MICROFINANCE PUBLICATION ROUND-UP: Government Efforts to Achieve Financial Inclusion in India; Index-based Insurance in South, Southeast Asia; Microinsurance Claims Management

“Report of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households;” published by the Reserve Bank of India (RBI); December 31, 2013; 247 pages; available at http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CFS070114RFL.pdf

This report was authored by the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, which was appointed by the Reserve Bank of India (RBI) in September 2013 to propose measures for increasing access to financial services in India. The final report details six “vision statements” to be implemented by January 1, 2016, to achieve various RBI targets for access to financial services for low-income households and small businesses: (1) bank accounts for all Indian residents above the age of 18 years; (2) ubiquitous access to payment services and deposit products at reasonable prices; (3) sufficient access to affordable formal credit; (4) universal access to a range of deposit and investment products at reasonable prices; (5) universal access to a range of risk management products at reasonable prices; and (6) the legal right to being offered only “suitable” financial services. To help achieve these goals, the committee outlined four “design principles” to serve as reference points for the development of frameworks and regulations by public- and private-sector stakeholders: (1) overall financial system stability; (2) transparency of financial institutions’ balance sheets; (3) equal regulatory treatment of all types of institutions in the financial system; and (4) responsibility of financial institutions for the “suitability” of the products they sell to their customers. The authors also identify a series of recommendations on how to achieve the vision statements, including creating widespread, easily accessible payment banks whose primary purpose is to provide payment and deposit services for small business and low-income households; establishing a State Finance Regulatory Commission to streamline the work of state-level financial regulators; holding firms liable for ensuring the “suitability” of financial products issued to customers; setting up the Financial Redress Agency (FRA), a consumer protection bureau focused on advancing business transparency and addressing the grievances of customers; and increasing the priority sector lending (PSL) mandate for regulated financial institutions to require 50 percent of their lending activity to target sectors in the economy such as agriculture, microfinance, etc.

“Towards De-risking Disasters: Taking stock of microinsurance for disaster risk reduction – Index based microinsurance in South and South East Asia;” by Sunil Bhat and Premasis Mukherjee; published by MicroSave; December 16, 2013; 134 pages; available at http://www.microsave.net/files/pdf/Microinsurance_Towards_De_Risking_Disasters_MicroSave.pdf

This discussion paper offers an overview of weather-based index insurance schemes in which the pay-out is tied to variation in a pre-defined weather-related variable as opposed to actual losses. The authors discuss the potential of these products in enhancing the risk management capacity of poor people in emerging economies who are particularly vulnerable to natural disasters such as drought, flooding, storms and earthquakes. According to the authors, traditional risk transfer mechanisms are not readily available in developing countries due to prohibitive transaction costs, high initial capital investment requirements and increased risk of adverse selection and moral hazard. By analyzing five case studies of weather-based index insurance schemes in India, Indonesia, Pakistan, Sri Lanka and the Philippines, the authors seek insight into the structure and success of these products. The authors highlight the advantages of these products over traditional insurance schemes, claiming that they offer simpler assessments, resulting in faster pay-out to claimants; increased objectivity and transparency; reduced administrative and monitoring costs; and reduced negative effects of moral hazard and adverse selection. In addition, the authors detail several factors they deem necessary for the success of weather-based index insurance schemes, including the selection of a workable index parameter; the establishment of effective partnerships with local and national governmental agencies; increased focus and investment in infrastructure for measuring weather; the promotion of the research and development capacities of insurance providers; capacity building of local stakeholders, including insurance companies, re-insurers and weather agencies; and targeted client education initiatives that clearly communicate the value of the products.

“The Moment of Truth: Claims Management in Microinsurance;” by Kelly Rendek, Jeanna Holtz and Camyla Fonseca; published by International Labour Organization (ILO); January 2014; 58 pages; available at http://www.microinsurancefacility.org/sites/default/files/mp28.pdf

This publication analyzes the business practices of 12 microinsurance providers in Bangladesh, Haiti, India, Kenya, Nigeria and South Africa that the authors deem to have implemented “unique” and “innovative” claims management processes. The goal of the study is to identify best practices to increase efficiency in the delivery of microinsurance products in emerging economies and to maximize value to the end customer. The authors examine four thematic areas in their research: (1) the nature and extent of community involvement in the claims process; (2) the time it takes to settle claims; (3) the degree of simplicity in product design, client requirements and internal procedures; and (4) the transparency of the claims process. As a result of the study, the authors offer eight “guiding principles” that they argue can help microinsurance providers improve their claims management services: (1) leveraging existing social capital and distribution channels to develop deeper relationships with clients; (2) simplifying the claims notification and submission systems; (3) documenting claims in a way that balances fraud prevention with making the process less onerous; (4) optimizing the turnaround time of claims to meet clients’ expectations; (5) maintaining effective internal work-flow processes; (6) being considerate of clients’ sensitivities throughout the claims process in what is typically a challenging time; (7) investing adequately in technology; (8) and properly balancing the needs of the business with those of clients.

By A’kos Szebeni, Research Associate

Sources and Additional Resources

Reserve Bank of India (RBI), “Committee on Comprehensive Financial Services for Small Businesses and Low Income Households,” http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CFS070114RFL.pdf

MicroSave, “Towards De-risking Disasters: Taking stock of microinsurance for disaster risk reduction – Index based microinsurance in South and South East Asia,” http://www.microsave.net/files/pdf/Microinsurance_Towards_De_Risking_Disasters_MicroSave.pdf

International Labour Organization (ILO), “The Moment of Truth: Claims Management in Microinsurance,” http://www.microinsurancefacility.org/sites/default/files/mp28.pdf

MicroCapital, March 8, 2014, “Reserve Bank of India (RBI) Considers Relaxing Capital Requirements for New Bank Licenses,”
https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-considers-relaxing-capital-requirements-for-new-bank-licenses/

MicroCapital, March 7, 2014, “Reserve Bank of India (RBI) Unfixes Microloan Interest Rate Cap to Vary Based on Cost of Funding,”
https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-unfixes-microloan-interest-rate-cap-to-vary-based-on-cost-of-funding/

MicroCapital, February 21, 2014, “Global Index Insurance Facility to Donate $4m to Syngenta Foundation for Sustainable Agriculture in Kenya, Rwanda and Tanzania,” https://www.microcapital.org/microcapital-brief-global-index-insurance-facility-to-donate-4m-to-syngenta-foundation-for-sustainable-agriculture-in-kenya-rwanda-and-tanzania/

MicroCapital, January 22, 2013, “MicroEnsure to Tap Data from Meteo Rwanda to Provide Weather Index Insurance for Farmers,” https://www.microcapital.org/microcapital-brief-microensure-to-tap-data-from-meteo-rwanda-to-provide-weather-index-insurance-for-farmers/

MicroCapital, January 15, 2013, ““Securing the Silent: Microinsurance in India: The Story So Far” by Premasis Mukherjee, Rosalind Piggot and Sunil Bhat; published by MicroSave,” https://www.microcapital.org/microfinance-paper-wrap-up-securing-the-silent-microinsurance-in-india-the-story-so-far-by-premasis-mukherjee-rosalind-piggot-and-sunil-bhat-published-by-microsave/

MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tikiindex.php?page=Reserve+Bank+of+India+%28RBI%29

MicroCapital Universe Profile: MicroSave, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=MicroSave

MicroCapital Universe Profile: International Labour Organization (ILO), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Labour+Organization+%28ILO%29

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