MR Microinsurance_2012_03_29.indd - International Labour ...

Insights from India’s microinsurance success
Box 20.7 Opportunity in the crisis?
A rivalry between competing MFI and state-supported SHG models in
Andhra Pradesh had been simmering for years. In 2010, the initial public
off ering of SKS, India’s largest MFI with a sizeable share of its portfolio in
Andhra Pradesh, along with media reports linking loan collection practices to
suicides, prompted Andhra Pradesh’s Chief Minister to pass “an ordinance to
protect the women self-help groups from exploitation by the microfi nance
institutions”. Th is ordinance sought to impose a range of new conditions on
MFIs, including district-by-district registration, requirements to make loan
repayments near local government premises, a shift from weekly to monthly
repayment schedules, and other measures to contain supposedly unethical
collections, high interest rates and profi teering. Th is ordinance has contributed
to a general environment where MFI ground-level operations are impeded and
loan repayments for MFIs in Andhra Pradesh dropped dramatically. MFIs
unable to eff ectively negotiate their fi nancing could become illiquid and
insolvent.
Following concerns about customer protection, the banking regulator,
Reserve Bank of India, imposed an interest-rate cap on MFIs’ loans. In this
environment, identifying alternate sources of revenues are critical for MFIs to
survive. As they explore other revenue-generating opportunities, the crisis may
become an opportunity for microinsurance. Th e big question is whether micro-
insurance can become part of the MFIs’ core business, and whether they can
evolve beyond mandatory loan-linked schemes to off er a range of customized
insurance and risk management solutions.
Source: Adapted from CGAP, 2010; Balkenhol, 2010.
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