Rationale

Small enterprises and smallholder farmers are particularly vulnerable to risks, including climate change and the COVID pandemic, as well as exposure to theft, fire and other threats. Financial institutions serving this market segment have historically focused on financing the operations and growth of these businesses. Now is the time, however, to rebalance the focus so that they give equal attention to the protective role of financial services.

The transition from productive to protective financial services is particularly relevant for financial service providers (FSPs) that mobilize savings as they can offer a bundle of services, including savings, emergency loans, and insurance. The distribution of inclusive insurance products by FSPs makes is possible because they are well embedded within communities and have established trustful relationships with their clients. Plus, introducing insurance into their product portfolio mix also reduces the FSP’s exposure to risks: insured clients are less vulnerable and therefore more likely to repay their loans even in the case of an adverse event.

The challenges, however, are numerous. Many FSPs are reluctant to offer emergency loans to clients who already have an enterprise loan for fear of throwing good money after bad. Offering insurance to their clients requires new skills, such as understanding the clients’ risks, negotiating and managing partnerships with insurers, and putting in place new commercial strategies. Besides, FSPs are often underinsured, not having sufficient protection for their own assets and staff.

Background

In 2017, the ILO and Grameen Crédit Agricole Foundation conducted a survey with Foundation’s partners regarding their involvement in inclusive insurance. Out of the 36 FSPs that answered to this survey, 69% were already offering some kind of insurance. However, at that time, most of them provided only basic and compulsory products, like credit-life insurance, which offer limited benefits for the clients. Still, 75% of the respondents were interested to introduce inclusive insurance or expand their current offering. For this to happen, however, FSPs pointed out some of their needs, such as access to funding, technical assistance and training.

Purpose

This projects aims to address FSPs’ needs by strengthening their capacity to offer more effective risk management services. The overall objective of the project is to fulfil the FSPs’ potential to offer insurance and other risk-managing financial services to their product menu. This will ultimately allow their clients, such as low-income households, women, smallholder farmers and micro, small and medium enterprises, to better protect themselves. By protecting their clients, the FSPs also protect their loan portfolios and generate a new revenue stream, which provides additional protection for their investors, like the Foundation.

Activities

The specific activities of the project include:

• Identifying and selecting relevant FSPs to receive technical assistance
• Strengthening skills of staff of the partner FSPs to offer risk-managing financial services
• Launching new insurance products or improving existing ones by partner FSPs
• Sharing knowledge acquired during the project within the microfinance practitioners’ community