The Poor and their Risk. How to Alleviate Poverty by Reducing the Impact of Hazard? The Microinsurance Promise

Does microinsurance fulfil its promise of poverty alleviation?
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This paper seeks to answer the question how to alleviate poverty by reducing the impact of hazard? It examines whether microinsurance is a solution to this question.

The paper is divided into three sections.

  • Section 1:
    • Documents poverty and aims to give a clearer picture of its characteristics;
    • Closely examines risk as an inherent factor of poverty;
    • Details and analyzes microcredit.
  • Section 2:
    • Evaluates the way in which microfinance can react to the problems of risk and hazard encountered by the poor;
    • Investigates whether microinsurance could offer a potential solution;
    • Examines the origins of microinsurance;
    • Considers the case of BASIX, an Indian microfinance institution (MFI), as a microinsurance innovator.
  • Section 3:
    • Deals with the implications for rating agencies of the emergence of microinsurance;
    • Discusses the cases of three rating agencies.

The paper concludes that:

  • Microinsurance does alleviate poverty by reducing the impact of hazard in rural areas;
  • It protects the client form risk, reduces MFI loan default, and earns additional income for MFIs, enhancing outreach and scalability;
  • The case study of BASIX illustrates that the success of microinsurance depends on its implementation, on the organization's capabilities and on the people who evaluate the organization;
  • Microinsurance complements, rather than substitutes, savings and credit in protecting the poor against risk.