaller cushion of resources to draw upon in times of need. The good news is that the number of people covered by microinsurance rose from 78 million in 2007 to 135 million in 2009, and today, more generous estimates place that number at around 500 million.

If microinsurance has grown so rapidly, why worry about it?

First, because most of the market is still unreached. According to Lloyds, the actual market potential is somewhere between 1.5 and 3 billion. Recent growth is disproportionate, with 80 percent of the insured in Asia. Latin America has only 15 percent of the insured and Africa only 5 percent.

Second, because expanding the reach of microinsurance proves to be challenging. The Financial Inclusion 2020 campaign and its partner, the Microinsurance Network, organized a webinar to discuss these challenges with microinsurance experts. From this conversation, three main lessons stuck with me. Microinsurance products must be:

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.