Providing Insurance through Microfinance Institutions: The Indian Experience
This brief examines the merits of providing microinsurance through MFIs in the light of the challenges faced by the microinsurance industry. It highlights the experience of Indian MFIs, and draws lessons from their experiences.
The microinsurance industry is facing the challenges of an infant industry. Nevertheless, Indian MFIs can be effective delivery channels for providing microinsurance. Insurance is important to the poor and MFIs could increase their penetration into unbanked areas by first offering appropriate insurance products. Experiences of MFIs offer a number of lessons for product design and service delivery. They include:
- Households' willingness to enrol in a commercial insurance program depends largely on trust;
- Partial solutions are a good first step although comprehensive products are ideal;
- Bundling financial and nonfinancial solutions can create an ecosystem that allows comprehensive risk management solutions;
- MFIs should avoid going solo;
- Information technology can reduce costs and improve the viability of microinsurance.
The paper suggests that government can develop publicprivate partnerships for delivering state-funded insurance programs, in which MFIs can act as partners. It recommends that insurance regulators should create an enabling environment that facilitates the commercial viability of microinsurance.