Micro-Insurance: An essential financial service for the low-income households

K.Balasubramanyam
Micro-Finance Advisor
Centre for Micro-Finance
CECI-Nepal


Background note prepared for the CMF (Nepal) and ILO STEP national seminar-workshop on Micro-Insurance in Nepal from June 20-22, 2000.
Micro-Finance situation in Nepal:

In the past decade Micro-Finance has been recognised as an effective development intervention . Many Micro-Finance institutions and programs targeted to the poor have been emerged with the intervention by HMG, Multi/Bi lateral agencies, INGOs and NGOs. Within Nepal there are a wide range of institutions active in the Micro-Finance sector, each with its own way of going about the task of making financial services accessible to the poor.

The formal financial sector providing micro-finance services through mandated Govt. Programs include the Nepal Rashtra bank, the Agricultural Development Bank of Nepal, the Nepal Bank Ltd, the Rashtriya Banijya bank and the regional Rural development banks.

As per the requirement of government of Nepal (HMG), a set portion of all Banks' investments be targeted at priority sectors, including the poor. There are two major players in the development banking sector. Firstly, the Agricultural Development Bank of Nepal (ADBN) has a long history of providing MF services, most notably under its Small Farmers Development Program (SFDP) which was a ground breaking initiative when it was started in the 70s. The second wave of MF institutions comprises of regional development banks, which are effectively Government-owned replications of Grameen Bank model. The Rastriya Banijya bank (RBB) implements the Banking With The Poor (BWTP).

There are major micro-finance programmes initiated by HMG aimed at providing micro-Finance for productive activities to women: Production Credit for Women(PCRW), Micro-Credit Project for women ( MCPW), Intensive Banking Programme (IBP), Rural Self-Reliance Fund (RSRF) .

Two large NGOs: NIRDHAN and CSD also provide micro-Finance services to a large number of Women clients through Grameen bank replication. There are many other NGOs, which have been providing micro-finance services to the poor through different models.

There are more than 700 registered Savings and Credit Cooperative Societies which provide financial services to their members. In addition to that there are large number of Savings and Credit groups promoted by NGOs and INGOs in the villages which are helping the poor to pool their savings and offer credit for the various needs of the members.

In this predominantly agricultural based economy Micro-credit is largely applied to agricultural and allied activities and livestock development. The small and marginal farmers benefit greatly from the micro-Finance programs.

Micro-Insurance

So far the micro-finance institutions and programs have been focusing on providing savings and credit services only. However a growing number of MFI practitioners and promoters have recognised that providing credit is not enough for the sustainable development of the people. A range of other financial services including insurance and other support services are required to be provided along with savings and credit services. The poor are vulnerable to different types of risks and adopt various strategies to reduce the impact of the losses. Insurance services are very essential for the low income households to cope with uncertainties and emergencies like illness or injury, Death, Natural disasters, theft and life cycle needs. Formal insurance services are not accessible to the poor because of high premiums and complicated procedures.

Some NGOs and MFIs all over the world have been implementing different innovative micro-insurance plans to help the poor in risk pooling and management. These plans include coverage of life, health,loan protection etc.

There are a few initiatives in recent times on documenting the existing micro-insurance products and services and developing tools to enable MFIs design and implement insurance services to their clients.


Hari Srinivas - hsrinivas@gdrc.org
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