Is Microinsurance a Priority for the Poor? Understanding the Demand for Risk-managing Financial Services

This paper explores the variables influencing the demand for a particular type of risk managing financial service.

The paper discusses the factors influencing demand for risk managing financial services including:

• Existence of alternative coping strategies;
• Type of risk;
• Willingness and ability to prepare for future risks;
• Poverty levels;
• Level of income and expense variability;
• Social pressure;
• Consumers level of education, biases and tolerance for risk.

The paper provides suggestions to microfinance institutions (MFIs) for improving three types of risk managing financial services:

• Offering savings services independent of their lending activities;
• Providing parallel or emergency loan products that allow existing borrowers to access money for their emergencies;
• Controlling the credit risk of emergency or parallel loan product by adopting any of the following three approaches:
  • Accepting credit history as collateral substitute,
  • Taking social collateral,
  • Introducing pawn lending;
• Looking closely at informal funeral funds designed by low income people to understand the design features;
• Designing products alternative to the preventative risk pooling approach by paying for claims from savings account of customers.