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01.17.2011

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MicroWorld

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Savings and micro-insurance are complementary to microcredit

Savings and insurance services are useful complements to microcredit. As they answer different needs, they are to be included in a long term development strategy. Microcredit seeks to foster business creation and growth and to create a favorable environment for professional development. Insurance, on the other hand, protects micro-borrowers from risks, and savings enable them to build up a financial safety net

Savings and insurance services are useful complements to microcredit. As they answer different needs, they are to be included in a long term development strategy. Microcredit seeks to foster business creation and growth and to create a favorable environment for professional development. Insurance, on the other hand, protects micro-borrowers from risks, and savings enable them to build up a financial safety net.

Savings plans offered by MFIs (microfinance institutions), are adapted to poor clients as they authorise very small deposits, sometimes of less than a euro. Some MFIs set up compulsory savings schemes for their borrowers. In that way, borrowers accumulate a reserve which will enable them to pay for other expenses without taking out a credit again. This is particularly true for expenses related to family such as marriages and funerals. It is also an opportunity for MFIs to develop their own financial resources and hence, their autonomy from banks and other funding organisations.

The development of savings schemes by MFIs is also driven by the fact that their clientele is mainly women. Field studies (1) identify that because they are in charge of the family economy, women are in need of savings services in order to build up reserves, rather than relying on debt. In other words, savings would enable them to foresee family budgets and expenses, such as the cost of sending their children to school, for example.

Micro-insurance is more difficult to set up. It comes up against regulations forbidding MFIs to offer insurance services. Therefore, MFIs are bound to develop partnerships with existing insurance companies but until now, most of them have not deemed necessary to create insurance products adapted to the poorer clientele. As a result, most of insurances services offered by MFIs are life insurances.

Is it going to change? A recent study by Swiss Re, the world's second-biggest reinsurer, states that the 2.6 billion people earning between $1.25 and $4 a day constitute a solvent market and represent an opportunity for insurers. The most urgent need is for professional insurances, especially agricultural and health insurances. As micro-insurance specialist, Marc Sabeh, emphasizes, the development of such services will only be possible through partnerships with MFIs providing field experience and customer knowledge.

Be it savings that are financing a marriage or studies, or micro-insurance protecting against climate risks, these services improve the impact of microcredit as they participate in the development of long-term financial and social inclusion.

(1) Women, Microfinance and savings: lessons and proposals”. R. Vonderlack et M.Schreiner, 2001

Traduction Alexandre Queneau

This article is part of the special report: