The Lure of Microinsurance: Why MFIs Should Work with Insurers

This paper addresses the issues related to the provision of microinsurance products by MFIs in partnership with formal insurers. The paper cautions MFIs against foraying into the microinsurance market with their limited capacity. The paper points out:

• The risks present to the sustainability of a MFI when it forays in the insurance sector;
• The lack of adequate skills and capacity with the MFIs to handle insurance products.

Further, the paper cites four reasons for MFIs and donors to tread carefully in microinsurance sector:

• Requirement of specialized skills, institutional capacity, experience, risk management techniques and analytical abilities for insurance business;
• Risks in mixing insurance provision with other financial services like credit and savings;
• Skewing of assessment of institutional capacities by donor presence;
• Weak regulatory and supervisory norms of MFIs becoming detrimental for insurance business.

The paper also points out the increased interest in microinsurance of specialized insurance agencies worldwide, through their partnerships with MFIs. The author discourages donors to support MFIs in becoming insurance companies when expert capacity is available.

Finally, the author suggests an insurance provision partnership between MFIs and formal insurers that would capitalize on the core competency of both the parties. Such a partnership would confine insurance risks with the formal insurers and the responsibility of sales and product-service provision with the MFIs.