A new synthesis paper “Local Training Providers for Microinsurance Capacity Building” published by the Microinsurance Network Capacity Building Working Group (CBWG) presents a number of case studies looking at what lessons Local Training Providers (LTPs) can learn in rolling out high-quality and sustainable microinsurance training.
Although microinsurance is increasingly recognised as a risk mitigation tool, coverage remains relatively low. One of the many reasons for this is the lack of appropriate knowledge and skills among microinsurance practitioners to accurately address the needs of a large number of low income people. LTPs are particularly well-positioned to facilitate the adoption of best practices because of their knowledge of the local context and ability to establish close relationships with local microinsurance practitioners. However, today there are only few LTPs around the world offering microinsurance capacity building services. Those that do may not always have the training content or necessary teaching expertise to provide the kind of training demanded or required by market participants.
To support LTPs in providing high-quality, sustainable microinsurance training, the CBWG of the Network and the ILO’s Impact Insurance Facility developed a concept paper on how microinsurance training material can be developed and maintained, how training can be effectively delivered, and analysed how LTPs can operate most sustainably.
The current synthesis paper complements this concept paper with a number of case studies from Central Asia (conducted by the Microfinance Centre), Africa (Cenfri), Latin America (Instituto National de Seguros), and consolidated experiences from several other LTPs. Together they reflect different institutional structures and provide an insightful overview of training activities in a diverse range of markets. In so doing, this study contributes to the market development approach outlined in the recent CGAP publication ‘Facilitating the Market for Capacity Building Services’ and helps answer the question: “What does it take to facilitate a sustainable, commercially viable market for capacity building services delivered to financial service providers”?
This report investigates the poverty outreach of 14 microfinance institutions (MFI) across six Latin American countries: Peru, Colombia, Bolivia, Ecuador, Guatemala, and Nicaragua. It uses information that these MFIs have collected in terms of poverty likelihood using the Progress Out of Poverty® Index (a.k.a. Simple Poverty Scorecard) supplemented by in-depth interviews with industry experts. The following is a summary of the report findings.
Those who reach the highest percentage of poorer clients are the ones that focus on clients in regions with higher percentages of poor people. At the time data was collected, only a couple of MFIs had quantitative poverty-outreach targets. MFIs do not generally embed poverty targets into their loan officer-incentive structure. When the MFIs have quantitative poverty-outreach targets, they are either part of their commercial strategy (e.g., MFI C in Bolivia, MFI G in Guatemala), or a requirement from external stakeholders (e.g., MFI A of Bolivia, MFI R in Ecuador–both with World Vision). Moreover, a number of MFIs mentioned that product design (e.g., loan size and compulsory monthly educational training) leads to self-selection by poorer clients. The switch of the industry from MFIs being typically NGOs to for-profit institutions seems to lead to more emphasis on measuring success in terms of profitability (rather than poverty outreach).
The report also surfaced two interlinked factors driving poverty outreach across some Latin American markets: competition and over-indebtedness. MFIs seem to be reaching more poor clients in regions with higher banking saturation, even though their mission statements are not about reaching the poor. Indeed, in regions where wealthier clients are already served by commercial banks, MFIs service poorer clients (e.g., urban areas). However, they service relatively wealthier clients in regions where they are unbanked (e.g., rural areas). This was often cited as a factor driving the higher percentage of poorer MFI clients in urban areas relative to rural areas.
Increased banking competition is also leading MFIs to shift their operations into more suburban and rural areas in search for the unbanked. Thus, impact investors and development institutions could look into ways to foster greater competition amongst banking institutions as a path to serving more of the less wealthy clients1 and the unbanked. Increased banking saturation is changing the landscape of microfinance, pushing MFIs who do not explicitly target the poor to provide loans to poorer individuals. In their in-depth interviews, industry experts and MFIs discussed the implications of high banking saturation on their outreach. The change has come about because MFIs generally cannot compete with the interest rates offered by commercial banks, in addition the MFIs’ social missions discourage aggressive lending. Thus, they are moving operations to suburban and rural areas in search of the unbanked. Most of the MFIs included in this study cited banking saturation as a factor when deciding which regions to enter. Some MFIs focus on regions with higher percentages of poorer households, and the report finds that these tend to have a higher percentage of poorer clients in their portfolio.
Lessons for the next wave of microinsurance distribution innovation
Achieving scale through cost-effective distribution is one of the biggest challenges facing insurers in low-premium environments. The emphasis is increasingly falling on innovative distribution models as alternatives to traditional microinsurance distribution approaches, which typically rely on microfinance institutions. During the last decade, insurance providers and their distribution partners have been experimenting internationally with developing and extending products to clients in new ways. This note takes stock of fourteen microinsurance business models in South Africa, Colombia, Brazil and India that use alternative distribution channels. It provides a summary of the cross-cutting issues and trends emerging across the different distribution models.
Treating clients with dignity and respect helps financial service providers adhere to both their social mission and financial goals.It is a “win-win”—the client is satisfied and the provider gains the client’s loyalty and continued business. This dual advantage can motivate providers to improve their policies and procedures governing staff-client relations,including collections practices, ethical standards, complaints mechanisms, and staff training.
The Smart Campaign’s Client Protection Principle on Fair and Respectful Treatment of Clients states: “Financial service providers and their agents will treat their clients fairly and respectfully. They will not discriminate.Providers will ensure adequate safeguards to detect and correct corruption as well as aggressive or abusive treatment by their staff and agents, particularly during the loan sales and debt collection processes.” This Smart Note highlights how FMM Popayán is working to put this principle into practice.