MICROCAPITAL STORY: Opportunity International's MicroEnsure of the United Kingdom to Launch Microinsurance Program for Climate Change and Crop Failure in India

MicroEnsure, an insurance intermediary established in 2005, stated that it plans to launch a microinsurance scheme next year for up to 600,000 farmers in India’s Kolhapur province. MicroEnsure is also a subsidiary of Opportunity International, a global non-profit microfinance network, which was formed in 1974, has assets totaling USD 736 million as of 2007 and lends to over 1 million people globally. The plan will insure farmers against their rice crops failing due to drought or heavy rains. Furthermore, the plan is to help farmers access larger loans to pay for seeds and equipment. According to the World Bank, India’s rural population account for about 72 percent of the India’s 1.1 billion people, and most of the rural poor rely on rain-fed agriculture.

In the World Bank “Microinsurance Business Models” report, “microinsurance” is defined as the protection of the poor against specific risks in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved. Microinsurance is managed according to insurance principles and funded by premiums. The basic premise of insurance is that lower premiums are offered when risks are lowered. Banks were unwilling to lend to farmers because of the risk that farmers would not have the ability to pay if there were a drought or crop failure. Please read this previous MicroCapital story for further discussion on microinsurance.

MicroEnsure first introduced its weather indexed crop insurance in 2005 in Malawi, in partnership with the World Bank, to help groundnut farmers access microloans. Under this plan, the farmers would receive a payout if insufficient rainfall or too much rain occurred. Because they bought insurance, these farmers now received loans and used these loans to purchase certified groundnut seed. So, if there were a drought that triggered a payout from the insurance contract, then that money will be paid directly to the bank in order to payoff the farmer’s loan. They received their loans from Opportunity International Bank of Malawi (OIBM) and Malawi Rural Finance Corporation (MRFC), established in 2002 and 1993 respectively. Today, the program covers tobacco and maize farmers with more than 2,500 smallholder farmers participating.

According to the Chief Executive Richard Leftley, MicroEnsure ran a pilot scheme in Kolhapur in May 2009 for 5,000 farmers and sold out in two days. The key partners in the project included National Bank for Agriculture and Rural Development (NABARD), the state national bank for agricultural and rural development, which has a mandate to promote sustainable and equitable agriculture and rural prosperity through effective credit support. Paris Re, a global insurance provider, is the international reinsurance partner, and ICICI Lombard is the India insurance partner.

As stated by Mr. Leftley, the microinsurance policies will be offered to farmers with loans from the local Kolhapur District Cooperative Bank. The bank has about Rs.154,300,000 (estimated USD 3.2 million) in capital for its 182 branches in its district, serving its 143 society members and 719 individual members. The company will pay out to farmers when crops are likely to have been damaged by rain or drought. The hope is that this would make it possible for smallholders to support their families and continue loan repayments even when crops fail. The plan will be promoted by using a comic book to explain visually how insurance works to farmers who have previously had no access to insurance cover.

The plan is receiving funding from the Bill and Melinda Gates Foundation, an international philanthropic organization. MicroEnsure received a USD 24.2 million grant from the Foundation in 2008. As stated by the foundation, the purpose for the grant was to help MicroEnsure expand its insurance products to the poor in Africa, Asia and Latin America and will enable MicroEnsure to enter 11 new countries and provide life, health and crop insurance to 21 million poor people by 2012. The funding is part of the foundation’s Financial Services for the Poor initiative, which is working with partners to develop and employ ways to bring financial services, including microinsurance, to people living in poverty in developing countries. Moreover, as reported by The Guardian, the MicroEnsure plan will also receive funding by the Indian government, which will effectively halve the price of premiums to about 2.5 percent of the value of the loan.

MicroEnsure, based in the United Kingdom, was known as Micro Insurance Agency until 2008. In 2005, Micro Insurance Agency was formed as a wholly-owned subsidiary of Opportunity International, a global non-profit microfinance network created in 1974. It began as an entrepreneurial microfinance initiative in Asia and Latin America, and expanded its lending capabilities by forming its own formal financial institutions. Opportunity International states in its 2007 annual report that it has 815,705 microinsurance policyholders and 305,586 savings accounts. MicroEnsure provides microinsurance products to over 3 million people as of the end of 2006. Today, it offers life, health, and crop insurance in Ghana, Colombia, Malawi, Mexico, Mozambique, the Philippines, Uganda, West Timor, Zambia and Zimbabwe. Recently, MicroCapital reported that MicroEnsure won the Financial Times award for Achievement in Basic Needs Financing.

Malawi-based MFI and founded in 2002, Opportunity International Bank of Malawi, has total assets of USD 40 million as of December 2008 according to the MIX Market, the microfinance information clearinghouse. It has a gross portfolio of about USD 24 million, 0.28 percent return on assets, and 1.19 percent return on equity. It has nearly 25,000 borrowers and 195,000 savers.

Malawi Rural Finance Corporation, also Malawi-based and established in 1993, has total assets of nearly USD 15 million as of June 2006 according to the MIX Market. MRFC has not reported to the MIX Market since 2007. It has a gross portfolio of about USD 9 million. It has not reported its return on assets or equity since 2004. MRFC has nearly 160,000 borrowers and 45,000 savers.