Microcredit, microfinance, micro-insurance… There is a microfinance revolution occurring around the world, and it is changing the perceptions of what can be done for those living in poverty.
Empowerment is an important focus of aid and development work. A family that, instead of being given rice and feed for a season, is educated and provided with tools to grow rice and feed themselves, can become self-sustaining. However, providing this kind of empowerment assistance can be difficult. How can organizations provide loans or credit to people who do not have bank accounts? How can they insure farmers when the value of their crops does not reach the minimum premiums? How can they make health insurance available to families living in poverty?
There is a market available for all of these services, but it is taking a revolutionary approach to provide it. Insurance has typically been the domain of the middle and upper classes. Insurance providers have always targeted those with significant investments to protect, as that is where the money lies. But for small-scale farmers, with fewer assets, the dependence on the success of their investments is greater than that of the wealthy. It is these people at the bottom of the economic scale who need insurance the most, as they are the ones without a safety net.
Recognizing this, the international foundation Syngenta has begun offering an insurance program for small farmers. The project originated in Kenya, and offers insurance for farms as small as half an acre, charging them a rate of $5.25 a season. The project is run remotely, with local supply stores acting as purchasing points for insurance and weather stations used to calculate damages due to climate effects, resulting in minimal overhead costs. Operating in Kenya and Rwanda, the scheme has already sold more than 64,000 insurance policies, largely to farmers who have never before had the option of buying insurance.
Similar programs are being developed around the world, with some focusing on micro-credit while others provide insurance at a fraction of the cost of traditional insurers. Furthermore, as the field develops, larger insurance companies are also embracing the model. In 2005, micro-insurance was offered by only 15% of the largest insurance companies. Today, two thirds of those companies are offering with micro-insurance. Some estimates place the potential market of micro-insurance to be between 2 and 3 billion potential policies.
Small-scale farmers with insurance are better able to provide for their families, even in the event of crop failure. This minimizes the potential for famine and also decreases the need for foreign assistance to provide for people in the event of crop failure.
– David M Wilson
Sources: The New York Times, Syngenta