Part 2: Insurance for the Vulnerable
 | Muhammad Yunus, Nobel Peace Prize Laureate and managing director of Grameen Bank (Photo: Reuters) |
But microfinance also includes giving people a way to manage risks to their lives, health, families and livelihoods. Microinsurance has therefore become a popular product in the developing world, particularly for people working in hazardous industries or living in environmentally vulnerable regions.
"Insurance is an indispensable financial service," says Vipin Sharma who directs the microfinance program at CARE India. CARE International and Allianz announced a partnership in July 2006 that provides microinsurance policies to over 75,000 fisherman and agricultural workers in the tsunami-stricken southern Indian state of Tamil Nadu.
"The goal is to ensure that the tsunami survivors can overcome the setback they faced as a result of the disaster and to secure the means by which they can insulate themselves against further shocks and insecurity through appropriate insurance coverage," Sharma told Allianz.
Projects and organizations have been experimenting with microfinance services for over thirty years. Some of the pioneering microfinance projects, such as Muhammad Yunus's early microcredit experiments in Bangladesh and ACCION International's microlending program in Brazil, took place as early as the mid-1970s.
ACCION International and Yunus's Grameen Bank have stayed on the cutting edge of microfinance, and both are among the leading organizations in the field. Other organizations with large numbers of clients include BRI, BancoSol and Opportunity International.
No charity
The United Nations - through the UN Development Programme (UNDP) and Capital Development Fund (UNCDF) - has also initiated projects, as have government branches, such as the German Agency for Technical Cooperation (GTZ).
Although alleviating poverty is a goal shared by many of these organizations, another motivation often lures financial institutions into the microfinance business - profit. By providing services for the traditionally "not bankable" or "not credit-worthy," banks and insurance companies create new markets and make money by charging interest on loans. Indeed, some experts consider profit an essential part of microfinance because it enables the expansion of financial services to poor communities all over the world.
Even though experts hesitate to call microfinance a catch-all solution, microfinance still has great potential to alleviate not only poverty, but also other problems that afflict the developing world. Arun Kashyap of the UNDP sees inclusive financial services as "a glue" that holds together integrated network of solutions to elusive development problems.
"The Millennium Development Goals include gender equity, improving the quality of life of children, environmental protection, addressing HIV/AIDS and other health concerns," says Kashyap. "In all these cases, a key is providing more access to the goods and services for the people who need them."
"That means creating livelihoods and cash flow at that level, as well as things like access to water sanitation, energy, health services and even some kind of insurance or safety-net mechanism," adds Kashyap. "To do all of that, you need an inclusive financial system."
Part 1: Financial Services for the "Not-Bankable"
editor: Valdis Wish
publishing date: September 26, 2006
last edited: May 7, 2008
