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CARD in the Philippines started as a rural development NGO that gradually took up microfinance and micro-insurance. Initially these services were offered from within the NGO. As the deal flow increased, and the NGO developed a high risk exposure, both lines of activities were transferred to two new organisations, equipped and governed to provide high quality services to low-income groups: CARD Bank and CARD MBA, Mutual Benefit Association. CARD MBA now services well-over half a million people.10

the outreach potential and in-depth

A possible disadvantage could be that ex-

knowledge of the local setting as main

isting insurance products are too mechan-

arguments. And some MFIs have made

ically down-streamed to the poor, without

remarkable inroads in the field of direct

proper specialised product development


based on their needs and capacities. The firm may be inclined to sell more of what

Agent role for MFIs

is already in place, rather than develop

A second model is the agent role of the

new products which may drive up costs. In

MFI. This looks like a win-win situation

such a set-up it would be the task of the

up front as it combines the distribution

MFI to take care that insurance becomes

potential of the MFI with the institutional

genuine microinsurance. If it fails to do so,

capacity of an established insurance firm.

it runs the risk of losing credibility.

The MFI essentially acts as an agent for Delta Life Insurance Company of Bangladesh was created by a prominent microfinance institution and a reputed NGO, Grameen Bank and GK Trust, after they had piloted insurance by themselves. The merger in 2003 into Delta Life was inspired by reasons of efficiency and scale, which is reflected in the company’s objective to reserve 90% of profits for the clients. Yet, with 2 million clients margins remain small. The first year of entry 55% of a client’s premium payment goes to overhead, only leaving 45% for benefits. Upon renewal of the policies, however, only 23% is needed for overhead, mostly because agent fees drop considerably.11

the firm and is a go-between for both

Direct service delivery by insurance

clients and the firm.

companies An insurance firm can decide to move

A first main advantage of this approach is

into microinsurance without using MFIs

that the MFI itself will not place any risk on

as agents and keep both product devel-

its loan portfolio: it is just the agent, not the

opment and distribution under its own

actual service provider, similar to many MFIs

wings. This may reduce processing time

working these days as agents for money

and allow for strong controls throughout

transfer companies. A second advantage

the system. But there are two potential

is the leverage potential on the part of the

disadvantages to overcome. First is the

insurance firm. It can take higher risks as it

lack of a well-informed sparring partner

may be able to reinsure part of its expo-

presumably better informed about

sure, something the MFI would not easily

client needs and habits than the

be able to do by itself. This may enhance

firm itself. This may negatively affect

growth opportunities considerably.

product design.

Source: Michael J. McCord and Grzegorz Buczkowski, Case study on CARD for CGAP, December 2004. Source: slide show presentation by Aziz Ahmed, Director R&D, Delta Life Insurance Company, KfW Micoinsurance Symposium, Frankfurt, October 2004. 10 11


Micro-insurance.indd 28-29

Indian Self-Help Group systems. A unique feature of Indian microfinance is the SHG approach. A group of approximately 30 women take a collective loan from a MFI or a bank and handles the proportioning of the loan over the group members and the individual repayments by itself. At the start of the 21st century SHGs also became involved in taking insurance products. Two mainstream lines of service delivery have been developed in the meantime. Either the MFI or supporting NGO helps the groups dealing with existing insurance companies, the agent model, practiced by ASA, Shepherd and DHAN Foundation for instance, or it provides the insurance directly to the groups, as Spandana does. As this microinsurance approach is a recent one, all parties in the process, clients, MFIs and NGOs as well as insurance companies, appear to go through a process of testing and learning, gradually arriving at the optimal product design and effective yet simple marketing and claim handling procedures. In the meantime it has become obvious that the system has great outreach potential. Most schemes have written tens of thousands of policies already in just a few years. One passed the 100,000 client mark already, DHAN Foundation, another is about to, Spandana.12

Source: Microinsurance No 3, April 2004; information provided by DHAN Foundation; and Insurance Plus, November 2004, a Mumbai based magazine, carrying a story on the plans of the Insurance Regulatory and Development Authority (IRDA) of India to extend supervision to the microinsurance sector. 12


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