Tuesday, June 16, 2015

Re: [MFP] The microfinance delusion: who really wins?

 

Thanks for sharing this data, Thierry.  I find much of it surprising, different than what I've seen in practice, but without further details or definitions, I can't get my level of trust very high with what is shown in that table.  It could be argued it reads more like a promo piece for the industry than an analysis quality, e.g., "total lives insured"… it would be helpful to have a definition.  Does property insurance mean the life is insured?  Is this a count of individuals (i.e., policies), or of full family members insured (for example, what might happen with health insurance)?


It would be very helpful to split out the data by what is sold through MFIs that also do credit, as aggregate figures may get heavily distorted by having one large "real (non-MFI) insurer" in the region that distorts all the other statistics.

One figure you highlight intrigues me a lot.  You say just 5% had insurance that only covered the loan balance?  What else was really covered?  Were the additional payouts significant relative to the loan balance coverage?  How strongly can you really argue that these are products designed as something clients demand, rather than what helps the MFI generate more revenue?  These are FORCED policies, and anything that is forced on a client by a business is generally done so because the business benefits.

I pulled up right now one country (Ghana) and looked at the two largest MFIs, just to see what I could find out.  This doesn't pretend to be a thorough analysis, and I'm not pretending to draw any firm conclusions, but I certain am left scratching my head.

SAT forces 140,000 clients to buy insurance.  They call it a "Client Welfare Fee" (whatever that means), and it's not priced too bad…. it adds just 3% to the 95% APR of the loan:  http://www.mftransparency.org/microfinance-pricing/ghana/041-SAT/P05-Trust_Bank/   When I go to SAT's website, I find descriptions of their loans and savings products.  I find no mention of insurance or "client welfare products":  http://www.sinapiaba.com/saslmain/index.php/2013-08-15-06-55-41/sasl-loans-products  If it were really a serious product that was useful, why don't they highlight it?

ASA-Ghana forces 70,000 clients to buy insurance. It isn't too expensive, thankfully, adding just 4% to the 80% APR of the loan.   http://www.mftransparency.org/microfinance-pricing/ghana/005-ASAGhana/P02-Small_Loan/   When I go to ASA-Ghana's website to find out what the insurance does, there is no mention at all that they even do insurance.  They just talk about credit and savings:  http://www.asa-international.com/asa-savings-loans-ltd-ghana/   I am left to believe that this isn't a wonderful, life-changing insurance product… but at least it isn't sucking a lot of money out of the clients.

I'll explore forced insurance coverage and pricing in the next month as I finish an analysis of microfinance pricing.  But what I see when looking at micro-credit is that there is a lot of forced insurance, the insurance is heavily (or entirely) correlated to covering loan balances, and the pricing of insurance is often very messy, very confusing, and sometimes used to sneak around price cap laws (e.g., Ecuador).

Your first paragraph states low-income families need flexible and affordable financial instruments.  I fully agree.  But just quantifying the number of insured clients without incorporating the more challenging judgement of flexibility or affordability of those insurance services follows the dangerous path that we did with credit.  We equate quantity with quality, and we blur the motive and goals of those selling the product.  Let's not hype insurance as the next "end to poverty" and then find out we've helped create another profit-maximizing industry skilled in using opaque and confusing pricing tricks, as well as forced purchase techniques.

Chuck Waterfield

"A lie too often told becomes the truth"  - Lenin

On Jun 15, 2015, at 6:59 PM, Thierry van Bastelaer thierry_van_bastelaer@abtassoc.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:


Glad to see insurance mentioned in this discussion.  Indeed it would be hard to envision how low-income families could manage risk without access to a portfolio of flexible and affordable financial instruments, in which insurance plays a critical role along loans and savings (for a well-timed blog about the various strengths and weaknesses of these three products for risk management, please see http://cfi-blog.org/2015/06/15/whats-insurance-got-to-do-with-it/.)

 

As Derek references, the World Map of Microinsurance – a program of the MicroInsurance Network, with the MicroInsurance Centre as implementing partner – does collect comprehensive data on microinsurance. Looking well beyond outreach, this data help give a full picture of the microinsurance products offered, both from the insurer and the client perspective. The data is updated for one region per year (so we will have 2014 Africa data this year, and 2015 Asia data next year). Below is a summary of the landscape data for the most recent three regional studies. 

 

Pure credit-life products are not the norm: of the 48.6 million people identified as covered by microinsurance in LAC in 2013, fewer than 5% had coverage simply for loan balance. Most products reported to the study offer an additional specified benefit, such as through a bundled term life or funeral policy. Credit life-only products are rare in the other regions as well, as financial institutions (MFIs or otherwise) are just one of many distribution channels used to reach low-income people.  

 

(millions)

LAC

ASIA

AFRICA

Most recent global SUM

Year of data

2013

2012

2011

% of Market (total population)

7.9%

4.3%

4.4%

4.8%

GWP (USD M)

827

829

548

2,204

# Products

>200

>500

<image002.png>600

1300

Total lives insured

48.6

170.4

44.4

263

Life

32.5

83.9

33.9

150

Credit life ONLY (no other cover offered with the product)

2.23

4.1

6.35

 

Accident

20.9

77.8

2.0

101

Health

7.6

29.2

2.4

39

Property

2.2

7.7

0.8

11

Ag / Livestock

2.2

23.8

0.2

26.2

 

A few additional tidbits that get at the questions that Chuck raises regarding microinsurance, all from in 2013 in LAC:

o   At least 40% were voluntary covers (20% were mandatory, 14% multiple options, 6% automatic, and 20% no answer)

o   35% of microinsurance covers were tied to a loan of some kind

o   Only 25% of MI covers were distributed via MFIs

 

Thanks to Katie Biese (MicroInsurance Centre) and Manoj Pandey (Microinsurance Network) for the research behind this post.

 

From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] 
Sent: Monday, June 15, 2015 1:24 PM
To: MicrofinancePractice@yahoogroups.com
Subject: [MFP] Re: The microfinance delusion: who really wins?

 

  

Many thanks for sharing this article, Chuck.

 

There really needs to be more realistic discussion about the unfortunate direction microfinance has taken. The social consequences of commercialization have been disastrous, but as long as outreach keeps ticking up, who cares, right? Measuring social impact is "difficult" anyway, better to focus on the bottom line. 

 

For estimates of the size of microinsurance markets, you can check out the World Map of Microinsurance at the Microinsurance Centre's website - http://www.microinsurancenetwork.org/world-map-microinsurance. The map references findings from several regional landscape reports conducted in recent years. 

 

Unfortunately, I think we see a lot of the same negative, commercialing trends in microinsurance. Low value products being tacked onto loans, savings, and even mobile airtime, with low customer comprehension, and even worse, low comprehension by insurers about the needs of the low income market. 

 

I'm not convinced that offering insurance and savings is a viable "way out" for MFIs who want to "do right" by their clients. As the article mentions, without public policies creating the necessary conditions, financial services will do nothing to alleviate poverty.

 

Cheers!

Derek

 

 



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