Executive Summary ‘..reducing vulnerability, with all its debilitating consequences, is central to improving material well being (or preventing reversals) and empowering poor people and communities’ (World Bank 2000).

Whilst over the last few decades life expectancy, child mortality, literacy and education enrolment have increased , this progress has been uneven and confined to particular groups of people (UNDP 2000). There are still 2.8 billion people living on less than $2 a day, in poorer countries a fifth of children die before the age of five and almost half
remain malnourished. In the next 25 years, two billion people will be added to the world’s population of which 97
per cent will be in developing countries (World Bank 2000). There has been a growing recognition amongst development practitioners that poverty alleviation is best achieved by empowering the disadvantaged and giving them the right and the opportunity for self-determination. The poor are faced with many difficulties in improving their livelihoods including limited access to health, education and income opportunities. Whilst the measurement of poverty has moved from relying solely on income figures to a more multidimensional concept encompassing freedom, civil rights and equality, the efficient use and availability of financial resources is still regarded as critical to sustainable poverty alleviation.

In recent decades a number of microfinance institutions have been established to provide access to savings and credit to the poor. These informal schemes are designed to empower the individual to become more self-sufficient and to give them the ability to protect and provide for their family. Despite widespread scepticism from academics these products have been positively received by the poor. This has demonstrated that the poor are not weak helpless individuals who rely on handouts, but are determined people wanting to improve their livelihoods and wanting to overcome the challenges facing them. More importantly the poor have shown that they have the capacity and the desire to save and to repay loans. Subsequently many hundreds of microfinance schemes are now in operation informally and formally across the world today.

However, the effectiveness of improved access to credit and savings on poverty alleviation is dependent on how these additional financial resources are utilised by the poor. The poor are faced with many risks and are highly vulnerable to fluctuations in their income and expenses arising from health costs, property theft and fire, violence, death, disability and catastrophes. Available credit and savings provide some protection against the effect of these losses, but by using all of their available financial resources to try and recover from these events many find themselves falling further into poverty. In the last few years development institutes have recognised that microinsurance products are the most appropriate way to lower the impact of these risks on the poor and to ensure more effective use of credit and savings. However, insurance provision is much more complex than credit and savings and a number of recently established schemes have failed to provide adequate cover on a sustainable basis.

The study addresses two central issues, firstly, the importance of insurance in supporting poverty alleviation, and secondly, what measures can be taken to provide a sustainable and viable microinsurance scheme. Chapter one looks at the reasons why the poor are so vulnerable, the impact on their livelihood, and how savings, credit and insurance can assist overcoming vulnerability. The second Chapter reviews the problems facing micro-insurance providers and chapter three looks at solutions that have so far been implemented, in particular the use of the co-operative structure to deliver insurance products to the poor. As there are still very few micro-insurance schemes which have proved their viability and sustainability chapter four looks at additional areas that need to be addressed. Chapter five provides some recommendations and concluding remarks.

Conclusions

The study highlights the importance insurance has in supporting the sustainable development of the poor and reducing the inequality in developing countries. Due to the complexity of insurance it is recommended that the microinsurance provider initially seeks a partnership with either an existing established insurance company or industry experts whose technical skills, technology and experience can be used to benefit the poor. Formal insurance organisations do not service the poor due to the lack of returns and high risks involved. For this reason the co-operative structure is the most appropriate to overcome conflicting objectives of profit and self-interest with the need to provide protection to where it is needed the most. The study also demonstrates how co-operative principles are acceptable under Islamic law as opposed to conventional insurance schemes, over half of the least developed nations in the world have a majority Muslim population and are without access to insurance protection.

The International Co-operative and Mutual Insurance Federation (ICMIF) has a wide range of resources and services available to assist the establishment and growth of microinsurance providers in developing countries. It is recommended that the involvement of organisations such as ICMIF in supporting the provision of insurance
products to the poor increase the possibility of achieving sustainability and viability. On a broader scale the study concludes that there is a need for more concerted effort to facilitate an enabling environment through “microregulations” and “microreinsurance schemes”. These can only be achieved by the co-ordinated lobbying and collaboration of activities between all organisations working to serve the needs of the poor.
Whilst there is no single solution to poverty eradication, insurance can provide the individual with a secure environment and a firm foundation to improve his/her standard of living.