Poverty (% under $1 a day at 1985 purchasing parity price)
1990 2015
No change in conditions 2015
Pro-poor higher growth rate
A B
Sub-Saharan Africa 44 42 36 25
Middle East & North Africa 3 2 1.6 1
East Africa and Pacific 31 12 12 9
South Asia 47 30 24 16
Latin America & Caribbean 28 19 17 12
Eastern Europe & Central Asia 9 5 4 3
Developing countries 36 22 18 13
A - No change in main conditions of growth and economic growth rates remain the same as between 1965 and 1997.
B – No change in main conditions but assumes forecast (usually higher) growth rates.
(Bolded figures reflect where poverty target is achieved)
Source: Hanmer et al (2000).
Whilst growth of average household incomes of the poor is necessary to achieve sustained long-term poverty reductions, growth in overall per capita income is of no benefit if there is increasing inequality (McKay 1997). Gender inequality, in particular, is one of the largest constraints on growth and poverty reduction, an increase in number of girls in school and female literacy will reduce poverty, reduce fertility and improve child survival (Hanmer et al 2000).
Evaluating the impact on poverty of any program is difficult to measure, as poverty itself is not precise. Attention in the past has focused on income, expenditure, consumption and assets. More recently, focus has been on social indicators such as educational status, nutritional levels, access to health services and empowerment of the individual, measuring empowerment requires a greater level of skill and complexity of calculations (Hulme 1999). Insurance can assist in achieving greater equality and empowerment of the poor by protecting them against unforeseen losses and giving them the courage to improve their productivity and livelihood through access to education, health and labour. For many years MFIs focusing on providing loans and savings were ignored, there was a perception that the poor could not and would not save. The popularity of these schemes have shown that the poor do have a propensity to save and to repay loans, with numerous successful and sustainable credit and savings program in place around the world. However, the number of people in poverty and the rate of inequality is still rising. Savings and loans are not sufficient on their own to prevent people from falling back into the viscous circle of poverty in times of crisis or severe loss. Providing insurance can ensure that the foundations on which poverty alleviation is built is strong enough to keep the individual out of poverty. Products such as loan protection, life savings and health insurance should be introduced at an early stage into the services of a microfinance program instead of a ‘nice to have’ much further down the line. The role of insurance needs to be given equal importance to that of loans and savings, indeed the success of loan and savings schemes depends on the availability of complimentary insurance products.
Improved access to financial services does not necessarily mean that the material and social welfare of the poor will be improved. Provision of insurance does not provide cures for diseases, food, clean water, shelter, schools, law and order or even the basic rights of human beings, the poor are continuously ‘kept in place’ by corrupt regimes and greedy multinationals. So the question is how can insurance empower people when their day to day necessities are restricted? Insurance enables the poor to dedicate more time and resources to obtaining these necessary services, it gives them confidence to confront risks and gives them peace of mind in an uncertain environment, benefits which cannot be measured. Insurance protects the disposable income of the poor, it enables them to invest in their business, their children’s education, accommodation, and access adequate sanitation and clothing, providing a better chance to pursue and achieve a better standard of living. Protection against the costs of health services enables the poor to participate more and derive benefits from new economic activity, and access new technologies. In developing countries money talks, if you have the funds you are able to find the means, improved welfare of the poor will enable greater rights and a voice that will demand to be heard. Schemes such as the SEWA Insurance scheme in India is a prime example of how insurance can also support gender equality and empower the woman to achieve a better standard of livelihood. Insurance with other microfinance products enables the poor to come together to defeat the common foe of poverty and overcome the challenges that continuously try and keep them down.
The poorest of the poor are excluded from accessing microfinance programmes due to their lack of income. Microinsurance is only appropriate for those that have an income and therefore is limited to what it can do for the poorest. This does not mean that the needs of the poorest should be ignored and they should only be provided with short-term measures such as food rations, water and shelter. The quest is to make people self-sufficient, to give them the confidence and the means to achieve a better standard of living. The poor themselves are the most determined to escape from their situation, they are very proud people and have the greatest concern for their families welfare, particularly women, but are prevented by factors which are outside of their control. Aid in the form of food, water and sanitation should be provided to the very poor, but there should be an investigation into the effects on long-term livelihood and moral if they were provided access to selected insurance products whose premiums were paid for (or subsidised) in the initial years. Subsidised savings and loans while useful can and are used for other means, whilst insurance is designed to protect against a certain loss or event occurring and therefore is less open to misuse.
Providing insurance products successfully can also become an important income stream for the microfinance institute and protect its loan portfolio. The Grameen bank is reported to be experiencing high delinquency rates on its loan portfolio due to the effects of floods in Bangladesh in 1998, inadequate provisioning, and competition from other lending institutes (Pearl and Phillips 2001). Whilst cover against the frequent flooding in Bangladesh may not be available, the low take up of Grameen’s microinsurance scheme (around 30,000 policyholders) means that the majority of Grameen lenders are vulnerable to other more frequent perils. This has the effect of weakening even further their ability to survive a catastrophic event such as flooding. A successful microfinance institute will benefit the local community in the form of more efficient and effective services, and also additional income if the institute is a co-operative. The benefits of protection and better financial services to a micro-enterprise can increase potential household income, leading to greater household security, better morbidity and mortality of household members and eventually improved education, and social and economic opportunities.
Insurance is not the be all or end all of poverty alleviation, it is not the ‘magic’ solution to problems of the poor but if appropriately provided it can play an important role in ensuring sustainable development and poverty alleviation. The full benefits of insurance cannot be realised in the unique environment of a developing country. There does need to be more resources put towards: improving access to capital, pro-poor social expenditure, employment opportunities, illnesses prevention, population control, regulatory systems, institutional reform, infrastructure, political stability, democracy, social equality and a stable economy. But hand in hand with these developments the role of insurance is of equal importance for long term sustainable success in poverty alleviation and reducing overall inequality.
5.2. – Delivering insurance to the poor
An insurance scheme for the poor which is affordable, adequate and sustainable is difficult to achieve due to lack of financial capital, technical resources, adequate numbers, trusts, regulatory requirements, transparency and accountability. The road to achieving a comprehensive insurance scheme is full of pitfalls and must be undertaken cautiously and carefully with good corporate governance at the heart of each step. The appropriate form for servicing the poor and one that has been used for centuries is that of a co-operative. A good co-operative will serve the needs of members, providing flexible, affordable and appropriate products. As the scheme belongs to the poor it will minimise fraud and moral hazard, and encourage participation. Partnerships with technical advisors, international donors or organisations such as ICMIF are imperative to ensure that the organisation grows into a self-sufficient, licensed insurance co-operative (or at least is able to provide a comprehensive range of products on a sustainable basis). The co-operative identity will ensure that the needs of the poor are not ignored as has been the case with so many other large non-co-operative insurance companies in developing countries. Implementation of co-operative schemes can also provide security to large populations of Muslims in poor countries.
The environment of each country, each region and each village is different and its insurance requirements are also unique, therefore to put forward a standardised approach to establishing a micro-insurance scheme would be impractical. However the following process summarises the main thoughts of this paper to achieving a sustainable and viable insurance scheme:
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