Paris Microfinance Network

MicroInsurance On The Rise

Microfinance Institutions (MFIs) provide credit and savings products that help low income households earn income or build savings that in turn can help reduce the risk of natural or medical catastrophes. However, many catastrophes can cause significant hardship and deplete any economic gains made thru Microfinance programs - furthering the poverty cycle.

Enter Microinsurance. Microinsurers are providing different forms of insurance for life, health, property, disability, agriculture, etc. Traditionally, poor households couldn't afford standard insurance programs - even if they actually had local access to this service. But with microinsurance products, they can pay a small premium for limited coverage in the event of losses and better manage their risk. There are many players offering microinsurance such as MFIs, NGOs, local community organisations, mutuals (all linked to regulated insurance companies) and increasing activity from large commercial providers. Swiss Re just announced an initiative to offer African farmers coverage against droughts ruining their crop harvests. The program aims to provide protection against adverse weather conditions for up to 400,000 people in Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Rwanda, Senegal, Tanzania and Uganda.

GIMI, the Global Information on MicroInsurance organisation recently published an interesting report outlining how microinsurance works entitled "The Landscape of Microinsurance in the World's 100 Poorest Countries." Some good news that emerges from the landscape survey is that microinsurance for the world's poor is growing fast, with most of its recent growth coming from the private sector. The microinsurers surveyed predicted at least 10% growth over the following year and 100% growth over five years. The report is also for download at the MicroInsurance Centre website - they provide an interesting synopsis of findings.

Co-Operative Bank Creates US$50m Microfinance Fund

The Co-operative Bank has recently announced a special US$50m (GBP25m) microfinance fund in order to support the development of small businesses in some of the world's poorest countries. The Bank has created an innovative line of credit in association with several major international banks that will be used to provide microfinance, or small loans, to the working poor around the world.

The Co-operative Bank will distribute these funds through the Global Commercial Microfinance Consortium (GCMC), of which they are a member. The Consortium, launched by Deutsche Bank, brings together institutional investors and development agencies in order to provide finance to poor people and is now looking to build on that commitment with other similar organisations. At its launch, the Consortium represented the largest public-private microfinance partnership. The Consortium lends to MFIs either directly or in partnership with commercial banks (such as Banco Solidaro), subject to a maximum loan size of US$3million. The fund has provided loans having committed to MFIs across the globe in places such as Russia, Kosovo, Peru, Nicaragua, Colombia, Pakistan, Mozambique, Mongolia and Azerbaijan.

This is one of several recent efforts in Co-Operative Bank's history of microfinance activities; in 2005, The Co-operative Bank committed US$5million (GBP2.6 million) to the US$80 million GCMC. In May 2007, the Bank committed US$5m (GBP2.6m) to the US$108m 'BOLD' fund launched by Morgan Stanley - a fund which comprises of 21 loans to MFIs in 13 countries with the largest country exposure being Bosnia.

Harvard Business Review MF Investment Article

Harvard Business Review posted an article highlighting the importance of stringent due diligence for donors and philanthropic organizations interested in making microfinance investments. For many folks rigorous due-diligence is an obvious point, any CSR or social investment activity should conduct serious analysis before making a final investment decision in any sector project. The more nascent the sector, the more demanding your process should be. One of the best ways to learn about a microfinance institution that you may be interested in supporting, is to look at or commission a rating report that the leading firms produce utilizing their lengthy due-diligence process conducted to develop the ratings. These rating reports are used by many folks in the sector, primarily the investment funds focused on offering debt and equity to MFIs. See our Ratings section for more info.

The social performance of microfinance institutions is becoming increasingly recognized as a major necessity of measurement by all practitioners in order to assess the achievement of the double bottom line. Many of the rating firms have added social impact analysis to their due diligence process often in conjunction with firms that have specialised in this area such as CERISE and the Ford Foundation. CGAP also offers an excellent resource center supported by it's Social Performance Task Force charged with defining social performance and addressing questions about measuring and managing social performance.

In the HBR article however, the most important point for us is that the authors stress the importance for investors to seriously consider investments that improve access to technology that lowers the cost of lending and borrowing - we believe this is how the microfinance sector can best achieve scale and sustainability.