1. Microfinance Strategy
An increasing number of countries are developing national microfinance strategies, bringing the topic to the forefront of national development priorities. Over 30 countries, most in Africa, now have such strategies. This trend appears to be fueled by microfinance’s heightened and new development modalities that favor sector-wide approaches and policy work.
After reviewing 29 national microfinance strategy/policy documents, CGAP identified common elements, early benefits, and challenges. While the jury is still out on whether national microfinance strategies contribute to expanding poor people’s access to finance, this Brief offers suggestions on how donors can avoid some pitfalls when developing these strategies.
What Are National Microfinance Strategies? Who Is Driving Them?
Typically, national microfinance strategies are publicly approved documents, developed through a consultative process, aimed at increasing poor people’s access to finance. These strategy documents usually include an overview of microfinance, a vision for the sector, strategic objectives, and an action plan for implementation.
Developing a national microfinance strategy usually involves four stages:
(i) conducting a diagnostic/gap analysis of the microfinance sector;
(ii) consulting with stakeholders (more or less extensively);
(iii) drafting a document, usually by a consultant in cooperation with government; and (iv) adopting and implementing the strategy, including approval by a governmental body and, in some cases, defining action steps to put the strategy into practice.
2. Micro-insurance: What Can Donors Do?
Poor people in developing countries enjoy few safeguards against the numerous perils of life—illness or injury, natural disasters, and loss of property. Micro-insurance is growing in popularity among donors as one means of helping the poor manage risks and reduce their vulnerability.[1] This Brief addresses how donors can effectively support micro-insurance.
Governments in developing countries are often unable to provide adequate social protection for their poorer citizens. At the same time, formal insurers in many markets do not see low-income people as viable clients. (However, there has been recent progress with some simple products, such as life insurance.)
How Can Donors Effectively Support Micro-insurance?
In most countries, reaching scale and providing real value to clients will likely require donor involvement in the medium term. Donors will need appropriate expertise and resources to engage effectively in micro-insurance because it is relatively new, complex, and risky.
Donors have diverse reasons for wanting to support micro-insurance. Even within the same agency, different units may have varying views on how subsidies can be
used best, how much clients should pay for insurance services, and what roles the government and the private sector should play. Strategic clarity on the reasons for engaging in micro-insurance affects how a donor’s objectives are set, how expertise is recruited, and what type of monitoring is implemented.
[1] The term “donors” here refers to bilateral and multilateral agencies, regional development banks, foundations, socially responsible investors, and other organizations that fund microinsurance or design and manage microinsurance programs.
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Determining when and how to deploy the appropriate instrument—from technical assistance to grants, loans, equity, guarantees, and policy support—requires good knowledge of market conditions. In many instances, relatively small amounts of funding provided over longer periods are needed. In markets where commercial insurers show interest, donors should focus on brokering relationships with organizations close to target clients. Donors can also support public goods like research and consumer education. However, in the numerous markets where formal insurers are not yet willing to step in, donor funding can help build the institutional capacity to provide insurance services. The Bill and Melinda Gates Foundation recently awarded a grant to ILO to create the Microinsurance Innovation Facility, which will provide competitive innovation grants to stimulate ideas and involve new players in providing insurance services.
There is still no consensus on what constitutes good performance for microinsurance programming. In part, this is simply because microinsurance is a relatively new area. To improve accountability for results, donors should agree up front on desired outcomes and performance. The CGAP Working Group on Microinsurance’s subgroup on performance indicators is leading efforts to define industry wide reporting ratios and, ultimately, to establish benchmarks.[2] This work is essential to improve performance reporting and will help shape donors’ performance agreements with partners.
CGAP
[2] For a complete list of indicators, see CGAP Working Group on Microinsurance (2006a).
Emily Du @ MIIS 