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

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.